Mergers & Acquisitions

Casey's Details Distribution Strategy

Second hub coming soon, mulling third to support chain's expansion

ANKENY, Iowa -- Distribution is key to supporting expansion for Casey's General Stores Inc., CFO and senior vice president Bill Walljasper revealed during the company's fiscal third-quarter 2014 earnings call on Tuesday. He said that the Ankeny, Iowa-based convenience store company is in the process of finalizing the location of a previously announced second distribution center, as well as expanding its existing distribution center.

Casey's General Stores Truck

The company will do both projects "simultaneously," with the current distribution center upgrade completed prior to the larger second site.

He said that the company would announce the new distribution center's location "within the next 30 days." Once the company breaks ground, it will take about "12 to 18 months" for the facility to get up and fully operational. And then, within "four or five years, we [will] probably start to thinking about a third distribution center," he said.

He would not offer an estimate on the number of stores the new distribution facility will support "simply because the stores that we are putting up right now are much larger stores. They have a much higher sales."

The second distribution center will, however, create "operational efficiencies" right away. "Stem miles [will drop] dramatically," he explained. "Right now, we have three-day truck routes [that] will be relatively eliminated with the second distribution center and just one-day and two-day truck routes. And it's not just the miles driven, it's also the expenses of the drivers; we don't have a sleeper units in our tractors, so we pay for the expense of meals and overnights and hotels for our drivers, so that's another big expense that needs to be factored in."

Both projects, and a third site, will be instrumental in supporting the chain's growth. Walljasper confirmed the current observations being reported in the press that traditionally rural-focused Casey's is moving into more populated areas. Observers will see "a little bit more gravitation to what I'll call more suburban locations," he said. Its new stores and remodels are "geared towards a higher-traffic-type store."

The company has two store prototypes, "one geared to a probably higher-traffic location, of which is typically has a higher population, and then that store that's a little bit smaller that's geared to maybe a little bit smaller community," he said.

For the current quarter, the company opened 12 new-build locations and completed two acquisitions. For the year, it acquired 24 stores and completed the construction of 26 new stores.

"We are on pace to complete a total of 40 to 45 new-store constructions by the end of the fiscal year and replace 20 to 25 stores. Year-to-date, we have replaced 19 stores," he said. "Currently, we have 25 new stores under construction and 15 replacement stores under construction. In addition to this, we have an additional 43 new sites and 33 replacement sites under contract."

Walljasper also said that Casey's executives were "excited" about taking on recently acquired Stop-n-Go, "a very well-respected chain," in the Fargo, N.D., area and "hopefully enhancing [its] presence."

He said, "This purchase gives us a stronger presence in North Dakota, and we expect to close on this deal early in May. Including this acquisition, we have 32 stores under written agreement to acquire, which positions our company very well for future growth."

He added that Casey's has "been very well received" in Arkansas, Tennessee and Kentucky, and "we're going to be making a bigger splash … at the beginning of the fiscal year in North Dakota."

Two aspects of Casey's current growth strategy are to open more 24-hour stores and add more locations that offer pizza delivery.

"Year to date, we have converted 114 more locations to 24-hour format [and] added 80 additional stores for the pizza delivery program and completed 25 major remodels," he said. The "combination of these initiatives account for approximately half of the same-store sales increases" for the period.

Click here for previous CSP Daily News coverage of Casey's fiscal third-quarter 2014 financial results.

Casey's operates c-stores in 14 Midwestern states, primarily Iowa, Missouri and Illinois. It also operates one standalone pizza delivery and carryout store. On Jan. 31, 2014, Casey's operated 1,783 corporate stores.

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