ANKENY, Iowa -- As reported yesterday, Casey's General Stores Inc. pulled out of franchising last year. But where that one door has closed, the company has wholeheartedly opened another. As the company made efforts to acquire the franchises over the past year, Casey's executives learned about the economics of buying properties, rather than implementing new builds. "That certainly added to our thinking about the whole subject," CEO Bob Myers told CSP Daily News in an exclusive interview.
Prior to 2000, the chain's growth was organic. But since then, Myers said, Casey's [image-nocss] has been acquiring stores, while slowing the pace of new-store construction.
"And the difference between new-store construction and acquisition, whether it was an independent or a franchisee, was that the independent or franchise acquisition was profitable immediately, where new stores often take three to five years to become profitable," he said. "And so if you're building 60, 70, 80 or 90 stores a year, you can see that over time those would become a drag on your earnings. And we knew that we had to modify and change, which we have done."
When asked about what the acquisition/new-build mix will be going forward, Myers said he doesn't like to express growth plans that way. "Whether it's a new site location or even an acquisition, we would rather state that our annual goal is 4% growth, and we'll try to figure out the combinationwhichever might get us to that 4%but that's our stated goal for the year." That goal is for fiscal 2010, and would mean the addition of about 60 stores. The chain ended fiscal 2009 on April 30 with 1,478 stores, having made 16 acquisitions and 16 new-store constructions during the year.
To accommodate such growth, Casey's even recently added another 100,000 square feet to its Ankeny, Iowa, distribution center, nearly doubling its size. "That gives us the wherewithal to take that out to a total of about 2,000 stores," Myers said, adding that with the chain at less than 1,500 today, it could take five to seven years to achieve that goal, barring any major acquisitions.
Looking ahead, the company plans to expand beyond its current nine states of Iowa, Illinois, Indiana, Kansas, Minnesota, Missouri, Nebraska, South Dakota and Wisconsin, but that growth will be progressive. "We're not going to jump to the East Coast or the West Coast or to the Southwest or any other area," Myers said. "We're going to make sure that all the space is filled in in-between, before we do something like that."
Myers spoke of the company's plans to facilitate that expansion: "We are planning for the future, and those plans would include potentially a second distribution operation. And when you look at the cluster where our stores are located, then that's likely someplace that's south and east of our location here in Ankeny, Iowa."
Myers said new locations will likely continue Casey's model of being in populations of 3,000 or less. "That's our bread or butter. They provide great, profitable store locations for us. But we're not going to ignore the metro locations either. Both of them have their own unique characteristics; both of them are highly profitable. But for us, it's easier to operate in a smaller community." All Casey's locations sell gasoline, and that also would continue to be the model going forward, according to Myers.
For fiscal 2009, Casey's efforts also included replacing 16 stores. "I will tell you that the performance of replacement stores is even astonishing to us, because we are replacing old stores with our newer style of stores, which are about 3,700 square feet," he said, adding that the stores were increased from 2,800 square feet, and Casey's currently has about 500 stores that size. The rebuilt stores went from nine cooler doors to 14, have expanded kitchens and fountain areas, increased coffee selections, and some have "sit-down" areas. "We've introduced a new sub-sandwich program to our prepared food program and it has taken off with a big bang. So we're all excited about the new stores."
Myers said that building two replacement stores is equivalent to adding a new store, in terms of performance. He also spoke about what he felt contributes to such growth. "First and foremost, we know that if you want to improve sales, you've got to add more concrete and you've got to add more pumps. And so when we look at an existing location, if we don't have enough ground to expand that store and add more parking and more pumps or hoses, then we'll reconsider that."
Myers said that doesn't mean the company won't hold onto stores that don't have room for such expansion. "In most cases, they are still highly profitable stores, because the expense component of their P&L is so much less than a store that's been remodeled or replaced. It's whether or not you're realizing the fullest potential of that particular location or that particular market. And so we know that if we've got a store that's not adequately serving a market, we want to do something with it. But if we can't, we can continue to operate that store and be highly profitable."
Click hereto read part one of this exclusive interview.
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