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Bill Douglass is wrapping up his busy year as the National Association of Convenience Stores' chairman. It was a year of gradual change in the c-store industry, as operators adjust their strategies around competitive pressures in the tobacco and gasoline categories, out-of-this-world credit card fees and Americans constant changing tastes. (Atkins who?)
We caught up with the CEO of Douglass Distributing, the Sherman, Texas-based company, salary-operator of 14 Lone Star Food Stores, which owns, leases and contracts with another 165 dealer sites, before the annual meeting and convention began. Topics of discussion: the most pressing issues facing c-stores operators and how NACS and its members are addressing them.
As you started your term last year, you expressed concern for the industry's dependence on tobacco and gasoline for gross margin dollars. Has anything changed for the better--or worse--since then?
Despite an incredibly volatile and less-profitable fuels market, the industry improved its pretax profits by nearly 55 percent in 2003 and another 20 percent in 2004 according to the NACS State of the Industry Report. It's more than a highlight; in many respects it represents a change in many operators' business models.
Many are finding ways to grow profits even as tobacco and gasoline margins decline. The resurgence of operators' interest in foodservice, and more importantly that they see foodservice as a distinct and different business, has helped many boost gross profit dollars. This industry thrives on change and the toughest of times doesn’t kill our spirits. It simply makes us work herder, faster and smarter to change.
With your background on NACS' Government Affairs Committee, you had issues such as boutique fuels, the cost of health insurance and debit/credit fees on your radar. How you rate the current Administration's and legislators' actions in these areas? What do you hope for in the future?
In addition to concerns with the MTBE product liability issues around the 2005 Energy Bill, we are charging ahead on the credit/debit fees issue. NACS has convened a powerful coalition of merchants, call the Merchants Payments Coalition, Inc., and the membership of the group represents about 40 percent of all credit/debit volume in the country --and the membership keeps growing.
As this group becomes the voice of merchants on payment issues an fees, we believe the usual means employed by the card companies to quiet the squeaky wheel with some special approach will be more difficult for them to do, as all merchants seek a common remedy of cost-justified interchange.
The boutique fuels issue is one that has moved ahead this year. The Energy Policy Act of 2005, singed into law by President Bush on Aug. 8, includes a NACS-supported provision to stop the proliferation of boutique fuels. This is important because new ozone regulation coming into place in the next few years may have dramatically increased the number of fuels in the market. This bill will stop that from happening and start the process of rationalizing fuel specification across the nation.
NACS put this issue in the spotlight several years ago and through a concerted lobbying and communications effort has educated legislators and the media that marketing dozens of unique gasoline blends has diminished the efficiencies of the supply and distribution system, contributing to regional supply shortages and price spikes.
Now, Congress has effectively called a timeout to the unabated adoption of new fuels and set upon a course to balance environmental controls with supply and price implications.
There has been a great deal of activity in the area of Internet cigarette sales. What is your take on this issue?
An interesting and helpful development occurred in mid-April--the decision by the credit card companies and the National Association of Attorneys General that credit and debit cards would no longer be able to be used by Web sites that sold cigarettes. Almost immediately I was talking with retailers, especially those in high-tax states who were seeing a bump in sales.
Wholesaler also reported an increase in shipments. Some of this is likely seasonal, but clearly with the convenience factor of ordering with a credit card online disappearing and with more and more sellers turning over purchaser names to the states so that the taxes can be collected, it seems as if this issue is evening out, so to speak.
However, NACS remains committed to the topic, as there's big money at stake for these online seller and no doubt they are looking for other ways to accept payment that doesn't rely on cards.
How do you think the c-store industry is viewed by other retailing segments?
That's tough to answer, although I firmly believe we are seen as a formidable competitors for the breakfast and lunch day-parts, and increasingly we are growing into destinations for other products and services, including financial and prepaid items, as well as for more fill-in and dinner items.
I believe our competitors can see that we are becoming much more tech wavy as an industry, which has helped us become more efficient in supply chain and labor areas and has boosted sales through SKU rationalization and lower out of stocks.
Competitors in the QSR and fast-casual restaurant segments are taking notice as the industry continues to make great strides in foodservice. Quality, freshness and pleasant eating environments are now part of a considerable segment of our business and its not going unnoticed.
I also see the impact of second-generation operators beginning to show up in what we sell and the environment in which we sell it.
You know, there is an old saying that goes like this: "If you want to make a little money in the convenience store business, start with a lot." There's no doubt this is a competitive arena. With channels blurring, consumers are redefining what convenience really means to them. And that definition can change on any given day.
Our industry is viewed by our competitors as light on our feet and quick to adapt, a definite advantage. If it weren't, why are we seeing so many new convenience locations in big-box parking lots and in front of supermarkets? My hope is we keep our focus on the customer and never sacrifice speed, which is our niche. If we can do that with a broad assortment of products and services our customers want, we won't make a little money, we'll be making a lot of it.
What issues would you most like to see NACS address in the next year?
It's not so much about what issues I would like to see NACS address-- it's all about what the members tell us they care about. For the next couple of years at least, we'll be working on the credit/debit fees, an issue which is no small undertaking.
The whole area of how people pay for things is in tremendous flux and we're already seeing rollouts of new contact-less readers on dispensers, cell phone purchasing and so on --so that' an exciting areas.
Our members are also telling us that education and training is very meaningful to them. To me, it means we need to get out in the field and help bring affordable education to them on topics they care about.
Finally, we must find a way to help our members identify and source new products faster. I heard a scary statistic the other day: The average person really only routinely uses 320-plus SKUs on average. This in an environment of hundreds of thousands. So, how do you find that new thing, new "must have" that every once in a while hits big? Our channel is great for merchandising new items and I think we have a tremendous opportunity to show and sell the latest and greatest in an environment where it has to be really special to stand out. If we could become known as the place to come and try new things – fast – imagine the possibilities.
What personally have been the most rewarding moments as NACS chairman?
The success I am most personally proud of is the extremely smooth and seamless transition in leadership that occurred between Kerley LeBoeuf, NACS' President and CEO for 24 years and our new President and CEO Hank Armour. This is only the third time we've had a change at the top and it was executed flawlessly, leaving NACS well positioned and strong for the future.
Do you have any advice for incoming Chairman Scott Hartman?
Yes --keep a suitcase packed and PowerPoint at the ready. Seriously, though, I have found the best way to learn something is often to try and teach it. The trips I've enjoyed and learned the most from have been via exchanges of teachable moments, which are just the best learning moments.
I would encourage Scott to seek out retailers for conversation and educational opportunities. One at a time, a bond will be created that will not only strengthen a relationship, but build a common foundation of understanding about what this industry is and has yet to become.