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    C-Store Score Card

    One industry insider rates some industry giants' ability to weather the storm.

    By Barbara Grondin Francella

    What chains are seeing gains? Can independents survive when consumers are price shopping?

    "It will be the best of times for those who have invested a meaningful amount of capital in their stores -- like Wawa and Sheetz -- but it will be the worst of times for some of the older convenience store chains that have been flipped off by Wall Street investment bankers," predicted retail analyst Burt P. Flickinger III, managing director, Strategic Resource Group, a consultancy based in New York that works with major product manufacturers, retailers and Wall Street investment firms acquiring c-store and other retail operations.

    Flickinger gave Convenience Store News his insights on what c-store chains are well positioned -- and which ones may be more vulnerable -- during this crisis of consumer confidence.

    CSNews: In your opinion, what c-store operators will weather this economic downturn the best?
    Flickinger: There are chains like The Pantry who are struggling in over-stored markets in the Southeast, while facing tremendous competition in terms of gas wars from major petroleum companies. But The Pantry's doing a very good job running the operations within the four walls of the stores, as well as from a pumping-and-pricing standpoint. Corporately, they are very good merchants.

    You see more and more entrepreneurial and family-owned and operated c-stores having a retail renaissance. The Newman brothers of NOCO Energy Corp. [of Western New York], for instance, have built a tremendous model, where they are competing with Wegmans and some of the other best retailers in the world. Their prototype convenience store can take on anyone, from international gas/convenience companies to a chain like Sheetz. It's a David vs. Goliath story, where they are doing a tremendous job without the large scale.

    CSNews: You mentioned Wawa and Sheetz. What are they doing right?
    Flickinger: They have record foot traffic even if they don’t have primary sites right on and off the highways. People will drive a greater distance to go to a Wawa and Sheetz because they have some of the best sandwiches in the business. Customers are giving Wawa a tremendous amount of credit for holding the prices on fresh and hot sandwiches even though the price of bread, deli meat, tomatoes, lettuce, oil and mayonnaise have gone up significantly.

    Wawa gets the consumer who would normally come for gasoline, bypassing Wendy's, Burger King and McDonalds. Because of its strong coffee program, customers will bypass Starbucks and Dunkin's Donuts for Wawa. Consumes will even bypass the supermarket because they are saving so much at the pump and on sandwiches and they see very competitive prices on milk, juice, candy, snacks and in-line items. They are using Wawa and Sheetz as substitutes for supermarkets, not driving a greater distance to go to Costco, Kroger or a supercenter.

    CSNews: How are the major oil company's stores faring?
    Flickinger: Mobil has done a tremendous job with On the Run Stores, but Exxon's Tiger Marts would be in the bottom half of the group.

    Sunoco, even with its profit pressure being primarily as a refiner, has seen its investment in its A-Plus stores certainly paying off. In the Middle Atlantic states, where Rite Aid is looking to be the low-price leader on beer and pop, especially with 12- and 18-packs, Sunoco is very competitive on price.

    You've got to give ampm a B+ or A- for inspired new initiatives. The only reason they don't get an A is they haven't had time to take those initiatives to scale. For any retailer, it takes three to five years to take an initiative to scale. But they are taking giant steps forward and BP, in terms of inside and outside the store, is showing a commitment to the consumer and environmental responsibility, which will help their convenience business too.

    CSNews: How do you think the industry's biggest name -- 7-Eleven -- is faring?
    Flickinger: Even with Jim Keyes gone from 7-Eleven, his strategic plans and excellent corporate and field-level operational staff have given the chain some of the highest-level stores in the nation, doing more volume than some supermarkets. While the signature hot dog program is uneven, the sandwich program on a national basis is very strong. Also, what 7-Elven has done in coffee certainly matches the inspired initiatives of Dunkin' Donuts, which is slamming Starbucks.

    7-Eleven is doing great in terms of one-stop shopping for people working outdoors, while also marketing to students and young adults. I have seen 7-Eleven succeed in Japan and China with all day and evening primary eating occasions; they are doing the same thing here.

    7-Eleven focused on women in Beijing. Then expanded that to Japan and China, and is bringing that focus on women to the United States, with improved convenience, speed, food safety and security. Too often c-store chains have not re-invested in new store designs or recruited new leadership. There is an almost impenetrable glass ceiling for women in management in the c-store channel. Too many companies are being run by aging, balding white guys who are sabotaging themselves because they are not connecting with the customer anymore.

    CSNews: What can single-store operators and very small chains do to better position themselves in this bad economy?
    Flickinger: They should look to suppliers willing to hedge fuel prices. Independents could work in a buying consortium with independent refiners and gas producers to hedge energy prices, while looking to their wholesale distributors and foodservice suppliers for [ways to save.]

    Why are some retailers being charged 12 to 15 points or more for delivery, but getting only once-a-week service? Maybe some should do what Wilson Farms did, and go with a more local supplier to get a better cost with more frequent service without the large fuel surcharges for long-distance delivery.

    One reason Costco's same-store sales comparisons are in the 7- to 11-percent range is that independents are using Costco to buy milk, eggs and other products once or twice a week, and are ending up with better freshness and lower cost of goods -- by 30 to 40 percent. They are better able to price in line with traditional food retailers and supermarkets. The independents could use "Compare and Save" cards at the shelf; consumers would save on gas by going to the neighborhood c-store.

    CSNews: Do you expect to see many chains wave the white flag?
    Flickinger: We'll probably see a number of retail bankruptcies and a tremendous amount of publicly held c-store companies dumping good sites that are not in growth markets. Single-store and small chain operators can look for opportunities to pick up other locations at rents a few dollars per square foot rather than current market prices of $10 to $20 per square foot.

    The drug chains will probably spin off small locations – they want all corners with drive-throughs. These stores are built well for c-store operators with temperature-controlled equipment and the right shelf sets for consumables and general merchandise.

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