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    For Conoco Phillips, the Store Matters

    Major oil company sees the value of building a strong convenience brand.

    Conoco Phillips has seen some dramatic changes over the past two years, and the company now finds itself ranked in the Top 10 convenience chains, at No. 8 (up from No. 12 last year), in CSNews's latest ranking of the Top 100.

    Those changes began in 2003, when the company, newly formed from the merger of the Conoco and Phillips companies, sold some 1,600 Circle K-branded stores to Laval, Quebec-based Alimentation Couche-Tard Inc. (The company still has 176 Circle K stores under a five-year franchise agreement executed at the time of the sale.) Since the merger, ConocoPhillips has sold more than $2.3 billion in refining and marketing assets.

    Throughout the next year the company continued to sell off stores, and retail headquarters was moved from Tempe, Ariz., to Houston, according to Rodd E. Pearcy, manager, U.S. retail marketing.

    “Basically, we set up a new retail marketing group from scratch in Houston, and retail accounting, payroll and IT out of Bartlesville, Okla. It took us most of 2004 to get things running right,” he said. “We now have a new POS system across the network and a completely new salary and benefits structure, among other things. The year 2004 was the time of building the foundation. We had all new people, systems, processes and procedures. It was a very challenging year.”

    The new company operates under four retail divisions: Mid-Continent, Rocky Mountains, Southern California and the Pacific Northwest. Within those divisions are nine markets: Southern California, Northern California, Oregon, Washington, Kansas City, Bartlesville, Albuquerque, Colorado's Front Range and Salt Lake City.

    At its 1,688 convenience store locations, fuel is sold under the 76, Phillips 66 and Conoco brands, and the stores operate under the Circle K, Kicks and breakplace brands. In addition, 9,000 stores fly the flags of one of the company's fuel brands, but are marketer-owned and operated.

    August 2004 saw the completion of implementing scanning in 100 percent of the company-owned and -operated stores. By the end of 2004 and beginning of 2005, the new team was ready to focus completely on improving the business, Pearcy said.

    “Our goal was to prove that you can run a low-cost operation inside a major oil company,” he said. He added that it is easier to accomplish this goal by setting up a low-cost operation from the beginning, just the way he and his team did, rather than building a business that is too heavy and then trying to cut back.

    The company has achieved close to a 10 percent lift in merchandise sales this year compared to 2004 (based on June 2005 year-to-date same-store sales). “With our current growth trend and the category plans we have put into place, we intend to reach our goal of first-quartile performance by 2007,” he said.

    A key initiative for the next three years will be a complete retrofit of about 250 stores, Pearcy said. Some 21 stores are already complete, and the company plans to finish 90 by the end of this year. The remodeling is yielding enormous benefits. “We are seeing 20 to 30 percent uplifts in sales after completing store remodels,” he said. He went on to say that he does not believe the company has seen the ultimate benefit yet of the remodeling.

    “We are doing interiors and exteriors separately, and we have not completed any exteriors yet. Once we reimage the outsides of stores, we'll see even bigger lifts.”

    The stores being remodeled vary in size, with 77 measuring less than 1,000 square feet; 111 occupying 1,001 to 2,000 square feet of space; and 59 measuring 2,001 to 3,000 square feet. A total of 81 stores are larger-format: the very newest Circle K, Kicks and breakplace stores measure more than 3,000 square feet, and all new construction stores will equal or exceed this size.

    New-store and retrofit design was borrowed from the company's highly successful international Jiffy brand, Pearcy said, which features the large square footage and a big, steeply pitched roof, not to mention a center-island checkout and larger foodservice section, Pearcy explained. In addition, all new stores will have 20 or more cooler doors, and most will feature eight MPDs. Some will offer car washes.

    ConocoPhillips also serves 9,000 locations through its wholesale business. It is currently hosting a series of summer road shows in 14 major markets with the goal of encouraging marketers to accelerate reimaging of their sites to the company's new Oasis image design. Phillips 66 and 76-branded outlets must convert all their sites to the new image by 2006. Conoco marketers have until 2007 to convert their sites, according to company officials.

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