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Who are the authorities on the future of the convenience store industry and what can you learn from them? In a new series of exclusive one-on-one interviews with c-store industry leaders, Convenience Store News Editor-in-Chief Don Longo explores the more important trends and issues facing the convenience industry.
This month, Longo interviews Richard Oneslager, president and CEO of Balmar Petroleum. A former chairman of NACS, Oneslager's company distributes Conoco- and Shell-branded fuel and operates 7-Eleven convenience stores in Colorado.
Longo: What do you consider to be the most important trends (consumer and industry) influencing retailing today?
Oneslager: One thing that really intrigues me is how enduring the convenience store business is. When the Internet started to enjoy wide use, people talked about how retailers were being dis-intermediated with online transactions; travel agents, music, books. And now people can use their phone at Best Buy to scan and compare prices on TVs. But, we are so temporal. If you want a hot cup of coffee or a cold drink immediately, you can't buy that online. Our business of immediate satisfaction and time just continues to grow more valuable to consumers.
Another trend I am following is what's happening with the perceptions of gas pricing on the street. The price on the street sign doesn't mean much anymore. You have discounts for cash, loyalty cards, affinity and coalition programs, and discounts for items like car wash purchases. So more and more the price on the sign doesn't reflect what the customer is paying. I think the posted price of gas on the street is going to become less and less relevant.
Longo: Please comment on the most significant developments relating to the convenience store industry and how these specifically impact Balmar Petroleum?
Oneslager: The biggest development I have seen in the industry is our ability to come together, organize and be heard in Washington D.C. -- unlike any time in our past. The fight for swipe fee reform is proof that we really have been able to make a difference if we all work together. We can mobilize at the grassroots [level]. We have a store in every Congressional district and I think we're learning how to capitalize on this. Passage of Durbin and defeat of Tester's bill is proof positive that anything is possible. We took on Wall Street and the big banks, on behalf of our businesses and our customers, and we beat them soundly.
Counter to most people, I think increasing tobacco taxation and regulation might almost be a blessing in disguise for us. It has forced us to be better retailers and added urgency to our growth of foodservice. You can't steal second base with one foot on first, so I think tobacco pressures made us focus our game.
Looking at the competitive landscape, we obviously see chain drugstores like Walgreens coming after the convenience business, but I'm more concerned with the fast-feeders, the QSRs like McDonald's, going after the snack occasion, the healthy meal options, and most importantly, the dispensed beverage business. In Colorado, McDonald's is very aggressive on fountain drink pricing -- 99 cents for any size cold drink, for example. They have blown it out of the water with their coffee program, and are now launching drinks like smoothies and frozen lemonade. McDonald's same-store sales just keep going up because they've been able to take what people perceive to be a very consistent brand image -- though recognized as consistent for unhealthy, mediocre food -- and use that to establish credibility in other areas like salads, premium coffee, etc. They have demonstrated to our industry that you can earn credibility with customers and a new perception when you innovate.
Longo: As a petroleum distributor, what are your thoughts on current fuel prices? How much higher are they likely to go this year and why?
Oneslager: Consumers have very limited discretion when it comes to spending on fuel. They have to drive to work. They have to take the kids to school. What happens is that they have to squeeze spending in other areas, which means fewer disposable dollars to spend on other things we sell. Other retail stores are just as affected by high fuel prices as our channel. Consumers trade down across the board.
I think there are a lot of misperceptions in our industry about the relationship between fuel prices and customers coming into the store. Today's mindset overstates that relationship. Consumers cut back on all purchases, not just the one 50 feet from the gas pump. The impact of fuel pricing on store traffic varies greatly by location, but getting gasoline customers from the forecourt into the store has been a problem, regardless of gas prices. We haven't really seen anybody do a really good job at that. I think we see way too few consumers that purchase gas from us, but do not consider an in-store purchase.
Companies like Sheetz seem to have a program that is working well -- converting those customers to not just a $3 ring for a packaged good, but a much higher ring on foodservice.
Longo: You became a 7-Eleven Business Conversion Program franchisee about three years ago. Are you happy with that decision? What has been the biggest improvement at your convenience stores since the conversion?
Oneslager: Overall, I'm thrilled with our 7-Eleven relationship. We've learned things on our end and being one of the first multi-unit BCPs, 7-Eleven has learned things from us. We've been doing it more than three years now and we've seen a tremendous sales lift in the stores. Our first preference now is to expand with the 7-Eleven brand. My team's focus is to be the best 7-Eleven franchise out there. The brand has amazing power, especially their proprietary products. Slurpees drive a lot of traffic for us. They are also a master marketer -- the Zenga game card promotion, for example, was very successful. The BCP model has some key differences than the traditional franchise model, but from the customer's eyes and experience, it is just the same.
Longo: Customers' needs change constantly. What changes have you made at your stores to meet customers' needs? How are these changes expressed in your newer store formats?
Oneslager: For the most part, I don't see customers' preferences and tastes changing such that we have whole new categories in the store. What I do see is changes in what they want and expect in those existing categories. I'd say the biggest thing has been a growing awareness of healthy food. We have a number of healthier food options in our stores -- fresh-cut fruit, salads, energy bars. We are highlighting that. You don't have to sell a lot, but it gives the customers permission to shop your store, and then make their own choices.
Take Subway, for example. They drew a lot of attention with their Jared commercial about low-calorie subs. But many customers, when they get to the store, buy their higher-calorie offerings. Having healthier selections helps squelch that veto vote from the one person in the family who wants a low-cal choice.
Longo: The challenge to build closer connections with shoppers is a mandate before all retailers today. How have you traditionally marketed your company's offerings to consumers and what's different about how you do it now? (ie., e-mail, social networks, etc.)
Oneslager: In the area of social networking, we're just following along with what the brands we represent (7-Eleven, Shell and Conoco) are doing. Being on Facebook and Twitter is just table stakes these days for most companies. I think the real payback and opportunity will be how we use these platforms internally. Why shouldn't we communicate with our employees on a 24-hour basis when everything else is immediate? Employees will be able to ask for help in real time and get immediate answers. Many of our younger employees today don't even use e-mail -- it's text or Facebook. We need to use these technologies to be relevant to our employment base.
Longo: Please discuss the role manufacturers play in today's convenience store industry and how the retailer-supplier relationship has evolved over the past five years? How is it likely to change in the next five years?
Oneslager: When it comes to manufacturer-retailer relationships, ultimately the outcome you get is the outcome you deserve. If we aren't getting good deals it's because we're seeing a lot of consolidation and vertical integration in the supplier community. Historically, the major CPG manufacturers have brought an entrepreneurial spirit to their representatives in the convenience store channel. We have been blessed with some really great people. As these companies get larger and larger, I'm worried we will lose that.
Longo: Switching gears, what are the foremost non-industry-specific retailing issues that are on your mind?
Oneslager: My biggest personal concern revolves around education. As federal budget issues trickle down to the state level, I'm worried about the dismal state of our public school system. If you saw the documentary, "Waiting for Superman," (the 2010 documentary from "An Inconvenient Truth" director Davis Guggenheim about America's failing public schools), it seems like we've become accustomed to failure. K-to-12 education in Denver is taking a big hit due to budget constraints. As a nation, we are falling behind in competitiveness with the rest of the world, but more importantly, from a moral standpoint, it's not right. There is not much that Obama says that I agree with, but he has called our failing public education system 'the biggest civil rights issue of our generation.' For once, I agree with him.