The Trend Setters

How the top 25 retailers are setting the tone for a new retail environment.

Melissa Vonder Haar, Freelance Writer

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The c-store industry is operating in a very different retail world than it was 10 years ago. The onetime staples of fuel and cigarettes are going through troubled times; sales are declining, and competition from grocery, HVRs and dollar stores looms large. Big Oil is fleeing the downstream business, through spinoffs or simply selling off retail locations. And, in perhaps the biggest news of the past year, the Affordable Care Act is threatening to change not only the budgets of c-store retailers, but also how stores are staffed.

However, within this chaotic, dynamic environment, a class of retailers has emerged as an example of how to operate in this brave new world. Their endeavors may not always work—turns out that a drive-thru doesn’t typically fit with the c-store model—but these retailers are always looking for new, innovative ways to improve their business.

“Top retailers are focused on retail and all of the detail that it entails,” says David Nelson, president of Study Groups/Finance& Resource Management Consultants Inc., Bellingham, Wash. “They are not ever satisfied with the status quo. Top retailers focus on the customer and what their evolving needs are, not on reacting to what their competitor is doing.”

And while a top retailer doesn’t necessarily mean a big retailer, it is increasingly difficult to operate several hundred stores without the kind of business know-how used by the best. It’s with this thinking that CSP has once again turned to the CSPedia database to rank retailers by company operatedand franchise store counts(dealer-jobber sites did not apply). The tactics employed by these companies often go on to become standards for the entire industry.

Foodservice is a perfect example: While quality foodservice offerings have long been a staple for companies such as Sheetz and Wawa, less-expected players such as Murphy Oil USA and Pilot Flying J are moving into proprietary programs. Such efforts are directly related to the new obstacles facing retailers.“For some time now, smarter retailers have been trying to become less dependent on cigarettes by trying to diversify and build up their foodservice offerings, “says Bonnie Herzog, Wells Fargo Securities senior analyst for the c-store industry. “The reason for that is not only the growth, but the better margins generated from that business.”Looking to new areas such as foodservice to increase margins is just one of many tactics the top 25 retailers have employed in the past year. The moves these sizable organizations have made—how they’ve dealt with the challenges facing the entire industry—can serve as a guide for many, regardless of size.

Grow for the Company

A quick look at the top 25 c-store chains shows that while most of these retailers did grow their store count in the past year, the majority did not grow at dramatic rates; in fact, companies such as Sunoco, Murphy and Hess grew by only one store. This is likely due to a key tactic employed by successful retailers big and small: smart growth.

“ ‘Smart growth’ is done for the sake of the company; ‘bigger growth’ is for the sake of the ego,” says Jim Fisher, CEO of Houston-based site-analysis firm IMSTCorp. “Egos can certainly get in the way oblong-term company success.”

Nelson agrees: “Growth for growth’s sake alone is cancer. Growth needs to be driven by a profitable model.”

Retailers who use smart growth look for new markets to enter, and they also look for existing markets that aren’t working for them and determine whether it’s best to remodel or exit the market altogether. As such, smart retailers are often building and acquiring new stores, and also remodeling and/or selling existing locations.

While The Pantry technically has decreased its store count by 46 stores since last year’s list, the company completed its first new build in four years and also remodeled about 10% (approximately160) of its locations during that time. QuikTrip, 7-Eleven and Wawa all employ similar grow-and-sell strategies (albeit with more new builds than The Pantry).“Smart retailers are always looking anew things that they can do to improve an existing site, and they are continually rationalizing their chains to get rid of poorer performers and to reinvest in higher-performing locations,” Nelson says. One glaring exception to this modest growth is Valero: The San Antonio-based company nearly doubled its store count over the past year, going from 996 stores last year to 1,880 in 2013. It’s one result of Valero Energy Corp.’s move to create are tail spinoff under the new name of CSTBrands Inc. (The new company officially debuted on the stock exchange May 1. Seethe June 2013 issue of CSP for more on the new company.).“While we will be a new company upon our separation from Valero EnergyCorp., our business has a history of strong financial and operating performance,” saidCST’s president and CEO Kimberly Bowers in a letter to future stockholders. “Following the separation, we will be one of the largest independent retailers of motor fuel and convenience merchandise items in the U.S. and eastern Canada.”

Valero isn’t alone: Murphy announced similar plans to spin off its U.S. retail business later in 2013. Fisher views such spinoffs as a positive not only for the companies involved, but also for the industry as a whole.

“I believe that each company must elevate itself in terms of what is best for the company,” he says. “The actions taken by Valero and others have certainly proven to be positive as of now. The industry is always best served when only the best are put forward that can serve customers properly and successfully represent the industry.”

Other companies, such as Hess, have decided that retail locations no longer fit their business models: The Woodbridge, N.J.-based company announced in March that it plans to exit its entire downstream business, including retail, and focus solely on exploration and production.

Such spinoffs and all-out shedding of retail locations are not exactly groundbreaking trends. The question is no longer whether or not major oil and E&P companies will separate their downstream business, but whether there are any companies—aside from Chevron—who haven’t done so already.

 Perhaps a more pertinent query is how long this separation will last.

“A question for the future is: Will the major oil companies decide to re-enter downstream and retail?” Fisher says. “Does history repeat itself?”


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