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    A Behind the Scenes Look at the New Village Pantry

    New president Mick Parker gives CSNews a first-hand tour of the retailer¿s future look and strategy.

    By Mehgan Belanger

    Convenience Store News recently had the opportunity to sit down with Mick Parker, the new president of the 146-unit Village Pantry convenience chain, in a face-to-face interview to discuss what's been going on behind the scenes since he joined the Indianapolis-based company in May 2007, and to take a guided tour of a newly remodeled store. Here, he describes the chain's new strategy, including remerchandised and remodeled stores, an intensive growth plan and the installation of its day-to-day systems.

    Parker came to the position from sunny Florida, where he was the vice president for Circle K's Florida and Gulf Coast region. At the time, Village Pantry had just been purchased by the Boca Raton, Fla.-based private investment firm, Sun Capital Partners Inc., and newly split from its former parent company, Marsh Supermarkets Inc.

    Since Parker joined the helm less than a year ago, drastic changes are under way at the once floundering company. In October, the chain completed the acquisition of Imperial Oil Co. -- its first since splitting from Marsh -- and unveiled a new store design for all existing sites, which has been implemented at three locations to date. Imperial operated the Next Door Store c-store chain with 33 locations.

    He also established a new mission for the retailer -- "to become the best place to work, shop and invest," said Parker, who was quick to note that getting to this point has not been easy.

    The first week on the job "was a bit overwhelming," he told Convenience Store News in an exclusive face-to-face interview. "I knew what I was doing for so many years [at Circle K], there really was no fear. I came here, I didn't know anyone and I didn't know anything about the organization. It really was scary. Beyond that, it was a bit frustrating, because we didn't have good systems, we didn't have good information, and I didn't know who to ask for things."

    He continued: "On another side, it was just so exciting I could hardly stand it because there are so many opportunities. You feel like a kid in a candy store. Where do you start?"

    One of the first things Parker accomplished was establishing his executive team. The key positions went to many people he had worked with in the past, including his time with Circle K. His executive team is made up of Mike Ross, senior vice president of merchandising and fuel, who came there from Circle K where he was operations director for the Florida and Gulf Coast region; Steve Larkin, vice president of real estate, the previous head of Starbucks Coffee's new store team for the mid-America region; Steve May, CFO, who has served Village Pantry for one year and the Marsh companies for seven years; Paul Todd, vice president of human resources and training, who has been with Village Pantry for 16 years and the Marsh companies for 40 years; Chris Noll, vice president of construction, who worked with Parker at Circle K when it was headquartered in Phoenix; and Mike Emmons, senior vice president of operations, who has served the Marsh companies for 32 years, 27 of which were with Village Pantry.

    Ongoing Business, Startup Organization
    As he recruited his team, Parker set out to cement the chain's day-to-day systems.

    "We had the field, division and store managers, and we had a couple of merchandising folks, but other than that, it was pretty much a bare bones organization," Parker said. "It's not a startup business. We had an ongoing business. It's an ongoing business with a startup organization."

    The "to do" list included selecting an accounting and finance system. The company chose the PDI Enterprise system, and was implementing the home office system in December, with plans to roll out the store portion in early 2008. The single remaining service that former parent Marsh was providing Village Pantry after Jan. 1 was payroll.

    The chain also tackled its merchandising and remodel plan. "We were trying to immediately impact what was going on in the day-to-day business. We didn't have things like category or merchandising plans," he said.

    Describing the merchandise plan, Mike Ross, senior vice president of merchandising and fuel, emphasized learning gained from customer research. "Customers don't like clutter," he said. "We sell convenience. Customers want to be able to walk in, stage where they want to go inside the store and go there."

    To accomplish this, new merchandising plans include low-profile, angled gondolas with strategically placed product at the front and back of the structures. "As the customers are driven to the back of the store toward the cooler, there are high-gross margin items as they travel back to the sales counter, so we will hopefully capture those sales," Ross said.

    The company is also merchandising the four corners of the store to feature destination categories including coffee, foodservice and fountain offerings, and the team underwent a SKU rationalization, which removed approximately 1,000 SKUs.

    Ross explained that the former parent company's supermarket mentality led Village Pantry stores to offer four types of dish liquid in the grocery section. "A c-store customer comes in as a fill-in trip and needs to clean their dishes. We want the customer to have the most trusted brands," he said. "But we only need to carry one of those items, not four."

    As a result, the remerchandised sites boast expanded snack and grab-and-go categories, with reduced grocery and general merchandise sections.

    And the changes have already shown success. "We are seeing growth in the categories that we had anticipated, because of the philosophical things that we did," Ross said. "We're seeing growth in some our higher profit items -- beer, coffee, deli, bakery items and fountain areas."

    Currently, the team is remerchandising stores that are not slated to undergo construction. "Since we can't remodel all of our stores at once, we can remerchandise stores," Ross said. "We certainly want to improve the offerings for the core customers until we have the opportunity to remodel."

    Uncovering a Gem
    To date, the chain completed three remodels and 11 more are in various stages of construction.

    "For a lot of our customers, we met their basic needs," Parker said. "But, we think there is a segment of the population who needs something different. We want to keep our core customers, but there are things we were not offering to our target customers who have needs and standards that are a bit higher."

    At the forecourt of newly remodeled store 401, located in Fishers, Ind., a flashy red and silver checked pattern covers the gas canopy, pump tops and the area below the store eaves. The store's exterior is painted a sparkling white, while inside, brown and black earth tones complement warm wood accents and highlight metal trim. A black ceiling sets the mood, while modern graphics painted on the foodservice, hot beverage and fountain walls attract attention. The black wire gondolas topped with metal trim are low enough to see across the store and set wide apart, making the store seem much bigger than its average c-store size.

    It took Parker's team approximately 60 days to create the store design. "I came [to the position] with some preconceived ideas, and I didn't want to reinvent the wheel," Parker said. "Taking some of the things I've seen in all types of retail and trying to incorporate them into what we were doing doesn't take a long time."

    The new store design has an advanced focus on foodservice and dispensed beverages, where variety is emphasized. The store uses a cold case to hold its prepared sandwiches, salads, subs and other offerings, all of which are made on-site, and a heated case for its store-made breakfast items. Local-made chili is also available, next to holding bins for build-your-own hamburgers and grilled chicken sandwiches. A condiment bar placed in front of the cases contains any topping needed to complete customers' meals – cheese, lettuce, tomatoes, onions, pickles and jalapenos, along with mustard, relish and ketchup in bottles, and individual packets of those condiments as well as mayonnaise, Miracle Whip, salt, pepper, duck sauce and more.

    "Village Pantry had a good foodservice base all along. In fact, I would say of all the things they historically have done best, it's been foodservice," Parker said. "It's really more about capitalizing on a strength that we already had and doing it better, a little more modern and a little more profitably."

    To modernize its fresh-made foodservice, Parker's team revamped the products and its packaging. "We've simplified the menu by eliminating some of the slow-selling SKUs. We've repackaged it into more of a grab-and-go item," Parker said. "We've added condiments, so customers can take the clamshell product and dress their sandwich a little easier. We're really trying to focus on variety, ease of making it, ease of taking it and ease of eating it."

    In the opposite corner of the foodservice section, customers find hot dispensed beverages with a multitude of customization options. Flavored coffees, espresso-based drinks and other hot beverages can be poured into foam or paper cups, and customized with flavored syrups, milk, creamers, half-n-half, powered creamer, sugar, sugar substitutes and whipped cream. Next to the hot beverages, Village Pantry's bakery section tempts customers with store-made doughnuts and sweet snacks.

    On the back wall, the remodeled store features an expanded fountain and cold dispensed beverage offering. Additional ICEE frozen carbonated beverage options and smoothies or milkshakes are available. Customers can also choose from cubed or crushed ice and foam or plastic cups.

    Roller grill items are a new addition for the company, which boasts the fresh-made offering in 125 stores. "Traditional c-store grab-and-go food is really not what Village Pantry has done," said Parker, adding that the company is supplementing its fresh foods with Ball Park hot dogs, Johnsonville bratwurst and Tornados meat and cheese tortillas.

    Two of the store's more extreme changes are its sales counter and beer section. The counter was completely retrofitted with three registers placed in a zigzag fashion near the entrance for faster service. Behind it, a 14-foot wall of tobacco products showcases the chain's new dedication to the category.

    "Cigarettes are such a large percentage of our business," Ross said. "It was amazing what we were accomplishing with the merchandising piece that we had [in the old stores]. It was very difficult to find and truly merchandise our largest in-store category."

    Ross hopes the change will help increase sales as customers can see their brands, and efficiencies will be gained as employees can find the products faster, and as a result, speed up transaction time.

    Opposite the registers, the beer section greets customers entering the store. Village Pantry put the category front and center to attract attention to it, as Indiana beer law prohibits the sale of cold malt beverages in convenience stores. Above it, a "media center" made of four flat-panel LCD screens suspended from the ceiling play a medley of beer commercials.

    "We have positioned beer as a destination category," said Ross. "In Indiana, we cannot sell cold beer. By positioning the category in the front of the store, it brings awareness to the category, and allows us to differentiate ourselves from the competition."

    Outside, Village Pantry stores offer Marathon or unbranded fuel at 97 locations. In those instances where unbranded fuel is offered, the chain will update the forecourt with the red and silver design, and plans to reimage its Marathon-branded stations to its latest image standards.

    "The Village Pantry brand was very tired," Ross said. "We've been tinkering with the image." At one remodeled store, the gas image was changed from green and orange to red and silver. "It's a much different look than most of the unbranded Village Pantry images prior to the remodel. Gas gallons are up significantly in all three [remodeled] stores, and very much so in the store where we changed the gas image."

    All stores will see versions of the remodel based on investment levels and quality of real estate, according to Parker. "Generally, we will want all of our stores to have the same look and feel, to have the same core offerings," he said.

    Parker expects "virtually no changes from the first three stores going forward," he said. To explain his statement, he added the design "was fairly well thought-out and conceived before we did the first conceptual design."

    Parker was wary of nailing down an exact number of planned remodels in 2008, but noted it could be in the 40-store range, or nearly a third of its locations. "It will be as many as we can logically get done given all the other activities that we have," he said. "We also have a lot of other initiatives going on that we have to be careful not to pull ourselves in too many different directions."

    From Target to Hunter
    Besides remodeling its portfolio of stores, Village Pantry is looking to grow through acquisitions. However, changing the market's perception of the company took time.

    "We took lots of calls from people looking to buy things from us," Larkin explained.

    The company distributed more than 700 marketing mailers, starting in Michigan (home of the newly acquired Next Door Store chain), then to Illinois and Indiana.

    "Coupled with the announcement of the Imperial acquisition, it turned [perceptions] on a dime," he said. "Today, we're averaging about six calls a day from folks who have received the letter or by word-of-mouth, and are calling to ask us to analyze their assets."

    The Next Door Stores are being run as a standalone business, because Village Pantry is not yet prepared to absorb an acquisition from an accounting and IT perspective, Parker said.

    Due to the recognition the Next Door Store name has in its market, Village Pantry is keeping the brand intact. In the future, however, Village Pantry signs may appear in new areas.

    "It's a bit of a change from where I was six months ago. I was thinking there's no need to try to take the Village Pantry brand beyond Indiana, because it really doesn't mean anything," Parker said. "But in reality, we're going to have acquisitions where their brands don't mean anything either, so why not?" He added: "I think you would most likely see more Village Pantry."

    Immediate growth will come from acquisition opportunities of all sizes, according to Parker.

    "We don’t have a prescribed formula -- we will be very opportunistic. Generally, most of the acquisition opportunities will be smaller, in the five- to 150-store range," he said, noting there are several acquisitions in various stages, but declining to provide more details.

    Another opportunity for growth may come from major oil companies' divesture of stations, but the selection will be few. "BP, of course, has made the move to step away, and they've set up some rules of engagement where they want to see their franchises in place and their name brand still in place," Larkin said. "There is some opportunity there, but it's fairly select based upon those rules."

    Regional players also may be a part of Village Pantry's plans. "There are many small and mid-size chains that would fit nicely with Village Pantry or Next Door Stores," said Parker.

    Regardless of the size of the chains, the company will target chains with $1 million in inside sales and more than 1 million in gas gallons per store, according to Larkin. "However, we'll go below those standards," he said. "To help acquire an entire company, we'll take the whole thing. We'll take them all and then sort out what we need to do with the rest."

    As for a goal number of acquired stores in 2008, Parker remained vague. "What can we buy at the right price and what can we integrate easily?” he asked. “What we will quickly come to is the ability to integrate -- how many, and how fast can we absorb them? That will be the limiter, I think."

    Living Under the Sun
    When Sun Capital decided to spin off Village Pantry from Marsh Supermarkets, it was a definite sign that things would change for the convenience chain.

    Because Marsh's core business, culture and infrastructure were centered on the supermarket business, "the c-store side really floundered some," Parker said. "The fundamental difference is, for the Marsh organization, Village Pantry was a non core business. In this organization, it is our lifeline. This is everything."

    Under Marsh, Village Pantry also suffered from management that lacked convenience-industry experience. "Marsh used [Village Pantry] as a back-and-forth training ground," Parker said. "People would come in and then they would leave. So they didn't have a lot of expertise or depth of knowledge. The organization had a lot of Mick Parkers come in over the years. But no one really from the industry."

    In addition, while the convenience chain got support from Marsh, it wasn't the focus of the organization, according to CFO Steve May. "Village Pantry always generated cash, but even the cash was commingled," he said. "The cash Village Pantry did generate left and was used for the combined purposes, and that may have been building the newest supermarket, not necessarily the newest Village Pantry."

    He continued: "Village Pantry was always a successful company, but very much intertwined with the Marsh organization. And Sun Capital, the new parent, decided the best platform to grow Village Pantry is to have its own management teams, its own systems and really a focus on that business."

    Since the spinoff, Village Pantry has been performing well, according to May. "The exciting part is that we're having a good year and at the same time, some of the real initiatives that new management is putting in place really haven't kicked in yet," he said, giving examples of negotiations with the fuel suppliers and wholesalers, along with individual programs. "We can measure the return-on-investment of those initiatives, and they haven't happened yet. So the financial future looks very positive for us."

    Sun Capital's goal for Village Pantry is very clear, according to Parker. "To grow enterprise value," he stated. "They provide the resources, whether its human resources, financial resources or system resources, allowing that business to grow. And that is the expectation, to grow this business."

    There may be a time where Village Pantry is split from Sun Capital, but that is not in the foreseeable future, May said. "The history of Sun Capital and any private investment firm is that eventually there is some exit strategy, but again it is very clear their plan right now is to add value to the business by growing it and improving it," he explained. "And at some point, it becomes attractive to someone else. So that may be a public offering, it could be another equity firm or a rollup into another organization."

    In the near term, expect Village Pantry to keep the quick pace it has established in the short time since becoming independent. "What we've done over the past six moths is what we're going to do over the next five years," Parker said. "It's not all about store count. Yes, there is growth through acquisitions, but it's also taking what you buy and have and maximizing that profitability."

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