45 Retailers on Latest Forbes' List

Sheetz featured in closeup on one of the 394 largest private companies

ALTOONA, Pa. -- Convenience and grocery store companies filled a healthy 45 of the 394 slots on Forbes' latest America's Largest Private Companies list released this monthFlying J, QuikTrip and Sinclair Oil, key among them.

And as the magazine highlights some of those companies on its Web site, Sheetz, which clocked in at No. 79, was featured this week, along with a summation of the lessons learned by the company's recent effort to get past its connection to a salmonella outbreak two years ago.

Here is the complete Sheetz feature:[image-nocss]

Stanton Sheetz shuddered a few weeks ago when he heard news reports of how contaminated spinach had made 200 people sick, causing a nationwide food panic that would have utterly depressed Popeye.

Stanton, 51, is chief executive of the privately held chain of 330 convenience stores his father founded in 1952. The spinach news rattled him because his Sheetz stores were still recovering from a food crisis of their own two years ago. This one involved salmonella in the sliced Roma tomatoes that grace Sheetz's trademark made-to-order sandwiches--giant, fat-laden, juicy creations that won legions of adoring fans. Seven hundred people in four states said they got sick, and Sheetz's food sales--which typically provide two-thirds of gross profit, while gasoline provides the rest--instantly dropped 20%.

"I was thinking, Wake me up, this is a bad dream!" he said. Tort lawyers lined up 139 plaintiffs and waged a legal onslaught that only now is abating, racking up several million dollars in settlements. Now some of the same lawyers are lining up clients to sue over tainted spinach. Stanton said, "I never had a flashback in my life until I heard about it and got a sinking feeling in my stomach."

Stanton learned all too well what--and how long--it takes to win back wary diners after a food scandal. His effort began with a soul-baring press conference, included $200,000 in local print ads apologizing to customers in the chain's five mid-Atlantic states and Ohio, and led to major changes in his company's processes, inspections and supplier relations.

All of that was in pursuit of a return to focusing on what Sheetz knows best: surprisingly fresh and tasty food at a gas-station-cum-convenience store--a type of outlet often known for stale and distinctly unappetizing fare.

"Sheetz food is so much better than any fast-food chain. There are so many menu items, it's hard to pick favorites," said Levi Bloom, a 21-year-old Babson College student who has erected a MySpace page in online homage to the chain. When he staged a contest for readers to submit their favorite made-to-order Sheetz sandwich, he got 85 responses; the winner told of driving hundreds of miles to get a Sheetz Shmuffin, an unabashed knockoff of the McDonald's Egg McMuffin. Some 6,320 other Sheetz aficionados have linked to Bloom's page.

Stanton's father, G. Robert (Bob) Sheetz, founded the company in Altoona, Pa., after working for years in his parents' dairy and deli. Bob liked the fat profit margins in chow (now at 60% for prepared foods). Borrowing inspiration from 7-Eleven, he began setting up one-stop shops for both food and gasoline, targeting nearby rural areas.

Bob Sheetz bought his first store from his father; he had worked there as a short-order cook. As the chain grew through the 1970s and '80s, he tinkered with a cafe look, then simplified it to a smattering of hot dogs and other prepared foods. He retired to Boca Raton, Fla., in 1984 and handed control to his brother, Stephen, who took the company into fast-food franchises H aagen-Dazs ice cream shops and Mister Donut outlets.

By the mid-1980s, Sheetz had grown to 150 stores and 11 franchise restaurants--too diverse, really. "I just didn't have leadership skills. We lost customer focus," Stephen Sheetz said. By 1995, he took on a less-active role as chairman and handed the chief executive job to Stanton Sheetz.

Stanton immediately slowed expansion, and with all franchises by the wayside, he began offering instead a menu of prepared food dubbed MTO (made to order). Now all Sheetz stores were modeled around a food station for making customized sandwiches and salads.

To help control quality, fatten margins and warehouse private-label items like Sheetz Coffeez, milkshakes and bottled water, the company built a $30 million Altoona distribution center in 2001. The Sheetz clan tends to be "kind of control freaks," Stanton said.

In July 2004, came one of his biggest challenges--the tomato contamination. Although the salmonella was linked through farms and a now bankrupt vendor, Coronet Foods (the two companies' insurers continue to fight over which side should take the bigger financial hit), Sheetz stores suffered instantly. Stanton went looking for help--and turned to fast-food chain Jack in the Box.

"They called and said they might be implicated," said David Theno, a senior vice president at Jack in the Box and a food-safety czar who was recruited during that chain's E. coli outbreak in 1993. "I told them how to find the problem out for themselves." Stanton said federal investigators traced the contamination to a Florida tomato farm, which is no longer a supplier.

After Theno coached Stanton on how to field inquiries from microbiologists, the Centers for Disease Control and the Department of Public Health, Stanton inserted a new clause into every vendor contract, establishing the right of inspection at any time. He had every store and delivery truck sanitized, and he set up a department to make unannounced health inspections of stores, vowing to temporarily shut down any slackers for cleanup. Stores now get a surprise visit from the Sheetz "germ team," as Stanton calls it, six times annually.

Sheetz has not had to perform any shutdowns in the past year. Newcomers to Stanton's 11,000-employee chain spend six of their 80 hours of on-the-job training learning about food safety and cleanliness.

Now Sheetz's fans are returning for made-to-order food. Revenues for fiscal 2006, ended Sept. 30, were up 22% over last year to $3.3 billion, excluding gasoline excise taxes collected by the company. Customers like the food--and also the speedy convenience. Sheetz was the world's first retailer to install self-ordering food kiosks at gas pumps and in stores--for customer convenience and to draw traffic inside stores.

Say you crave Stanton's favorite, a pepperoni sub with mayo and double cheese. While your car's tank is filling up, just press the picture of the sub on screen, then move through the self-guided menu for condiments. The order goes to the food preparer, and you pick up your food inside when you pay. Stanton claims one-third of customers who purchase fuel also make another store purchase. To expand on that idea, he is testing a drive-through kiosk.

At two pilot shops in Altoona and Raleigh, N.C., each one spanning 10,000 square feet, Sheetz offers hand-carved turkey sandwiches and pizza prepared in a windowed "food theater," complete with employees in white chef coats. Stanton Sheetz said being able to see the food prepared increases consumers' willingness to buy it.

The Sheetz scion admits he is still tweaking the concept, but the pilot shops hark back to his father's first store. With a rebounding business and spirit, he is ready to grow again. "Before salmonella, we thought we were good," he said. "But you really never know until you get hit in the face. We're better for it."

[To read more about SheetzCSP's 2006 Retail Leader of the Yearand its growth from a single store to more than 300, look to the November issue of CSP.]

Here are the food retail and oil companies that earned a spot on the Forbes' latest America's Largest Private Companies list and their 2005 revenue:

4) Publix Super Markets, Lakeland, Fla.$20.75 billion

7) C&S Wholesale Grocers, Keene, N.H.$19.94 billion

10) Meijer, Grand Rapids, Mich.$13.2 billion

11) HE Butt Grocery, San Antonio$12.4 billion

17) Flying J, Ogden, Utah$9.45 billion

28) QuikTrip, Tulsa, Okla.$7.16 billion

32) Giant Eagle, Pittsburgh$6.06 billion

38) Sinclair Oil, Salt Lake City$5.6 billion

39) Gulf Oil, Chelsea, Mass.$5.4 billion

40) Hy-Vee, West Des Moines, Iowa$5.14 billion

42) RaceTrac Petroleum, Atlanta$4.97 billion

47) Colonial Group, Savannah, Ga.$4.5 billion

60) TravelCenters of America, Westlake, Ohio$4 billion

63) Wawa, Wawa, Pa.$3.91 billion

64) Love's Travel Stops, Oklahoma City$3.81 billion

66) Wegman's Food Markets, Rochester, N.Y.$3.80 billion

68) Roundy's Supermarkets, Milwaukee$3.70 billion

69) Bi-Lo Holdings, Maudlin, S.C.$3.60 billion

76) Stater Bros Markets, Colton, Calif.$3.40 billion

78) Raley's, West Sacramento, Calif.$3.37 billion

79) Sheetz, Altoona, Pa.$3.32 billion

80) Cumberland Farms, Canton, Mass.$3.3 billion

81) Red Apple Group, New York$3.3 billion

96) Golub, N.Y.$3 billion

105) WinCo Foods, Boise, Idaho$2.85 billion

125) Bashas', Chandler, Ariz.$2.5 billion

126) Save Mart Supermarkets, Modesto, Calif.$2.5 billion

140) Houchens Industries, Bowling Green, Ky.$2.36 billion

148) Schnuck Markets, St. Louis$2.3 billion

164) Brookshire Grocery, Tyler, Texas$2.1 billion

165) Mansfield Oil, Gainsville, Ga.$2.1 billion

170) Demoulas Super Markets, Tewsbury, Mass.$2 billion

175) Truman Arnold Cos., Texarkana, Texas$2 billion

203) Marsh Supermarkets, Indianapolis$1.74 billion

204) Holiday Cos., Bloomington, Minn.$1.74 billion

216) Warren Equities, Providence, R.I.$1.69 billion

266) US Oil, Combined Locks, Wis.$1.43 billion

267) Kum & Go, West Des Moines, Iowa$1.43 billion

269) K-VA-T Food Stores, Abington, Va.$1.41 billion

303) Big Y Foods, Springfield, Mass.$1.25 billion

312) Foodarama Supermarkets, Freehold, N.J.$1.22 billion

332) Gate Petroleum, Jacksonville, Fla.$1.17 billion

377) Inserra Supermarkets, Mahwah, N.J.$1.03 billion

382) Stewart's Shops, Saratoga Springs, N.Y.$1.02 billion

385) Thorntons, Louisville, Ky.$1.02 billion