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    Cleaning Out the Cupboard

    Former Treasury Department official is refreshing and expanding Quad Cities convenience store chain called Mother Hubbard's Cupboard

    By Don Longo

    What do you do next after you've served as CFO and deputy COO of the U.S. Treasury Department, where you managed 120,000 employees and the largest financial statement in the world?

    If you're Jesus Delgado-Jenkins, you buy a convenience store chain called Mother Hubbard's Cupboard, located in the Quad Cities area of northwestern Illinois.

    Delgado-Jenkins, 44, is probably the last person you'd expect to find running a chain of convenience stores. A graduate of the U.S. Military Academy at West Point, Delgado-Jenkins' life story has taken him from his parents' homeland of Cuba to Southeast Asia and all the way to the White House.

    Today, he is aggressively scouting acquisitions to add to his chain of 19 Mother Hubbard's Cupboard stores and resetting the stores to introduce more fresh products to consumers. The first "fresh store," completed recently in Moline, Ill., features fresh sandwiches, fruits, rotisserie chicken, barbecue ribs and an expanded selection of "grab and go" healthy foods. Another store in nearby Geneseo, Ill., is also getting the "fresh" makeover.

    "The industry has to come up with new profit centers because it cannot rely upon motor fuels to drive earnings anymore," Delgado-Jenkins told Convenience Store News in an exclusive interview. "The importance of convenient, fresh food for on-the-go consumers is only going to grow."

    One thing that separates Delgado-Jenkins from other c-store operators is that he brings an outsider's set of fresh eyes to the business, according to Terry Monroe, president of American Business Brokers, who has helped Delgado-Jenkins structure several deals in the c-store industry.

    "[Delgado-Jenkins] has a phenomenal background in finance, logistics and operations that is unusual to see among c-store operators today," Monroe said. "He has the ability to simplify processes. He creates standards and has the bonus plans in place to ensure that everybody is accountable. He really executes what he says he will."

    His disciplined execution has more than a little to do with the leadership skills Delgado-Jenkins acquired during this training at West Point. "To be successful, you have to facilitate the manager's ability to execute your store programs by relieving them of accounting and administrative tasks," he explained.

    After 4/ years' active duty as a captain in the Army, Delgado-Jenkins went to work for PriceWaterhouse in its strategy group, where his first project helped grow sales 20 to 25 percent for Speedway by changing cooler planograms and the fountain program.

    Strategic projects for Coca-Cola, PepsiCo, Frito-Lay, Nabisco, Kraft General Foods and more followed. A lot of the work focused on building sales and expense reductions through activity-based costing.

    His specialty was redesigning processes to take advantage of existing IT systems rather than putting in new technology. "I helped companies that needed savings immediately," he said of his experience at PriceWaterhouse. "It really gave me the opportunity to develop my analytical thinking skills.

    "I was very lucky to be involved with senior executives at so many Fortune 500 companies," he added. "If you had a map of how these companies were being run, you'd be amazed at how disjointed they were. They were like a mile relay team that kept dropping the baton."

    Delgado-Jenkins was able to see the turf wars and internal silos that were preventing these often talented people from being as successful as they should have been. "It was like a second MBA program applied in a highly intense, 'get it done yesterday' atmosphere," he said about those consulting days.

    In his next job, Delgado-Jenkins was able to combine the leadership and organizational abilities from his military background with the analytical skills he picked up at PriceWaterhouse. In 1996, he was appointed to the No. 2 post in the retail operations group of Dominick's Finer Foods, a major grocery chain based in Chicago.

    He helped Dominick's improve and implement its heralded Fresh Store program, which dramatically increased sales in the produce, meat, deli, home-meal replacement, seafood and cafe departments. He also applied advanced data analysis to Dominick's broad assortment of 60,000 SKUs (most grocery stores carry 30,000 to 40,000 SKUs).

    With improved store sets and the Fresh Store program, the Dominick's chain's blended gross profit margin increased from 26 percent to 28 percent in just 18 months, adding $70 million to the bottom line of the $2.6 billion supermarket retailer. In just 24 months, the retailer's EBITDA (earnings before interest, taxes, depreciation and amortization) almost doubled.

    When Dominick's sold the chain to Safeway in 1998 for $1.8 billion, Delgado-Jenkins took a year off to travel throughout southern Asia. He backpacked across the Philippines, Hong Kong, Cambodia, Vietnam, Thailand, India, Nepal and Mal- aysia. "I had no itinerary," he told CSNews. "I just wanted to see the world."

    But, as exciting as it must be to explore exotic locales, Delgado-Jenkins soon found himself drawn back to the world of business strategy. He started a consulting business with a former PriceWaterhouse colleague and eventually decided that the convenience store business was ripe for acquisitions as many companies teetered on the brink of extinction due to lack of capital and shrinking profit margins. But, just as he was looking at 15 or 16 possible deals -- and had actually put in bids on three of them -- Sept. 11 happened.

    The terrorist attacks on the World Trade Center and Pentagon sparked a desire to serve again for the former Army officer. "A lot of my West Point alumni felt the need to serve our country [after Sept. 11]," Delgado-Jenkins said. So he faxed his resume straight to the White House with an open-ended offer to do "whatever they needed."

    After an extensive interview process, the government took him up on his offer. Delgado-Jenkins was initially hired as senior adviser to the CFO/COO of the U.S. Treasury Department. His role included supporting financial security initiatives and cost reduction. He was swiftly promoted to deputy to the CFO/COO in just four months, and then to CFO/COO in another four months.

    "We had a $16 billion operating budget, 120,000 employees and the largest financial statement in the world, at $2.2 trillion in receivables and $8 trillion in debt," Delgado-Jenkins said. "[It was] one of the most fascinating jobs I've had." The Treasury Department is essentially the financial services arm of the U.S. government. It handles all minting and printing of money, manufacturing and production, debt and cash flow management, as well as a significant accounts receivable function. He was responsible for $3 billion worth of technology procurement.

    But the lure of the c-store industry was never far away. "One of my goals was to build a large convenience store chain," said Delgado-Jenkins, who, while still at the Treasury Department, met Nick Williams, a retired CEO of several companies and a 1970 graduate of the U.S. Naval Academy at Annapolis. Williams, who was Delgado-Jenkins' chief of staff at the Treasury, offered to financially back his boss to buy a few small c-store chains.

    Delgado-Jenkins left the Treasury in May 2005, began to develop an extensive broker network, and found a Quad Cities area chain called Mother Hubbard's Cupboard. "It was the best chain I had seen in the 18 or 19 different deals I had looked at," Delgado-Jenkins said. "From its asset base to income distribution, it was the perfect chain for us to purchase." Williams and Delgado-Jenkins started due diligence in early 2006, had a purchase agreement set by April 2006, and closed on the sale of 13 of the 19 existing stores in November 2006.

    Since the acquisition, the partners have added six new units. Delgado-Jenkins told CSNews he would like to grow the chain to 500 stores in 10 years if the right acquisitions are available.

    Delgado-Jenkins believes this kind of growth is possible, not just because there are many acquisition candidates in the market, but also because of his willingness to be financially creative to satisfy the sellers' needs beyond the obvious financial considerations.

    "Price is important, but there are a lot of other qualitative elements to a transaction," explained Delgado-Jenkins, who was married in 2004 and has a 15-month-old daughter. "We try to discover the intangibles that make the offer more enticing to the seller, and then we design those terms into the purchase structure."

    In the past 10 years, Delgado-Jenkins has visited more than 1,000 c-stores and studied more than 25 potential transactions, he said. "I love the industry," he said. "There's a lot of upside if you understand merchandising and financing."

    With his Mother Hubbard's chain, Delgado-Jenkins has used his experience to find efficiencies that allow him to invest in the most profitable parts of the business. "For example, if you sequence and schedule employees properly by daypart you can eliminate overlaps in shifts -- saving as much as 15 minutes in downtime per shift per employee."

    Another approach from his Dominick's experience is to identify sales drivers and bundle margin-building products into those drivers to lift total margins.

    With the two new remodels, Delgado-Jenkins is taking his strategy to a new level by focusing on fresh and healthy foods, better seasonal marketing and increased local merchandising, taking into consideration the preferences of customers who live within a 3-mile radius of the stores.

    Between 20 to 30 percent of the reset stores are dedicated to fresh products. Like other c-store operators, Delgado-Jenkins views food as the profit driver. "When you take into account credit card transaction fees, we are losing money on motor fuels," despite seeing double-digit growth in gallons sold year-over-year, he said.

    Success in the c-store industry is all about "delivering value to the consumer and getting the right price for that value," Delgado-Jenkins told CSNews. "If you can create a compelling value, you are going to win the customer."

    For comments, contact Don Longo, Editor-in-Chief, at [email protected].

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