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VIEWPOINT By Don Longo, Editorial Director

End-of-Year Musings It was an exciting year for the c-store industry and Convenience Store News

as there another acquisition last week? It just seems that way. In a little more than a year, we saw the acquisition of at least a dozen venerable convenience store retailers, including Susser Holdings/Stripes, Nice N Easy, Tedeschi Food Shops, The Pantry, The Jones Co./Flash Foods, Hess, Village Pantry, Timewise and others. Well, nobody’s going to say 2015 was a boring year. With strong foodservice sales and ample fuel margins, most convenience store retailers should be pretty happy about 2015. It was a pretty exciting year for Convenience Store News, too. As I write this, we are getting ready to host our second annual Fuels & Technology Summit featuring Joe Petrowski, former CEO of Gulf Oil and Cumberland Farms, and Ed Collupy, former IT leader of The Pantry. We’re looking forward to an informative and fun event on Florida’s Singer Island. Last month, we held our 29th annual Hall of Fame dinner and awards ceremony, honoring three of the top leaders in the c-store industry: Kwik Trip’s Don Zietlow, Coca-Cola’s Jay Ard and Speedway’s Tony Kenney. (See page 22 for full Hall of Fame coverage.) And, continuing our leadership in the c-store media world, we were informed last month that the CSNews 2015 Foodservice Summit, sponsored by Tyson Convenience, was named a finalist for Best Sponsored Event by Folio: magazine. Held at Chicago’s Kendall College in March, the Foodservice Summit was a unique experience for a dozen leading c-store foodser-

vice professionals. Among the highlights was a “Taste of Chicago” culinary tour led by Rick Bayless, Bravo’s “Top Chef Masters” champion with his authentic Mexican cooking. This year, CSNews also continued its leadership in digital innovation with the launch of Category For comments, please contact Spotlights, a twice-monthly Don Longo, Editorial Director, digital newsletter that puts at (201) 855-7606 or dlongo@stagnitomail.com. the spotlight on best-selling products by category, provides up-to-the-minute news and trends on key category and subcategory data, and unbiased non-paid new product information for convenience store retailers. I’m also proud we tripled attendance this year at our second annual Top Women in Convenience awards reception, held in October. This is the only industry program of its kind that recognizes and encourages the professional advancement of women in the c-store industry. I’m proud as well of our entire editorial staff who won a national silver Azbee Award for the team’s indepth story on 7-Eleven’s franchisee network, while also winning a gold award in regional competition for our Store of the Future supplement. I hope all of you had an equally rewarding year, and I wish you a wonderful holiday season and a new year filled with health, happiness and spectacular success.

CSNews has been recognized with more editorial awards, including the prestigious Jesse H. Neal Award for business journalism, in the past six years than any other industry publication. 2013 Jesse H. Neal National Business Journalism Award Best Single Issue, October 2012 2013 Jesse H. Neal National Business Journalism Award Finalist, Best Profile, August 2012 2008 Jesse H. Neal National Business Journalism Award Best Single Issue, October 2007 2010 Trade Association Business Publications Intl. Tabbie Awards Honorable Mention, Front Cover Illustration, October 2009 2009 Trade Association Business Publications Intl. Tabbie Awards Gold, Front Cover Illustration, February 2008 Honorable Mention, Best Single Issue, October 2008

2015 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Single Article, February 2014 2014 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Full Issue, October 2013 2014 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Single Article, February 2013 2013 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Full Issue, October 2012 2011 Silver Eddie Award, Folio: magazine Business to Business, Retail, Full Issue, October 2010 2011 Silver Eddie Award, Folio: magazine Business to Business, Retail, Best Single Article, October 2010 2009 Gold Ozzie Award, Folio: magazine Best Use of Illustration, October 2008 2009 Silver Eddie Award, Folio: magazine Business to Business, Retail, Full Issue, October 2008 2009 Bronze Eddie Award, Folio: magazine Business to Business, Retail, Website

2015 American Society of Business Publication Editors, National Silver Azbee Award Best Profile (long form), February 2014 2015 American Society of Business Publication Editors, Midwest Regional Gold Azbee Award Best Special Supplement, November 2014 2015 American Society of Business Publication Editors, Midwest Regional Silver Azbee Award Best Profile (long form), February 2014 2013 American Society of Business Publication Editors, Midwest Regional Bronze Azbee Award Best Editorial/Commentary, July 2012 2010 American Society of Business Publication Editors, Northeast Regional Silver Azbee Award Feature Article Design, November 2010

WWW.CSNEWS.COM | DECEMBER 2015 | Convenience Store News 3

CONTENTS DECEMBER 2015

VOLUME 51/NUMBER 12

22 | COVER STORY Family Values

Don Zietlow makes sure all members of Kwik Trip’s family share in the company’s riches. 28 | The Listening Leader Coca-Cola’s Jay Ard finds success by focusing on others for nearly four decades. 32 | Getting & Staying on Track Retailer Executive of the Year Tony Kenney drives positive change at Speedway.

INDUSTRY ROUNDUP 12 | CST Moves Into Southeast With Flash Foods Deal

16 | Eye on Growth

14 | Florida Continues to Be a C-store Hot Spot

18 | Retailer Tidbits

16 | In Memoriam

18 | Supplier Tidbits

HOW TO DO WORLD-CLASS FOODSERVICE 44 | How to Leverage Coffee All Day Long 44 | Call to Action: Foodservice 101 46 | Call to Action: Foodservice 201 48 | Call to Action: Foodservice 301 Convenience Store News (ISSN 0194-8733; USPS 515-950) is published 12 times per year, monthly, by Stagnito Business Information, 570 Lake Cook Rd. Deerfield, IL 60015. Copyright © 2015 by Stagnito Business Information. All rights reserved. Subscriptions: One year, $93; two years, $152. One year, Canada, $110; two years, Canada, $175. One year, foreign, $150. Payable in advance with a bank draft drawn on a U.S. bank in U.S. funds. Single copies, $10, except foreign, where postage will be added. Printed in U.S.A. Periodicals postage paid at Deerfield, IL, and at additional mailing offices. POSTMASTER: Send address changes to Convenience Store News, P.O. Box 1842, Lowell, MA 01853.

4 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

MICHELOB ULTRA: THE SUPERIOR LIGHT BEER THAT’S PERFECT FOR THE NEW YEAR. ‐Here’s Why‐ Shoppers want to get in shape. • Studies show an estimated 84% of Americans make New Year’s Resolutions, with losing weight and staying fit topping the list of most popular goals.*

Ultra wins with convenience stores. • Over the last year Ultra has grown $110 million in sales to become a half‐billion dollar brand in C‐Stores.**

Ultra has valuable shoppers. • Ultra Shoppers Are Loyal: 65% of Ultra Shoppers buy because it’s the brand they always get.***

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* Nielsen insights 2015 ** IRI – TUS Convenience – 52weeks ending 9-6-15 *** IPSOS Shopper Poll 2nd Quarter 2015

CONTENTS 111 Town Square Place, Suite 400, Jersey City, NJ 07310 (201) 855-7600 Fax: (201) 855-7373 www.csnews.com

BRAND MANAGEMENT

FEATURES 38 | No Extinction for This Dino Sinclair Oil pursues national expansion as it celebrates its 100th anniversary.

CATEGORY MANAGEMENT COLD VAULT

64 | Milking It What Circle K gained from being c-store pilot for The Great American Milk Drive. TECHNOLOGY

68 | Mobile Movement C-store chains shift technology focus to apps and EMV.

DEPARTMENTS VIEWPOINT

3 | End-of-Year Musings It was an exciting year for the c-store industry and Convenience Store News.

Group Brand Director (330) 840-9557

Ron Lowy rlowy@stagnitomail.com

EDITORIAL Editorial Director (201) 855-7606 Editor-in-Chief (201) 855-7608 Managing Editor (201) 855-7614 Senior Editor (201) 855-7618 Field Editor (201) 855-7619 Assistant Editor (201) 855-7604 Contributing Editor (303) 741-3377 Contributing Editor (201) 280-2614 Art Director (224) 632-8245 Director of Market Research (201) 855-7605

Don Longo dlongo@stagnitomail.com Linda Lisanti llisanti@stagnitomail.com Brian Berk bberk@stagnitomail.com Melissa Kress mkress@stagnitomail.com Angela Hanson ahanson@stagnitomail.com Danielle Romano dromano@stagnitomail.com Renée M. Covino reneek@aol.com Tammy Mastroberte tmastroberte@gmail.com Michael Escobedo mescobedo@stagnitomail.com Debra Chanil dchanil@stagnitomail.com

MARKETING & PROMOTION Audience Development Manager (646) 217-1045 List Rental (800) 529-9020 Reprints and Licensing (877) 652-5295 Subscriber Services/Single-Copy Purchases

Shelly Patton spatton@stagnitomail.com The Information Refinery Brian Clotworthy Wright’s Media sales@wrightsmedia.com (978) 671-0449 Stagnito@e-circ.net

8 | CSNews Online 20 | New Products STORE SPOTLIGHT

74 | Bigger & Better in Texas Alon’s newest 7-Eleven prototype store in El Paso caters to professional drivers. EXPERT’S VIEW

78 | The Impact of Election Day 2015 Employer issues will continue to creep into state capitols and city halls across the country. EXPERT’S VIEW

82 | A Peek Into the M&A Marketplace of 2016 Growth in multiples are under pressure and may have peaked.

EVENTS • MEDIA • RESEARCH • INFORMATION UNITED STATES MARKETS Convenience • Grocery/Drug/Mass Store Brands • Specialty Gourmet Multicultural • Green

President & CEO Harry Stagnito Chief Information Officer Kollin Stagnito Vice President & CFO Kyle Stagnito Senior Vice President, Partner Ned Bardic Chief Brand Officer Korry Stagnito Vice President/Custom Media Division Pierce Hollingsworth (224) 632-8229 phollingsworth@stagnitomail.com Production Manager Anngail Norris Human Resources Manager Sandy Berndt Strategic Marketing Director Bruce Hendrickson (224) 632-8214 bhendrickson@stagnitomail.com Director of Events Ken Romeo (203) 295-7058 kromeo@stagnitomail.com Director of Digital Strategy Matt McGuire (224) 632-8180 mmcguire@stagnitomail.com

CONVENIENCE STORE NEWS AFFILIATIONS Premier Trade Press Exhibitor

OUT & ABOUT

88 | Fuels, Tech & Much More SIGMA Annual Meeting brings together thought leaders in the petroleum retail market. 106 | Getting to the Core

6 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

CANADIAN MARKETS Convenience Pharmacy Foodservice

EDITORIAL ADVISORY BOARD Edward Davidson ER Davidson & Associates (7-Eleven Inc., retired) Rick Crawford Green Valley Grocery

Kyle McKeen Alon Brands Inc. Richard Mione GPM Southeast

Ray Johnson Speedee Mart

Matt Paduano Nice N Easy Grocery Shoppes

Jack Lewis Village Pantry LLC

Jonathan Polonsky Plaid Pantries Inc.

Roy Strasburger Convenience Management Services Inc. Jon Urbanik CST Brands Inc.

The contents of this publication may not be reproduced in whole or in part without the consent of the publisher. The publisher is not responsible for product claims and representations.

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TOP 5 Daily News Headlines The most viewed articles online. 1 | Casey’s Uncovers Skimming Devices at Stores Casey’s General Stores Inc. confirmed credit card skimming devices were discovered at six of its locations in Nebraska and one store in Iowa in October. Skimmers are devices criminals illegally place at the dispenser point-of-sale, often in hopes of stealing customer credit card and debit card information. 2 | The 10 Challenges All C-store Distributors Will Face As the convenience store industry and the world in which it operates face large-scale changes, convenience distributors in turn must prepare for the challenges ahead. “Most people spend their time working in the business and not necessarily on the business,” according to Dr. Tony Vercillo. 3 | Speedway’s Hess Conversion Way Ahead of Schedule Approximately 80 percent of the conversions of former Hess retail sites to the Speedway brand name have been completed, which is way ahead of the original timeline. Thus far, nearly 1,000 of the 1,245 acquired Hess locations have been converted to the Speedway brand. 4 | Sunoco LP to Use Stripes as Growth Platform Three months after Sunoco LP completed its acquisition of Susser Holdings Corp., the master limited partnership is pleased with the results thus far and plans to use the Stripes convenience store brand as a strong platform for organic growth and acquisitions, company officials said during Sunoco’s fiscal third-quarter earnings call on Nov. 5.

POLL

5 | Western Refining Makes Offer to Buy Northern Tier In late October, Western Refining submitted a non-binding proposal to acquire Northern Tier Energy LP for $2.56 billion. If the merger is consummated, Western Refining’s retail division of approximately 230 convenience stores and gas stations in Arizona, Colorado, New Mexico and Texas under the GIANT, Mustang, Sundial and Howdy’s brands would join forces with Northern Tier’s retail operation, which operates approximately 165 c-stores and supports 99 franchised locations primarily in Minnesota and Wisconsin under the SuperAmerica LLC trademark.

Are you actively trying to attract the fill-in shopper to your convenience store(s)?

8 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

CSNews 2015 Store Design Contest Winner Galleries

Some consumers think all convenience stores are alike, but channel insiders know this isn’t true. There are many features that differentiate a retailer from its competitor down the block: foodservice offerings, prices and added services, to name a few. But a c-store retailer needs to draw consumers in the door for them to find this out, and a key to doing that is creating a store design that sets it apart from the pack. This year, the 10th annual Convenience Store News Store Design Contest recognized 14 c-store chains excelling in this area. Take a photo tour of each winner. For more exclusive stories, visit the Special Features section of www.csnews.com.

PRODUCT HIGHLIGHT The most viewed New Product online.

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Slim Jim Flavors of America meat sticks feature regionally relevant flavors with national appeal, according to maker ConAgra Foods. Varieties include Cali Taco, New York Buffalo and Philly Cheesesteak. Cali Taco contains a slightly spicy taco seasoning that provides a bold punch of flavor. New York Buffalo is loaded with the spiciness of cayenne peppers combined with a vinegary tang. Philly Cheesesteak has the classic Philly flavor with peppers and onions rounded out with a peppered, meaty flavor. Slim Jim Flavors of America meat sticks were available for shipment beginning in November. ConAgra Foods Inc. Omaha, Neb. (877) 266-2472 www.conagrafoods.com

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INDUSTRYROUNDUP FAST FACT

Mobile payment saw a massive leap in usage at convenience store chains in just one year. Slightly less than onequarter of chains report now offering this form of payment to customers, compared to just 7.8 percent of chains last year. — Convenience Store News 2015 Technology Study (page 68)

QUOTABLES

“Our co-workers are the greatest asset we have. They truly are. The 40-percent profit sharing makes them part of the company. Good customer service, clean stores and clean bathrooms don’t happen without our co-workers taking pride in their company.” — Don Zietlow, Kwik Trip Inc. (page 22)

CST Moves Into Southeast With Flash Foods Deal The 164-store acquisition will be the Corner Store parent’s largest to date

ST Brands Inc. is continuing its acquisition journey across the United States, this time targeting the Southeast. San Antonio-based CST entered into a definitive agreement to purchase 100 percent of the outstanding shares of Flash Foods Inc. and certain related assets from The Jones Co. This will mark CST’s largest acquisition in its history. Included in the $425-million transaction are 164 Flash Foods convenience stores in Georgia and Florida; 21 branded quickservice restaurants; a land bank of 13 real estate sites to build new-to-industry stores; a merchandise distribution company operating a 90,000-square-foot distribution center in Georgia; and fuel supply operations. According to CST, this acquisition will allow the company to extensively grow its network. “With our largest network purchase to date, we are excited to work with the great people at Flash Foods,” said Kim Lubel, chairman and CEO of CST Brands. “The Jones family, along with its accomplished leadership team, has built a strong company with a customer-focused culture that aligns perfectly with CST’s core values and strategic vision for growth. We are looking forward to entering this new market with such a solid foundation in Flash Foods.” CST Brands sought out Waycross, Ga.based Flash Foods specifically because

12 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

its c-stores are mostly 3,000 square feet or more, allowing the parent of Corner Stores to implement its highly successful made-to-order foodservice program, Lubel explained during the company’s 2015 fiscal third-quarter earnings call on Nov. 4. The Jones Co. was happy to select CST from a “formidable group of potential buyers,” said Jimmy Jones, chairman and CEO of Flash Foods. “We believe the service culture at CST Brands and its attitude toward both customers and team members makes CST a great fit for the Flash Foods team. We are excited to work together on finalizing this transaction.” Once the deal is completed, Lubel said she is excited to implement several practices CST can learn from Flash Foods. Most notable is its top-notch information technology department. “There is a lot of innovation that we will look at differently across our network,” Lubel said. CST currently operates approximately 1,900 c-stores in the United States and Canada.

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INDUSTRYROUNDUP

Florida Continues to Be a C-store Hot Spot Wawa and 7-Eleven are making big plans for the Sunshine State

lorida is not just popular with tourists. The Sunshine State is also drawing a lot of interest from convenience store chains, like Wawa Inc. and 7-Eleven Inc. Wawa, a powerhouse in the Mid-Atlantic states, plans to significantly grow its Florida footprint, just three years after opening its first store in the state in Orlando. The Pennsylvania-based retailer is charting a 120-store expansion in South Florida between 2017 and 2022. The first new South Florida locations will open in Palm Beach and Broward counties, followed by stores in Miami-Dade County in 2018. “Our plan was always to have a presence across most of the state,” Wawa President and CEO Chris Gheysens said during an announcement at the Perez Art Museum Miami on Nov. 9. Wawa is drawn to the region because of its dense population and transplants from Wawa’s northern footprint who are familiar with the brand, Gheysens said. Wawa is not the only c-store chain making a

14 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

splash. Dallas-based 7-Eleven and its wholly owned subsidiary SEI Fuel Services Inc. (SEI Fuels) purchased 101 Florida gasoline station locations from Biscayne Petroleum LLC and Everglades Petroleum LLC. The acquisition includes 94 controlled real estate locations, seven fuel-supply-only contracts and some related assets. The operations are located primarily in Miami, Dade, Palm Beach and Broward counties, with a few sites in Naples. The gas stations will continue to sell Mobil-branded fuel, and a number of the outlets are being considered for rebranding as 7-Eleven convenience stores, the retailer said. SEI Fuels entered the wholesale fuel business during the fourth quarter of 2012 when 7-Eleven and SEI Fuels acquired the assets of TETCO Inc. and its affiliates, which ran a Texas-based fuel distribution and convenience retailing business. Both Biscayne Petroleum and Everglades Petroleum were formed in 2011 for the purpose of acquiring convenience stores and gas stations that were being sold by Exxon Mobil Corp. The combined company was led by Carlos Fontecilla and Arturo Zizold. Through those initial ExxonMobil acquisitions and several smaller ones over the years, the company achieved significant scale and market share within its markets. Matrix Capital Markets Group Inc. provided merger and acquisition advisory services to Biscayne Petroleum and Everglades Petroleum.

INDUSTRYROUNDUP

eye on growth n Energy Transfer Partners LP (ETP) and Sunoco LP

announced that ETP will dropdown its remaining 68.42-percent interest in Sunoco LLC and 100-percent interest in the legacy Sunoco retail business to Sunoco LP for $2.226 billion. The move includes 438 company-operated Sunoco and APlus convenience stores. n Murphy USA Inc. opened its

1,300th convenience store and is on pace to open 70 new stores this year. The chain is eyeing an additional 60 to 80 new c-stores in 2016. n World Fuel Services Inc. closed on its

purchase of 100 percent of the equity securities of Pester Marketing Co. and its wholly owned subsidiaries. The deal included 57 convenience stores. n Town Star Holdings LLC, an affiliate of Junonia

Capital LLC, is acquiring five RaceTrac Petroleum Inc. convenience stores in Florida. The average store size is approximately 4,200 square feet. n MFA Oil Co. purchased Elaine

Petroleum Distribution Inc. The purchase of the refined fuels supplier strengthens MFA Oil’s

position in eastern Arkansas, as the company expands its operating territory. n CV Oil LLC completed its

acquisition of five convenience stores in western Virginia and northeastern Tennessee from various related entities of Sunshine Fuel LLC. The stores will be rebranded under the CITGO banner. n 7-Eleven Inc. has set a fran-

chising goal to recruit 100 veterans by the end of 2016. Qualified vets can receive up to a 20-percent discount on the initial franchise fee. n NAS Acquisition Inc. completed

a share exchange agreement with the shareholders of On the Move Corp. With this transaction, On the Move will — subject to financing — acquire up to 50 c-stores in Florida in 2016. n Cumberland Farms Inc.

entered Central Florida with four new concept stores. The openings increased its presence to nearly 50 stores in the state.

in memoriam n Dan Arnold, founder of the Road Ranger chain,

passed away Nov. 17 at the age of 58. He opened his first gas station in Rockford, Ill., in 1984, three years after he became the first member of his family to graduate from college. Prior to that, he served four years in the National Guard. In addition to his work in the industry, he was known as a philanthropist and supporter of ministries that helped addicts recover. Arnold and his company supported dozens of local charities. He is survived by his wife, Linda, and twin daughters, Christina and Giselle.

16 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

n Boyett Petroleum CEO Carl Stanton Boyett passed away

Nov. 8 at the age of 70. He is survived by his wife, children, grandchildren and great grandchildren. He joined Boyett Petroleum in 1970 and became CEO in 2004. Today, the company serves as a wholesale distributor that supplies more than 500 fuel stations in California and Nevada. It also owns and operates more than 40 retail sites under the Cruisers and Kwik Serv banners. Boyett served on numerous industry boards, including NACS, SIGMA, Petroleum Marketers Association of America, and several regional associations.

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INDUSTRYROUNDUP

retailer tidbits n CST Brands Inc. will conduct

a Network Strategic Review in California to determine the fate of 76 company-operated convenience stores in the Golden State. These stores do not fit the Corner Store parent company’s future strategy.

n Stripes LLC will open an office in

Dallas, close to where its parent company Sunoco LP is based. Stripes, however, plans to maintain a “significant presence” in its current hometown of Corpus Christi, Texas. n Tom Thumb Food Stores

n QuikTrip Corp. was one of two com-

panies accepted into the Oklahoma Quality Jobs Program. The chain pledged to create 137 jobs over the next five years for a maximum benefit to the retailer of $4.27 million from the state Commerce Department. n 7-Eleven Inc. inked a five-year supply agreement with

Core-Mark Holding Co. Inc. Under the pact, CoreMark will service approximately 900 7-Eleven stores in three western regions: Las Vegas, Salt Lake City and Sacramento.

is adding a new drive-thru liquor store concept to an existing Crestview, Fla., store. The standalone Tom Thumb Liquors location will also include more than 2,500 square feet of retail space. n Fresh & Easy Neighborhood Market

Inc. filed for Chapter 11 bankruptcy for a second time. It listed debt between $100 million and $500 million in its Oct. 30 petition.

supplier tidbits n Anheuser-Busch InBev finalized an

agreement to purchase SABMiller for $107 billion. To ease antitrust concerns, SABMiller will sell its 58-percent stake in a venture with Molson Coors for $12 billion. This sale includes global rights to the Miller brand name and gives Molson Coors full control of operations. Molson Coors will also have the rights to other brands sold in the U.S. including Redd’s, Peroni and Pilsner Urquell.

outstanding shares through an approximately $1.91-billion cash and stock merger transaction. n Chase is launching Chase Pay for

in-store, in-app and online purchases with Merchant Customer Exchange — which includes retailers such as 7-Eleven, Walmart, Target and Shell — as its premier partner. Chase Pay will be available to customers in mid-2016.

n The Food and Drug Administration

gave Swedish Match the go-ahead to market eight new snus smokeless tobacco products under the General brand name. This marks the first time the agency has authorized the marketing of new tobacco products through the premarket tobacco application (PMTA) pathway. n Snyder’s-Lance Inc. signed an agreement with Diamond

Foods Inc., whereby it will acquire all of Diamond’s

18 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

n Heineken USA is bringing back its

“What’s Your Play?” portfolio retail program, running Jan. 1 through Feb. 28. The program will kick off with a Twitter sweepstakes. n Through the acquisition of Patriot Capital Corp.’s

equipment finance origination platform, State Bank and Trust Co. has created the Patriot Finance Division. Terms of the transaction were not disclosed.

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iDOOR by Anthony

The MasonWays Dual Recycling Center features two separate containers, one for mixed recyclables and the other for trash. Each container comes with separate inner liners and is clearly labeled for easy discarding of aluminum cans, plastic bottles, Styrofoam containers or newspapers. The MasonWays Dual Recycling Center is weather-resistant and each side can accommodate poster advertisements. It can also be ordered with casters for easier movement.

The iDOOR by Anthony uses a transparent LCD that’s embedded within refrigeration cooler or freezer doors and plays full-motion video and animation in full high definition (1920 x 1080) at the point-of-purchase while giving customers the ability to still see the products contained within the cooler or freezer. This technology delivers highdefinition visual promotions that can target and connect with shoppers’ lifestyles and demographics, according to Anthony. The iDOOR displays messages based on time of day, day of the week, special events and seasons.

MasonWays Indestructible Plastics LLC West Palm Beach, Fla. (800) 837-2881 judd.ettinger@masonways.com www.masonways.com

Anthony Sylmar, Calif. (818) 365-9451 sales@anthonyintl.com www.anthonyintl.com

Game Leaf Black Cherry Game Leaf introduces the first limitededition flavor, Black Cherry, in its line of Natural Rolled Leaf Cigars. Available beginning in January, the Black Cherry cigarillos from Swedish Match North America will be offered in “2 for 99 cents” and “Save on 2” price points, while supplies last. The existing Game Leaf flavor lineup includes: Sweet Aromatic, Wild Berry, Natural and Cognac. Swedish Match North America Inc. Richmond, Va. (804) 787-5100 www.swedishmatch.com

Bud Light Apple Bud Light Apple is a light-bodied beer that blends the refreshing taste of Bud Light with a 100-percent natural apple flavor. The exclusive and limited release, introduced in Georgia, has a slightly sweet finish that’s smoother than conventional apple ales and ciders, according to maker Anheuser-Busch. With a 4.2-percent ABV, Bud Light Apple is available in six- and 12-packs of 12-ounce glass bottles and 12-packs of 12-ounce cans. Anheuser-Busch St. Louis (314) 577-2000 www.anheuser-busch.com

Qwickserve by Petrosoft Qwickserve by Petrosoft is a made-to-order foodservice software application that enables customers to order items directly through an in-store touchscreen or right from their smartphone or tablet. The technology solution for the foodservice industry provides convenience, greater accuracy and a tailored experience for both the retailer and customer, according to Petrosoft. Qwickserve allows retailers to create custom online menus that give customers a complete branded experience, and edit their menu selections by time of day or season. Users can also track sales, manage workflow and stay on top of their orders with ease; create and run a wide range of loyalty programs, promotions, discount prices and other meal options; increase order efficiency and decrease error by printing out duplicate receipts for customers and the kitchen; and reduce IT expenses through the complete web-based service. The solution is 100-percent compatible with Petrosoft’s C-Store Office and SmartPOS. Petrosoft LLC Pittsburgh (888) 306-0640 info@petrosoftinc.com www.petrosoftinc.com 20 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

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Family Values Don Zietlow makes sure all members of Kwik Trip’s family share in the company’s riches By Melissa Kress

ong before he became CEO of one of the Midwest’s leading convenience store chains, Don Zietlow made a promise to himself and his wife LaVonne that if they were ever fortunate enough to own or control a company, he would share the profits with all his co-workers. Raised on a farm near La Crosse, Wis., Zietlow began his career in the food retail business as a route driver for Gateway Foods, a wholesale grocery company. He made his promise “at the end of a particularly long and grueling day in 1957,” he recalled. Zietlow, this year’s retailer inductee into the Convenience Store News Hall of Fame, is a man of his word. Fourteen years after making that pledge, he purchased his first convenience store and took the first step toward fulfilling his promise. During his tenure with Gateway Foods, Zietlow saw its owner Reinhart expand into the convenience channel with five c-stores. John Hanson, who would later become his business partner, ran the stores while Zietlow took the lead on retail operations. About a week before Christmas in 1971, Zietlow was speaking to a group of 20 retailers in La Crosse and told them they had two choices: go big or become a convenience store. At the time, the competition was SuperValu, Kroger and Piggly Wiggly; there were no Walmarts. One of the retailers stood up and said, “If you’re so smart, buy my store.” Zietlow’s response: “You just sold it.” And so began the founding of Kwik Trip Inc. “That night, I had to go home and tell my wife LaVonne I bought a store the week before Christmas,” he recounted. “I had no one to run the store, but

didn’t have any option in front of [those] 20 retailers.” A solution presented itself the very next day when Hanson approached Zietlow about buying half the store. A week later, the two new store owners and Gateway Foods decided to join their stores for a combined six locations and form a corporation. Zietlow, Hanson and Reinhart each became a onethird owner of Kwik Trip. Zietlow continued as president of Gateway Foods for the next 18 years as the company grew and saw more and more success. He wore the hats of both wholesaler and retailer. The next chapter for Kwik Trip came in 1989, when Reinhart sold Gateway Foods to Zietlow. By then, Zietlow had acquired interest in a few grocery stores. Reinhart traded its one-third interest in Kwik Trip for his interest in the grocery stores. Now as the two-thirds owner of the convenience stores, Zietlow remembered the promise he made to his wife back in 1957. “I said, as long as we are two-thirds owners, let’s share 40 percent of our pretax profits with our co-workers,” he explained. “I told my partner, John Hanson, that if he agreed to the 40-percent profit sharing, I would sell him half of what I bought from Reinhart, making us 50/50 partners. He agreed.”

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Change in the air

Over the next decade, Kwik Trip continued to grow, building new stores and acquiring others. The Zietlow family in 2000 seized the opportunity to buy the entire company and agreed to continue sharing 40 percent of the pretax profits with their co-workers. “For the past 15 years, business has been very good. We have grown to sales of over $5 billion per year. We have more than 475 stores and 17,000 co-workers. And we still share 40 percent of the pretax profits with all the co-workers,” Zietlow said. “Life is good.” With the newest industry Hall of Famer guiding the way, Kwik Trip has become a leader and mastered how to navigate change as the convenience channel evolved from the traditional smokes-and-gas operation to a serious contender on the fresh-food front. Soon after buying out his first partner, Zietlow asked himself why someone should come in and shop his company’s stores. The answer led Kwik Trip on a journey, which over time has resulted in the chain emerging as a powerhouse in the c-store industry. “Cigarettes were 50 percent of our business and 50 percent of our profit. But I could see that going away,” Zietlow observed. “[I asked myself], ‘How could we be different?’” With his background in operating large-volume grocery stores, the executive noticed consumers were spending $200-$300 every two weeks on groceries, but in between those trips to the grocery store, they

During his acceptance speech, Zietlow humbly said: “i’m not sure if i am worthy of this award, but our people are.”

24 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

Convenience Store News editorial Director Don Longo (middle) and ricker Oil Co. President Jay ricker presented Zietlow with his award.

were running out of staples like milk, bread, butter, eggs, potatoes and bananas. To meet consumer need for these basic commodities, Zietlow began to explore building a Kwik Trip Support Center where the retailer could process its own milk and make its own bread, sweet goods, pizzas, soups, salads and more. The move would not only control costs, but also allow Kwik Trip to control the quality of its food. Today, the Support Center is an advanced, multifaceted operation. The chain makes its own products in the Kwik Trip Bakery, Kwik Trip Dairy and Kwik Trip Kitchen. Of course, change has not come without some hiccups, Zietlow acknowledges. “By 2002, I thought it would be a good idea to increase our focus on selling ready-to-eat food. What a disaster. We lost millions,” he said. But Kwik Trip did not give up. It kept working at it and today, food is about 28 percent of its sales and 45 percent of its gross profit. While Kwik Trip sells a lot of food, the sales wouldn’t be where they are now were customers not shopping the stores, and commodities help bring them in the door. “We have about 6.5 million customers visit our stores every week. Many of these customers are driven by values on eggs and butter, milk and bread, and bananas, potatoes and onions. We sell 50 million

pounds of bananas a year. We also sell a lot of apples, oranges and potatoes. We sell 800,000 pounds of milk a day,” Zietlow explained. And though well-known for its bananas, it’s not all about the fruit. “We also sell a lot of doughnuts. We sell 2.5 million doughnuts a week. Not everybody eats bananas; some people eat doughnuts,” he added. In conjunction with this emphasis on fresh food, food safety is of critical importance to the chain. Realizing how a food-related illness could hurt the company, Kwik Trip invested heavily in creating its own

“I always say we have to take care of two people: As owners, we have to take care of our co-workers as family; and our co-workers have to take care of the customers. If we take care of those two people, everything is good.” Food Safety and Quality Assurance Lab. It also has an independent, third-party testing provider that works in the lab, conducting 3,000 to 4,000 tests per week. “We test all the product coming in and all the product going out,” Zietlow noted. Coupled with the lab and the production facilities on 90 acres in La Crosse is also Kwik Trip’s own Distribution Center and Convenience Transportation. Every single store gets a delivery every day, whether it is three miles from the center or 300 miles away. ChaLLenges & rewarDs

Getting food right has been a big challenge for Kwik Trip. Changing from an “easy life” of selling mainly cigarettes and soda to a “tough life” of doing food right — having both great-tasting food and offering a value — did not happen overnight. “For us to digest food was hard. It was really a bloodbath the first two or three years, until we learned how to do it,” Zietlow said. “Today, it’s relatively easy for us and it’s a big part of our program.” Also on the subject of challenges, the chief executive points to credit cards, government regulations and keeping

What the Future Holds With more than 50 years in the retail business under his belt, Don Zietlow does not know what the future holds for him. “I don’t really know how long I will be working. That’s up to the children. As long as I am healthy and make a contribution, I think they will keep me around,” he said. He noted the company is in good hands with its management group and in good hands with the family ownership. He believes a family member will take on the responsibility of running Kwik Trip when the time comes for him to step down as CEO. One thing he is pretty sure of is that Kwik Trip will stay a privately owned company. “We’ve been gifted with a great family and 17,000 great co-workers. We’ve been able to share with them, and that’s a good thing. We just finished our best year ever and I believe the years going forward will be even better,” Zietlow said. “The goal is to take this company another 50 years and keep sharing the profits with our co-workers. I think the best is yet to come for Kwik Trip. I think the footprint is set. We have good momentum for growing our sales,” he added. Whatever the future holds, just don’t expect to see Zietlow retiring to Florida. “LaVonne and I have been married 60 years. We don’t own a second home; we don’t own a private jet. We don’t need either. We have 14 grandchildren and five great grandchildren. Most of them live in the area and that’s true happiness when you can share time with them,” he said.

Kwik Trip’s culture right with growth as additional trials. But with challenges comes rewards. “Providing a future for our co-workers to grow and prosper and share in the profits of our company is rewarding,” said Zietlow. Knowing his family — his children and grandchildren — also believe in a culture of sharing is, by far, his “greatest personal reward,” he added. “Our co-workers are the greatest asset we have. They truly are,” Zietlow emphasized. “The 40-percent profit sharing makes them part of the company. Good customer service, clean stores and clean bathrooms don’t happen without our co-workers taking pride in their company.”

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Community Ties

Zietlow celebrated his induction with his wife LaVonne.

The CEO encourages his co-workers to run the business like they own it. “I always say we have to take care of two people: As owners, we have to take care of our co-workers as family; and our co-workers have to take care of the customers. If we take care of those two people, everything is good,” he said. Today, Kwik Trip is owned by the third generation of the Zietlow family. All of the grandchildren share ownership. Zietlow serves as CEO, but doesn’t own the company. The voting shares are held by the second generation, daughter Vicky and sons Scott and Steve. They are all actively involved in the company. Steve is a vice president and has been head of the petroleum department for several years. Scott is chairman of the board, while working as a trauma surgeon at the Mayo Clinic in Rochester, Minn. Vicky is responsible for educating the family on owning a business and upholding the family’s responsibility to its co-workers. She and her husband oversee the family’s charitable foundations as well. Zietlow has the pleasure of seeing his grandchildren join the family business, too. Currently, three grandchildren work for the company full-time: one for approximately four years, another for about one year, and the third grandchild, for roughly six months. “That’s good,” he said. “They are getting involved in the operations.”

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The Zietlow name is as synonymous with La Crosse, Wis., as Kwik Trip is. Don Zietlow and his wife LaVonne, along with the entire Zietlow family, were honored this year with The Salvation Army’s Community Red Shield Award for their contributions both as employers and as benefactors to countless nonprofits in the area. “Our co-workers make all the decisions on the money that we give back as a corporation. I think it’s important for our co-workers to be involved in that because if we give away $1 million, $400,000 would have been given to them in profit sharing if we didn’t give it away,” Zietlow explained. “They have a big say in what we do as a company. And we do give back a lot.” Within the company, Kwik Trip has a Families Helping Families fund that’s supported by its co-workers. Many of them have money automatically deducted from their paychecks. The fund is meant for co-workers who have a need. Maybe they’ve had a misfortune like poor health or a house fire. Names are submitted — they remain anonymous — and a committee determines how best to help them. “The co-worker in need does not have to pay it back,” Zietlow said. “That’s been a great reward for our co-workers and good for the people who have needed it.” Kwik Trip also runs a gift card program for community nonprofit organizations like church and school groups, scouts and local teams. The groups can buy gift cards from the retailer at a 5-percent discount, sell them at face value and keep the profits. They earn an additional 10-percent rebate on inside sales, excluding cigarettes. The program helps with tuition for private schools and things like uniforms for soccer or band. Kwik Trip contributed more than $10 million through the program last year. A credit card rebate program is yet another way Kwik Trip gives back. By using the Kwik Trip credit card, the chain rebates 3 cents per gallon on fuel and 10 percent on inside sales. This can be designated and earns rewards for the charity of choice. “We’ve really become a part of the community,” said Zietlow. On a more personal level, the Zietlow Family Foundation is headed by daughter Vicky and her husband. Requests are received and reviewed at family meetings.

President & CEO, Kwik Trip, Inc

on your induction into the Convenience Store News Hall of Fame

Your Source for Tobacco Category Solutions

The Listening Leader Coca-Cola’s Jay Ard finds success by focusing on others for nearly four decades By Angela Hanson

I’ve ever worked for and I’ve loved it.” ome high-level sales executives reached The 2015 Convenience Store News Hall of Fame their positions by knowing from the beginsupplier inductee has since spent 37 years with ning what they wanted their career path to the beverage company. Ard also serves the overbe. But others, like The Coca-Cola Co.’s all convenience store industry as vice chair of the Jay Ard, vice president of national sales, NACS Supplier Board and is part of the Research convenience retail, did not expect to end up where Committee, the NACS Research Council and the they did. NACS Coca-Cola Retailing Research Council. “Honestly, it was a total surprise,” Ard said, recallHe initially joined the Rainwater Coca-Cola ing the beginning of his sales career. “I started with the Bottling Group, an independent Coca-Cola company as a sales helper in 1979 and fell bottler, and eventually held positions with in love with the work, the people and “I’ve Coca-Cola Enterprises and Coca-Cola the culture. Other than a few partRefreshments as he worked his way up time jobs before, The Coca-Cola learned that your the ranks as supervisor, sales manager, Co. is the first and only company sales center manager, and area manager learning zone is for the Florida Panhandle. Other roles just beyond your included area vice president for South Louisiana, general manager of the Gulf comfort zone.” States Division and general manager of the Florida Division, before assuming his current vice president position. At the beginning of his career, Ard took his first job because “I was young and needed a job and Coca-Cola was the best option,” but as his skills and appreciation for the work grew, so did the business itself. Back then, the company had just four brands: Coca-Cola, Tab, Fanta and Sprite. Today, it has more than 700 products available in North America. “That fact alone has changed everything we do from ordering and marketing to delivery and warehousing,” he said. “I’m also amazed by the new technology and innovations in the convenience retail space that can benefit our retailers and ultimately our consumers.” The years haven’t been without their difficulties, though. Along with the usual growing pains prompted by During the 39th annual Convenience Store News Hall of Fame gala, Jay Ard said change in the industry, Ard faced a number of individual he is blessed to work in the best industry in retail. challenges. Two of the biggest ones were adjusting to

28 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

Congratulations

The Coca-Cola Company congratulates our very own Jay Ard, Vice President Convenience Retail, for being inducted into the 2015 Convenience Store News Hall of Fame.

ÂŠ 2015 The Coca-Cola Company

Fellow supplier Hall of Famer Dave Riser of R.J. Reynolds (right) and Convenience Store News Editorial Director Don Longo inducted Ard.

change after the family-run bottler he worked for was sold to Coca-Cola Enterprises in 1986, and coping with four hurricanes in a single year when he first became general manager of the Florida Panhandle. Transparency, making sure to consistently do the right thing and listening to his team were the keys to helping him through these times. Now a sales veteran, listening is the exact thing that Ard advises the next generation of industry leaders to do. “Build a listening organization and make sure there are strong communication channels up and down the ladder,” he said. “As a leader, assume 51 percent responsibility as a listener and 49 percent as a communicator. It’s OK to have tough conversations. Be a teacher and a learner.” Equally important is remembering that as a leader, it is never about you and it is always about everyone else. “It’s important to be humble, listen to your team and challenge bureaucracy. I’ve learned that your learning zone is just beyond your comfort zone,” Ard said. This capacity for listening and learning has led Ard to other achievements, such as the 1997 President’s Trophy, which Coca-Cola awards to the top-performing sales division each year for overall quality and results. Other accomplishments Ard is most proud of include the opportunities he’s had to positively impact so many team members over the years. As he looks toward the future, the Hall of Famer sees a c-store industry where foodservice continues to evolve and suppliers continue to innovate in order to help store operators meet the changing needs of consumers. “In my opinion, the next generation of convenience

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stores looks much more like quick-service restaurants than in the past,” he said. “I’m looking forward to helping our retailers capitalize on this trend to meet the needs of their customers.” Although Ard and his wife Tammy, who have four children living nearby in the Atlanta area, are expecting their fourth grandchild, he has no plans to slow down as he approaches a career milestone at Coca-Cola. “From a career perspective, I am looking forward to my 40th anniversary with the company, continuing my involvement with the NACS Supplier Board and strengthening all of the great friendships that I have made along the way,” he said.

“Build a listening organization and make sure there are strong communication channels up and down the ladder. As a leader, assume 51 percent responsibility as a listener and 49 percent as a communicator. It’s OK to have tough conversations. Be a teacher and a learner.”

Congratulations to the 2015

Inductees

Getting & Staying on Track Retailer Executive of the Year Tony Kenney drives positive change at Speedway By Brian Berk

ow do you acquire 1,245 convenience stores and ensure the transition is so seamless that consumers hardly notice? That’s exactly what Tony Kenney and his Enon, Ohio-based Speedway LLC team did following the company’s purchase of Hess Corp.’s retail assets, which closed Oct. 1, 2014. The Hess Retail transition is one reason why the

Tony Kenney, pictured here with Convenience Store News Editorial Director Don Longo (right), accepted his award on behalf of the 36,000 Speedway employees.

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president of Speedway was selected as Convenience Store News’ 2015 Retailer Executive of the Year. As of press time, Speedway had converted more than 1,000 Hess sites to its brand name, with the remainder to be done in 2016. “We had a plan to get all 1,245 stores converted in three years. We will get it done in just over a year,” Kenney proudly reported, noting it is a huge and wellcoordinated effort and Speedway’s entire team deserves a tremendous amount of credit. “We put a construction team in place with a plan to basically convert five stores a day, five days a week. And each of the conversions takes place within 24 hours,” he explained. “So, a Hess store would go down at 6 a.m. one morning and be back up 6 a.m. the next morning as a Speedway. It’s amazing how that plan continues to perform extremely well. There have been very few hiccups.” The transition is about much more than converting from Hess’ kelly green color scheme to Speedway’s red-colored hues on the outside of the stores, though. “The secret is what’s going on inside the store. We had to change out all of the point-of-sale [terminals], everything in the back office and technology platforms for inventory management, automatic reordering and labor scheduling, which are all the backbone of running store operations,” Kenney said. “As consumers saw the name change from Hess to Speedway, at the same time we were changing the inside and training people.” A significant component of both the new technology and employee training involves Speedway’s Speedy Rewards loyalty program, which has been a tremendous success for the c-store retailer. “This program truly provides great value for our loyal customers,” Kenney noted.

Over the last decade, Kenney has led the charge to make the Speedway division a profitable business.

BACK TO THE BASICS

Since he graduated from Miami University in Ohio in 1976, Kenney has served Marathon Oil Corp. and subsequently its spinoff Marathon Petroleum Corp. (MPC) — parent company of Speedway — for more than 39 years. In August 2005, he became president of Speedway SuperAmerica LLC, which subsequently became Speedway LLC in 2011. Kenney, who also took part in the Executive Program at the University of Michigan Business School in 2000, now presides over the nation’s second-largest company-owned and -operated convenience store chain with approximately 2,760 stores in 22 states. Looking back on when he became president more than 10 years ago, Kenney acknowledges Speedway had some work to do. “We weren’t performing at the top of our game,” he said. “We realized there were several areas that needed more focus.” At the time, Kenney took a thorough look at Speedway from top to bottom and realized the employees, including store associates and general managers at the customer level, needed to be his No. 1 priority. So, he started by going back to the basics. “You have to get customer service right,” he remarked. “Customer service is more than just the way you interact with the customer. There are a lot of elements of service, such as a clean store, clean restrooms, clean foodservice areas, [products] being in stock, and having great values and promotions. All of these elements create what we call the ‘exceptional customer experience.’” Once Speedway had mastered the basics, Kenney shifted his focus to making the division a profitable business. This took on an even greater emphasis as

Speedway became a larger component of its publiclytraded parent company. “If you are not providing the kinds of returns your parent company is looking for, they can be more reluctant to provide the capital for growth and programs,” he stated. “So, we got to work on the fundamentals of the business from that standpoint.” To generate stable and growing profitability within MPC, Kenney and his team concentrated on growing in-store merchandise sales and margins, while controlling costs. They still do. “One metric we’ve really focused on across the organization, from the very beginning, is light-product breakeven,” Kenney revealed. “We had to get that as low as possible. We managed to drive that significantly lower over the years. It has been one of the keys to success in getting Speedway to be a top-tier-performing company in the industry.” LEADERSHIP TENETS

A self-proclaimed history buff, Kenney said his leadership style has been influenced by many people over the years and not all have served in the business sector. In fact, many of the skills he draws upon today he learned from top military leaders. One can draw many similarities between military leaders and business leaders, he said. “I’m a big believer in setting goals for the organization,

“You can’t ever think, even for one minute, that you can drive everything going on in the company sitting where I am. You must have the right senior leadership team in place, communicate with them and give them autonomy and responsibility to drive your goals and meet objectives. And in turn, you expect accountability. So it’s a two-way street.”

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getting the right team in place and making sure we communicate without any misinterpretation,” he relayed. “We need to be clear on what the objectives are.” Speedway’s president added that a good leader must trust others. “You can’t ever think, even for one minute, that you can drive everything going on in the company sitting where I am,” he stressed. “You must have the right senior leadership team in place, communicate with them and give them autonomy and responsibility to drive your goals and meet objectives. And in turn, you expect accountability. So it’s a two-way street.” One of Speedway’s greatest strengths is its employees’ ability to work well as a team, Kenney continued. “Knowing what the marketing department wants to do requires the operations team to be able to execute. And our finance, auditing and accounting and all store support areas must understand all areas of the business, whether it’s inside with merchandise or outside with fuel,” he explained. “I only have seven direct reports. It all starts with them. They are given the freedom to run their organizations in line with the company’s goals.” Unlike some other publicly traded retailers in the c-store space, Marathon Petroleum has decided not to spin off its Speedway retail division. According to Kenney, “We are big believers in a fully integrated downstream model, from refining to retail. Think about refining crude oil into various products, primarily gasoline and diesel. Think about the infrastructure and associated time and costs to move those products to markets and, ultimately, the consumer.” The synergies MPC realizes by having assured outlets for approximately 70 percent of its refining production through Speedway’s 2,760 locations, as well as through MPC’s brand class of trade, are meaningful. “The assured and ratable volume that retail provides allows MPC to capture efficiencies in scheduling pipeline movements, optimizing terminal and transport operations, and to ultimately be a highly reliable supplier to markets with the right Kenney cites the Speedy Rewards loyalty program as one of his greatest accomplishments.

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Speedway is the second largest company-owned U.S. convenience store chain.

products at the right time,” Kenney said. PROUDEST MOMENTS

Getting Speedway on track, the success of Speedy Rewards and the Hess Retail acquisition are the three things Kenney is most proud of since he took the reins of the division. “We’ve really built an opportunity for people to build very nice careers for themselves,” he said. “These are good jobs that Speedway can provide for people who are motivated, want to have a good career and build something nice for themselves and their families.” Now that Speedway is a well-oiled machine, the Cleveland-area native who still roots hard for his hometown sports teams wants to ensure the company leaves an excellent legacy by giving back to the communities it serves. For years, Speedway has provided unwavering support to Children’s Miracle Network Hospitals, a nonprofit organization that uses donations to support research and training, purchase equipment and pay for uncompensated care. “Our 36,000 associates at Speedway really embrace this charity,” stated Kenney. “Most communities we are in have local children’s hospitals so the money we raise at the stores goes right to the local hospital. As a company, it’s a charity we’ve been able to rally around. Helping children in need is extremely rewarding. It’s something we embrace and is part of our culture.” Solidifying the company culture of the “New Speedway,” comprising both legacy Speedway and former Hess locations, is a major focal point these days for Kenney and his team. In fact, the c-store retailer has established a “One Team, One Vision” philosophy. “It really revolves around all of the values of Speedway,” he concluded. “We truly look at ourselves as one team. We help each other whenever needed.” CSN

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President, Speedway, LLC

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No Extinction

for This Dino

Sinclair Oil pursues national expansion as it celebrates its 100th anniversary By Linda Lisanti

n Thanksgiving morning this year, Jack Barger, vice president of marketing and supply for Sinclair Oil Corp., was not watching the Macy’s Thanksgiving Day Parade from the warmth and comfort of his home like he usually does. Instead, he and his family were among the millions of spectators lining the streets in New York City taking in all the action live. No doubt, Barger’s favorite attraction in the parade was Dino, Sinclair Oil’s longtime brand mascot. For

Sinclair’s highly recognizable Dino image differentiates its stations.

the first time since 1976, Dino (pronounced die-no) took part in this year’s festivities as a 72-foot-long giant balloon. His return to the parade provided the perfect way for Sinclair to kick off what will be a full year of celebrations around its 100th anniversary. Founded May 1, 1916, Salt Lake City-based Sinclair takes great pride in the fact that it is one of, if not the, oldest continuous brands in the oil business. At one point, it was also one of the largest U.S. oil companies, with a national network coast to coast.

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At its peak, the company was publicly held and ranked the seventh largest oil company in the United States. Today, it is family-owned and its marketing division comprises 400 branded distributors and 1,325 stations in 24 states. With the exception of just a handful of sites, its current operations are all concentrated west of the Mississippi River. With a new brand licensing program, though, Sinclair has its sights set once again on having a national presence, expanding east of the Mississippi and marketing its fuel coast to coast, according to Barger. The last time the brand was national was in the mid-1970s. “Our brand licensing program will be a significant part of our business in the future,” Barger, who has been with the company six years, told Convenience Store News in an exclusive interview. But he quickly added that as Sinclair navigates its next 100 years, it will stay true to its past and committed to the core attributes the brand has come to be known for. “Because we’re privately owned, our customers tell us all the time that we manage and operate our business a lot like they do. We’re more flexible; we are more adaptable to what our customer needs are. We don’t have lot of layers of management. Our owner comes to work every day and knows everyone here,” Barger explained. “We’re just friendlier. We’re known for our personal relationships, which is why some of our customers have been with us for more than 50 years. We really care about their success, and we try to respond to the challenges they’re facing and help them through our brand investments and promotions.”

AVA ILA

W H BLE JA ILE S U P NUAR P L I E Y 20 S LA 1 ST 6

Sinclair’s current network includes 1,325 stations in 24 states.

Setting Sinclair apart

When talking about what differentiates Sinclair from other U.S. fuel franchisees, Barger points first to the highly recognized Dino brand and the favorable perception it has among consumers. Whereas most oil companies have modified their corporate emblem over the years, Sinclair’s trademark has remained unchanged. The reason? Everybody loves a dinosaur. “We’ve resisted making modifications,” Barger said of the apatosaurus (originally thought to be a brontosaurus) that first appeared in Sinclair marketing in 1930 as part of a campaign to educate customers on the origin of fossil fuels and then was trademarked in 1932. “It largely comes back to that everyone loves our dinosaur and recognizes our logo, and we feel strongly that’s a positive attribute for us. It really is what customers know us by,” he added. When consumers think of the Sinclair brand, the company’s research has shown that it’s perceived to be a “friendly” brand and a “good oil company,” according to Barger. Throughout its entire history, consumers have consistently had very favorable responses to the Sinclair brand, he said, noting “We’re not Big Oil and we’re very intent on not changing that.”

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Seeking to leverage its highly recognized brand even more, Sinclair launched its Centennial Image Program three years ago. As of November, the chainwide reimaging was roughly 75 percent completed and the goal is to be finished by the end of next year. “Our previous image was dated. It was a white canopy with a green stripe. We have evolved to more green, less white, and we have incorporated a lighted dinosaur on our canopy. That’s the symbol people know us by. It’s highly recognizable, and it’s what customers tell us they like most about our image,” said Barger. Another differentiating factor for Sinclair is its DinoCare gasoline, which rolled out in 2014. DinoCare is a high-quality additive that cleans harmful deposits from engines and fuel systems, which in turn optimizes a vehicle’s fuel economy and reduces maintenance costs. Sinclair with DinoCare is a registered Top Tier gasoline. “DinoCare exceeds the quality requirements of today’s most complex engines,” Barger said. The final piece of Sinclair’s differentiated offering is its payment programs. For starters, the brand’s credit card programs are “best-in-class,” the marketing VP stated, noting that the company processes all the major credit cards and maintains a processing cost structure for its retailers that Sinclair believes is either near or at

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Sinclair Stations Through the Years

1910s

1950s

the bottom of its competition. The company also has its own proprietary Sinclair credit card that is actively promoted and always offers users 5 cents off per gallon of fuel. Various promotions throughout the year will bump up the savings. Just last month, users enjoyed a 10-cent-per-gallon rollback. Keeping up with the evolution of payments, Sinclair is now actively rolling out a mobile payment solution called DinoPay. Available to all its retailers, the mobile app program is powered by P97 Networks Inc.’s PetroZone Mobile Commerce Platform. Using the app, customers can locate and navigate to Sinclair gas stations, receive location-based digital offers and rewards for fuel and in-store purchases, and initiate fuel purchases from the comfort of their vehicles. Sinclair has been testing DinoPay with its longtime retailer partner Stinker Stores, based in Boise, Idaho, and anticipates a network-wide rollout next year. Further investments are planned for 2016, including a significant boost in brand advertising and promo-

STAYING TRUE: THEN & NOW Many facets of Sinclair Oil have remained the same over the last 100 years

• Sinclair’s Dino logo hasn’t changed since the 1930s. Dino first appeared in marketing as part of a campaign to educate customers on the origin of fossil fuels. • Sinclair is an American brand. The company has never operated internationally. • The corporation has only had six CEOs in its 100-year history. The current CEO is Ross Matthews, son-in-law of Earl Holding, who purchased Sinclair in 1976. • Sinclair’s retailer customers then and now describe the company as friendly, dependable, flexible and loyal, according to Jack Barger, VP of marketing and supply.

42 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

1960s

tion, particularly publicizing DinoCare gasoline. The brand promotion process already got a kickstart when Sinclair launched an all-new website in November. Throughout 2016, Sinclair will tout its 100th anniversary through celebrations across its 24-state network involving all its constituents: employees, retailer customers, key vendor partners and consumers. american icOn

As for the next 100 years, Sinclair is ready to once again serve Americans coast to coast. The fully integrated oil company is involved in exploration, refining, transportation and marketing. The company owns two refineries: one in Sinclair, Wyo., and the other in Casper, Wyo. While its supply capabilities are currently limited to the 24 states where it operates today, the new brand license program will provide unlimited expansion potential. (The company also doesn’t require minimum volume standards because it markets in a lot of rural locations.) A licensed location is identical to every other Sinclair location, but the company do not provide the fuel supply. The retailer does, however, have to source a gasoline that meets or exceeds Top Tier standards. With its biggest license markets in the West Coast states, particularly California, Sinclair is steadily extending eastward. Since 2011, the company has grown by 40 percent in the Rocky Mountain region, and much of its branded growth focus this year has been on the Midwest. By the end of 2015, Barger told CSNews that Sinclair expects to have 80 locations in the brand license program, including sites on the East Coast. From this point on, the goal is to double the number of sites year over year — adding another 80 in 2016, 160 in 2017, and so on. “Our goal is to have Sinclair branded stations in every state. After all, everybody loves the dinosaur,” he concluded. CSN

FOODSERVICE Prepared Food + Hot, Cold, Frozen Dispensed Beverages

HOW TO

How to Leverage Coffee All Day Long By Bob Phillips

Call tO aCtIOn: Foodservice 101

• Maintain a well-organized, neat and clean coffee station. • Always stay in stock with the top-selling coffee varieties (maximum: four) and specialty coffees. • Offer a comprehensive customization program featuring creamers, sweeteners, syrups and toppings that your customers prefer. • Never sacrifice quality by saving a few pennies on coffee that has gone beyond its shelf life. You need to recognize how important a successful coffee program is to the overall success of your foodservice operation.

f there is one constant in the ever-changing convenience store landscape, it’s that coffee is king. Coffee, together with cigarettes and petroleum, comprise a winning trifecta at c-stores, attracting customers and, with good planning and effective promotion, providing solid profits. Traditional hot coffee (including flavored) accounts for more than 74 percent of all hot dispensed beverage sales in c-stores, according to the latest Convenience Store News Foodservice Study. This month, the CSNews How To Crew of experts offer guidance on how to make your coffee sales sizzle — particularly during the winter months that are upon us. “Coffee is the most important foodservice item in most convenience stores,” advised How To Crew retailer Chad Prast, senior category manager of fresh foods and dispensed beverages for Murphy USA Inc. Prast noted that a unique coffee your customers can identify as specific to your store/chain can be a key driver in other consumer spending patterns. “A good cup of coffee can help drive fresh food sales in the form of combo meals,” he said. “Coffee is not only critical, it is foundational,” added How To Crew retailer Jack Cushman, director of foodservice for Corner Store operator CST Brands Inc. “Without doing [coffee] right, the food simply doesn’t follow in terms of customer appreciation and lift.”

44 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

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FOODSERVICE Prepared Food + Hot, Cold, Frozen Dispensed Beverages

Indeed, coffee presents a tremendous opportunity for incremental sales of food products to accompany your customers’ cup o’ joe in the morning. “If you can sell an average of 150 cups of coffee per store per day, with the majority of those cups coming in the a.m., you have a great chance for add-on food sales to 100-120 customers,” explained industry consultant and How To Crew panelist Paul Pierce. That translates into roughly 20-30 breakfast sandwiches and/or 30-40 doughnuts. “All of that is a great base to begin developing your food program,” he said. During the vital morning daypart, coffee generates more than 20 percent of in-store sales and is involved in 33 percent of all in-store transactions, according to How To Crew member David Bishop, managing partner of Barrington, Ill.-based consulting firm Balvor LLC. “Although retailers are trying to leverage the coffee bar during other dayparts by introducing other types of products — iced coffee, for instance — hot coffee’s primary role is to drive in-store traffic during morning drive time,” Bishop said. How To Crew member Mathew Mandeltort, vice president of foodservice strategy at Naperville, Ill.based convenience distributor EbyBrown, even goes so far as to say “a Foodservice 201 good coffee program is absolutely • Consider purchasing your own essential to the sucequipment that will free you from cess of a foodserembedded costs and give you the vice program.” opportunity to pursue product free of Research shows contractual obligations (such as minicoffee drinkers are mum purchases). significant purchas• Focus on growing your afternoon ers of foodservice snack daypart by using specialty cofofferings beyond just fees (i.e., “affordable indulgences” coffee. “Without a such as lattes and cappuccinos). good coffee program, • Take advantage of the margins that there’s literally no such beverages provide to support hope for a robust promotions in other segments, such breakfast daypas a free medium coffee with the purart,” Mandeltort chase of eight or more gallons of gas. emphasized.

Call tO aCtIOn:

46 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

BEyOnD BREakFaSt

As important as the morning daypart may be, it would be foolish to limit coffee sales to this daypart. After all, depending on what shifts your customers work, their “mornings” could very well be at 5 p.m. or 11 p.m. For the coffee drinker, coffee is of utmost importance regardless of time of day, explained How To Crew retailer Ryan Krebs, director of foodservice at York, Pa.-based Rutter’s Farm Stores. “Someone may have gotten out of bed at 9 p.m. to start work at 11 p.m. Their first cup of fresh coffee to start their day may be at 10:30 p.m. The freshness and quality of that cup is just as important to them as it is to the 6 a.m.-8 a.m. crowd,” Krebs said. “The truck driver who has to drive all night and stops for coffee at 2 a.m. still wants the best coffee available, and that’s exactly what he should receive.” Tending to your coffee station can often bring to mind the popular metaphor, “What came first, the chicken or the egg?” (Or, in this case, the coffee or the customer?) “We are inclined to think coffee volume declines later in the day, so we put out less coffee as the day goes on. And that means the coffee isn’t as fresh. This results in declining quality of the coffee over the course of the day,” said Pierce. “Look at the high-volume coffee providers in our industry; they sell fresh coffee throughout the day,” he continued. “It can be done. It depends on your level of commitment.” BRanD BuIlDIng 101

So, coffee can create traffic in your store. That’s not exactly breaking news. But can it turn a decent profit? The so-called “Cola Wars” in the grocery channel were famous for virtually giving product away, creating voluminous traffic in the soda aisle, along with voluminous headaches for category managers. No such correlation exists in the convenience trade, however. Our How To Crew members are unanimous in their assertion that coffee not only brings customers into your stores, but can make you a whole lot of money — if you play the right cards.

FOODSERVICE Prepared Food + Hot, Cold, Frozen Dispensed Beverages

“Of course coffee can be a profit center, if done correctly and with the highest standards,” asserted Krebs. While conceding there is a small degree of loss, due primarily to throw-aways (shelf-life dates expiring and time-limit standards for brewed coffee), Krebs steadfastly maintains any perceived hit to the bottom line will be more than compensated for when one takes into the account the value added in the form of customer satisfaction. Providing hot, fresh, high-quality coffee 24 hours a day, seven days a week, is one of the first building blocks to success for any 24-hour retailer — Brand Building 101, if you will. “After all,” continued Krebs, “once customers find a coffee provider that gives them exactly what they want, when they want it, on a consistent basis, they will never go anywhere else. Period.” Without question, offering your customers a variety of options in their coffee purchases (sizes, flavors, sweeteners, etc.) is one key to building a successful program. “Yes, you must have variety,” agreed How To Crew

Call tO aCtIOn: Foodservice 301

• Take on the big boys (McDonald’s, Dunkin’ Donuts, Starbucks, Peet’s, etc.) by investing in end-to-end brewers and touchscreen multipurpose brewers. • Feature organic and trade alliance coffee to support a super-premium message. • Consider developing an off-premise coffee program targeting local businesses (primarily delivery vs. an office coffee service program).

member Joe Chiovera, principal at Dallas-based consulting firm XS Foodservice & Marketing, with prior experience at Circle-K, 7-Eleven, Sheetz and Mobil On the Run. “But you have to manage your variety or it could eat you alive.” Such management requires a hands-on approach. Only you can determine what your customers prefer, and it’s your job to deliver. A distinct advantage c-stores have over most of the competition in the coffee category

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FOODSERVICE Prepared Food + Hot, Cold, Frozen Dispensed Beverages

is the ability for customers to create their own cup. “Customers can customize their coffee drinks with flavors, styles and coffee shots that suit their individual palates,” said Krebs. This may include cappuccinos, frappes, Americanos, espressos and lattes. Before you commit to turning your coffee service into a mini-Starbucks, however, consider what your customers really want. You need to walk before you run, and run before you fly. “We tend to spend a lot of time thinking about brewing equipment, types of cups, flavors, types of condiments and other ancillary things around the coffee bar,” noted Pierce. “Research indicates those attributes are rarely high on the consumer’s list, however.” Rather, said Pierce, c-stores should focus on the basics: great taste, freshness, value, convenience, making sure there is always plenty of coffee in stock, speed and cleanliness. “These are the things the consumer really wants,” he relayed. “After you’ve mastered the basics, you can branch out into flavors and more condiments.” CSn

Our How To Crew David Bishop — Balvor LLC Ed Burcher — Burcher Consulting Joseph Chiovera — XS Foodservice & Marketing Tom Cook — King-Casey Jack W. Cushman — CST Brands Inc. Dean Dirks — b2b Solutions Eric Giandelone — Mintel Foodservice Ryan Krebs — Rutter’s Farm Stores Mathew Mandeltort — Eby-Brown Co. LLC Larry Miller — Miller Management & Consulting Services Maurice Minno — MPM Group Paul Pierce — Pure Plates Tim Powell — Q1 Productions Food & Beverage Chad Prast — Murphy USA Inc. Bonnie Riggs — The NPD Group Jennifer Vespole — QuickChek Corp.

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Devising a Vapor Strategy

Concerned about SKU proliferation and over-saturation, c-store retailers are rethinking their approach A Convenience Store News Staff Report

ook out, another vape device just whizzed by. The vapor segment has been called a “very fastmoving category” by experts like Bonnie Herzog, beverage, tobacco and convenience store analyst at Wells Fargo Securities LLC. But that is putting it mildly, according to convenience store retailers who now find themselves inundated with scores of product — some of which is moving, but a lot of which is not. The word on the street is that electronic cigarette/vapor inventory is backing up in the convenience channel, resulting in a financial category crunch and the stalled ability to move forward with continuously advancing technology. Observing it from the supply side, John Wiesehan Jr., CEO of Mistic Electronic Cigarettes, explained to Convenience Store News that “for the past 24 months, various c-stores from around the U.S. have taken the approach to take on multiple brands, some up to 10 different ones. They were loaded up with inventory and then it didn’t sell; now they are stuck with the inventory, forcing them to rethink their strategy.” According to Herzog, c-store retailers are indeed concerned about SKU proliferation and over-saturation of vapor products, but they expect regulation to actually help the situation. “Many retailers conveyed their ‘excitement’ for ultimate regulation of the category as regulatory clarity should help stabilize the overall vapor market, set product standards and clarify the ‘long-term stance’ on flavors,” Herzog observed in a recent Wells Fargo Securities Tobacco Talk U.S. Vapor Retailer Survey. “Importantly, regulation should help to improve public perception of the vapor category, which has been deteriorating according to almost 30 percent of our contacts, up from approximately 26 percent in [the previous quarter].” The vapor scene may be chaotic, but that doesn’t mean it can’t be organized. Here are some tips to consider when devising a vapor strategy: Buy from reputable suppliers. Retailers need to ensure

54 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

Industry suppliers advise c-store retailers to carry around four e-cigarette brands and merchandise them in a fixture next to traditional cigarettes.

they are buying from suppliers that are currently adhering to best practices, according to Cynthia Cabrera, executive director of the Smoke-Free Alternatives Trade Association. “Familiarize yourself with the different good manufacturing practices (GMPs) and with standards and procedures. Start vetting out your supply chain and make sure the people you are buying from will be here in the long term.” Another important qualification is to choose suppliers that will take product back. “If I don’t take product back, I can’t do business with the channel,” stated Mistic’s Wiesehan. Educate the consumer. “All too often, e-cig merchandising in the channel is nothing more than adding another SKU mixed in with the cigarettes,” according to Josh Kimmel, founder and CEO of Breathe Ecig Corp. “And when there is a display, it is simply that — a display.” Kimmel believes part of truly effective e-cigarette merchandising is explaining the features of the product, as well as promoting reputable e-cigarettes as a cigarette alternative. “In short, helping to truly educate the consumer,” he explained. He maintains that this concept and belief will be part of the core strategy of Breathe in print, media and

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point-of-purchase at retail to facilitate more education in the convenience channel. Start with your sales associates. Can they answer: What is an electronic cigarette? They should be able to, and it starts with retailers taking the time to train their store associates, according to Miguel Martin, president of Logic. He also believes all sales associates should know one or two differences between the various e-cig products sold in the store. Such knowledge comes from continually updated training efforts, even something as simple as an in-store newsletter for employees. But there is also a fine line for sales associates and retailers that may have a personal vape story to tell. “As a retailer, you can talk about your personal story and how you feel vaping benefited you personally, but be sure you and anyone working at your store steers clear of offering medical advice,” Cabrera stressed.

The word on the street is that electronic cigarette/vapor inventory is backing up in the convenience channel, resulting in a fnancial category crunch and the stalled ability to move forward with continuously advancing technology. Set up a logical fixture configuration. C-stores that want to be serious about e-cigs should have a “top-down fixture next to cigarettes, carrying four or five of the top brands,” Martin said. Mistic, meanwhile, advises c-stores to merchandise three to four brands and be loyal to those select brands to avoid customer confusion and inventory overload. Offer variety across product type. Less is more within product type, agrees Will Squier, vice president of marketing for Tryst Group. However, where variety is good for a c-store is across product type — meaning having the breadth of category items such as e-cigarettes, e-cigars, e-hookahs, disposables, rechargeables, refillable liquid systems, etc. Promote, promote, promote. “Always have a promotion on e-cigs. Almost half of adult smokers have not tried an e-cig in the last six months,” Martin pointed out. Treat it like a category. This means providing dedicated space and placing like products together, regardless of brand, advised Chris Mitchell, vice president and chief marketing officer at iSmoke. “There should be an e-cig section where the e-cigs go — clearly identifiable between dispos-

56 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

ables, starter kits and refills; an area dedicated for e-juice — clearly identifiable between flavors and strengths; and a section for vapor devices,” Mitchell said. Place an emphasis on pricing. “There is a significant pricing advantage over vape shops that consumers don’t often appreciate about the c-store environment,” Mitchell added. “Make them appreciate it.” Compete against the vape shops. Mistic’s recent launch of its Haus brand Craft Collection, featuring a 30-watt mod with a sub ohm refillable tank, is designed to help inspire c-stores to clean out some of the cigalikes that are not selling and instead enable them to upgrade their product line and offer what consumers really want in the category now. “We want to help our retailers get the vape shop consumers back in their stores,” said Wiesehan. “This is the time when c-stores have to make a decision with dead inventory and decide if they want to stay relevant.” The Craft Collection, which underwent a successful 2,000-store test in September and at press time was slated to be in 15,000 mass retail locations, has a suggested retail price of $49.99 for the starter kit and $23.99 for a 30-milliliter juice bottle, which Mistic says will be recognized by vape consumers as a value. “We are helping c-stores to go after the vape shop consumer who is already shopping in their stores for gas, energy drinks and snacks,” added Justin Wiesehan, Mistic’s vice president of marketing. “That vape shop consumer is already educated and knows what a mod is. Our thought is when they see the price point, they will try it.” Pay attention to new technology coming down the pike. Experts agree that technology must improve for e-cigarette category growth to re-accelerate in the convenience channel. New generations of e-vapor products are expected to be continuously introduced to the market, with many newer devices having the ability to control the temperature to minimize the generation of harmful or potentially harmful constituents (HPHCs), according to industry analysts. Heat-not-burn sticks — slender, tube-like devices that give users as much nicotine as cigarettes by heating, not burning, tobacco — are gaining traction. The main distinction between them and e-cigarettes, which use liquid nicotine, is that heat-not-burn devices contain real tobacco. Scientific studies are underway and early reports show there is far less cell damage with heat-not-burn devices than with cigarette smoke. The heat-not-burn initiative has also given way to other innovative ideas such as an inhalable nicotine spray and a fast-acting dissolvable nicotine tablet intended for use as an alternative to smoking.

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Regulation Rally

The vapor industry is not happy with what it’s hearing about the FDA’s final deeming rule

he latest word on the street regarding federal regulation is that the vapor industry may be fighting the Food and Drug Administration’s (FDA) final deeming rule in court. In the last week of October, while the FDA’s final rule on currently unregulated tobacco products — including electronic cigarettes and vapor products — was in the White House Office of Management and Budget’s (OMB) Office of Information and Regulatory Affairs for review, the Tobacco Vapor Electronic Cigarette Association (TVECA) leaked what it claimed were the table of contents and guidance on premarket applications for e-cigs and vaping devices. (At press time, the 40 pages were still up on its website, www.tveca.com.)

TVECA CEO Ray Story said the association was sharing the documents to spur action among e-cigarette makers because the final rules, as currently framed, could effectively wipe out the industry. He cited the FDA’s alleged plan to retain the predicate product date of Feb. 15, 2007, calling it a “de facto ban” and an “annihilation of the category,” and added that he is prepared to challenge the final rules in court if the OMB backs “this kill order.” The FDA’s Center for Tobacco Products responded that it is aware of TVECA’s claim, but said the agency “cannot confirm if TVECA has a copy of the most recent version of the draft final rule, or even if their copy is authentic.” The agency said it remains committed to “an open dialogue with all interested parties.” Based on analyzing what TVECA obtained, Professor Michael Siegel of Boston University’s School of Public Health said the FDA’s deeming regulations would subject

58 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

e-cigarette products released after Feb. 15, 2007 to the FDA’s premarket approval process. In his opinion, the new rules should be called “The Cigarette Protection Act of 2015.” Despite acknowledging that there is a continuum of risk among nicotine-containing products, with e-cigs at the opposite end of the spectrum from tobacco cigarettes, “the FDA has chosen to ignore the risk differences and instead to treat e-cigarettes much more stringently than tobacco cigarettes,” according to his analysis of the documents TVECA obtained. Siegel added that the proposed FDA measure will “decimate” the e-cig industry. He said by requiring an “unduly expensive and burdensome process” for e-cigs to remain on the market, the FDA is encouraging many e-cig users to return to tobacco cigarettes, while discouraging many smokers from trying to quit use of these products. According to Siegel, the regulations also do not address issues such as lack of battery safety and the presence of potential carcinogens like formaldehyde in e-cigs. Siegel concluded that there will be a major contraction of the industry as only cigarette companies and perhaps the largest of the independent e-cig companies will be able to file a “prohibitively expensive and resource-intensive” premarket tobacco application. Mistic Electronic Cigarettes, a manufacturer of vapor products currently sold in convenience stores under the Mistic and Haus brands, told Convenience Store News that its attorney recently review the leaked document. While there were a few positive aspects (flavors are not being banned), the fact that the grandfather date was not moved was “bothersome.” “But it doesn’t mean we can’t get a statue changed through Congress,” noted John Wiesehan Jr., CEO of Mistic. His company was scheduled to talk with the OMB and the Small Business Administration on behalf of the industry in December.

Amidst the FDA deeming rule chatter, state taxes on electronic cigarettes and vapor have heated up compared to the previous year, with the number of states looking at e-cigarette taxation nearly doubling. In 2014, 12 states considered e-cigarette tax bills. In 2015, 23 state legislatures and the District of Columbia had bills introduced.

Staying Current, Yet Unencumbered C-store chains like Speedee Mart find ways to bypass vapor inventory liability

ndustry insiders praise convenience store chains like Speedway LLC, CST Brands Inc. and Murphy USA Inc. for being on the forward-thinking edge of vapor products, willing to try new items and reconfigure counter space in their stores. Speedway is reportedly “very sophisticated,” according to one anonymous supplier, who said the chain tracks upto-the-minute point-of-sale (POS) category data and has a newly created and dedicated electronic cigarette/vapor buyer, who recently visited the supplier’s manufacturing facilities along with four other executives on the chain’s vapor/tobacco team. But even for some of these convenience store retailers

on the forefront, inventory overload is reportedly weighing them down, with many finding themselves stuck with “the latest” vapor items from several months to a year ago that just didn’t sell. Is it possible for a c-store to stay current, yet unencumbered, in the constantly evolving vapor category? Ray Johnson, operations manager for Las Vegas-based chain Speedee Mart, believes it is. In fact, he has found a “common sense” way to bypass inventory liability. “I try new things, but I keep that inventory fairly low, and when it doesn’t sell, whoever the new vapor guy is that wants to come in, he has to pick up the old guy’s inventory. He writes me a credit and that credit goes off my initial delivery — that is the cost of getting an e-cig/vapor rack on my counter,” Johnson explained. In the innovative vapor arena where new suppliers are constantly trying to get some shelf space, inventory liability is “easy to fix,” he continued. “You just make it the next new supplier’s ticket inside your stores.” Because if the overloaded inventory didn’t sell, chances are that company is either long gone or not in a position to take anything back. Understanding that the typical course of action c-stores take regarding old or discontinued product is to mark it down, Johnson further rationalizes his strategy to new suppliers by explaining that if they don’t credit him for the old inventory, he’s going to mark it down to half price. “I ask them to consider which they would rather have: our stores putting half our effort into selling the obsolete product and half our time selling their product, or 100 percent of our effort into selling their product?” This reasoning usually seals the deal.

new vapor suppliers that want shelf space in Speedee mart stores must credit the chain for old inventory.

60 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

Sampling the goodS Another requirement for new vapor suppliers that want space in the 20-store Speedee Mart chain is they must supply all employees — currently numbering around 100 — with a sample product so they

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can intelligently educate and answer customer questions about it. “When you introduce something new in this category, nobody really reads the signs to understand it; they ask the cashiers,” Johnson reasoned. “And if they see our employees using it, for sure, it creates curiosity and leads to a natural conversation about the product. Then, our people can answer from a position of knowledge. I find [the employees] like talking about these products if they get to try them and use them.”

“When you introduce something new in this category, nobody really reads the signs to understand it; they ask the cashiers.” — Ray Johnson, Speedee Mart

Johnson makes one stipulation to employees regarding their use of the vapor items — they are encouraged Speedee mart allows employees to use vapor devices while working, just not at the checkout. to enjoy them while working, but they can’t puff on them while at the cash register/POS terminal. “That’s just my rule of customer cour“I called them up and said, ‘You don’t really want to sell tesy,” he said. your disposable product, do you? You only have three locaRegarding fellow c-store operators who are waiting out tions, I have 20, and I don’t care which brand I sell. You’re the the vapor game, afraid of inventory liability and hoping to one doing all the advertising; just put me on your website as see which items will end up having legs before committing, a place to get it,’” he recalled. “After they got over the shock, Johnson strongly advises that “you can’t sit on the sidelines they agreed.” and wait in this category.” Johnson happily reports that The Pink Spot partnership “Vape shops are everywhere and they will take your ciga- has drummed up more business for both parties. rette customer away if you aren’t involved in the category,” He encourages other convenience store retailers to be the Speedee Mart executive cautioned. From his perspecmore proactive in the vapor category and to think outside tive, vape shops are a force to be reckoned with and dealt the convenience box and even outside what’s being done in with head-on. other channels. In some cases, vape shops are also an opportunity for “Convenience is supposed to be fun and exciting. partnership. After doing some social media homework, Remember, we’re faster than the grocery and drug dinoJohnson convinced one Las Vegas vape shop chain with saurs; we’re supposed to dance around them and be quicker three stores, The Pink Spot, to partner with him and let on our feet than they are,” he said. “Vapor is the perfect catSpeedee Mart sell its branded, disposable e-cig product. egory to do that with.” CSN

62 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

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Milking It What Circle K gained from being c-store pilot for The Great American Milk Drive By Danielle Romano

total of 512,000 servings of milk. That, in a nutshell, describes the results Circle K Stores Inc. saw from its participation in this year’s The Great American Milk Drive, which ran Sept. 1-30 with Circle K as the firstever major convenience store retailer to participate in the Milk Processor Education Program’s (MilkPEP) national program. “We’ve seen great retail success with grocery stores for The Great American Milk Drive, and we are proud to partner with Circle K to apply learnings and optimize the opportunity for the convenience store model,” said Victor Zaborsky, vice president of MilkPEP. “We are dedicated to creating partnerships that can help deliver much-needed milk to local food banks, engage shoppers and build community presence around an important cause.” The Great American Milk Drive’s goal is to secure highly desired gallons of nutrient-rich milk for millions of hungry families in partnership with Feeding America. The multi-year effort has three key periods: June Dairy Month, Hunger Action Month in September, and the holiday giving season when onethird of annual giving occurs. Milk is one of the most requested items by food bank clients year-round because of its essential and nutritional value. However, Americans aren’t as likely to donate milk because it is perishable vs. canned and dry goods, the most donated items, according to MilkPEP. Because of this, food banks on average are only able to provide the equivalent of less than one gallon of milk per person per year, explained Zaborsky. This is where the influence of convenience stores in large markets can make a difference. C-stores have a unique opportunity to make a significant impact in their communities by helping deliver much-needed milk to local food banks, he noted. “Specifically optimized for the retail environment, the [Milk Drive] program can help lift fluid milk sales

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This September, more than 3,800 retail stores participated in The Great American Milk Drive.

without discounting, drive foot traffic in-store and bring in new customers by doing good and strengthening retailers’ community presence,” said Zaborsky. This September, more than 3,800 retail stores across the country — including nearly 600 Circle K and Kangaroo Express convenience stores — participated in this year’s drive. As a result, hundreds of thousands of servings of milk were donated to families in need through Feeding America food banks. The results exceeded last year’s Hunger Action Month totals. As the pilot for c-store participation in The Great American Milk Drive, Circle K launched its “Milk For Kids” program on Sept. 1 to coincide with MilkPEP’s campaign. Through Sept. 30, the Milk For Kids program took place at more than 600 Circle K and Kangaroo Express stores in Georgia, North Carolina, South Carolina and Tennessee, where donations were collected through in-store checkout programs. By developing Milk For Kids in conjunction with The Great American Milk Drive, Circle K was able to take advantage of the support and materials provided

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by MilkPEP, while customizing its activation to build awareness for its own program, Zaborsky explained. “Circle K’s large, coordinated effort paid off, impacting each local community. Beyond their efforts to engage customers to participate, Circle K leveraged its relationships with business partners like Pepsi Bottling Co. and Bon Appetit for contributions, resulting in more than 600 additional gallons donated to the program,” he said. “Local Americans aren’t as likely to milk compadonate milk to food banks nies who serve because it is perishable. Circle K and Kangaroo Express stores in the Southeast region supported the effort as well, including Dean Foods which donated 500 gallons to the cause. The passion these stores had to make a difference really showed with their amazing results.” Achieving success with this c-store pilot, MilkPEP is now looking forward to exploring long-term opportunities with Circle K, as well as other c-store operators. “Based on the success Circle K had in activating The Great American Milk Drive, we’re eager to explore partnerships with other convenience stores to engage their shoppers with this relevant, local cause that helps kids and at the same time drives sales,” Zaborsky said. CIRCLE K’S PERSPECTIVE

Convenience Store News caught up with Misti Mason, category manager for Circle K, to get her take on the results of the pilot program. Here’s what she had to say: What were the results of the Milk For Kids program? In total, we raised over $160,000 in just four weeks to provide 512,000 servings of milk to local food banks across the Southeast. We are proud of being able to help educate our shoppers about the need for nutrientrich milk in food banks and build our community presence, while bringing new traffic to our stores and driving incremental sales of milk.

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In what ways did Circle K activate to drive results for the program? Stores across the Southeast featured signs within aisles and on the dairy case, as well as signs on gas pump dispensers and window clings, to build awareness and encourage shoppers to donate. Employees were well-informed on the Milk For Kids program through breakroom posters, program “playbooks” and ongoing email communication, and wore buttons to encourage customers to ask them about the donation program. These efforts, along with local media opportunities, helped our shoppers understand the local need for milk in food banks and gave them easy ways to support the cause with $1, $3 or $5 donations. We coordinated with local radio stations to host remote broadcasts on-location at stores in four key markets during the program, to engage with customers and encourage listeners to donate at their local Circle K or Kangaroo store. Additionally, we generated local media coverage to spread awareness of the need for nutritious milk in food banks, and inform communities that a donation of as little as $1, $3 or $5 would help deliver gallons of milk to families in need in their community. What was the customer response to Circle K’s involvement in The Great American Milk Drive? Customers were very receptive and eager to donate, knowing their donations would stay local and help our community. Our store managers were especially excited about the program. Throughout the month, they shared results from their stores with each other and encouraged each other to raise even more donations for this great cause. Did Circle K gain from this experience all it hoped to? We are very proud of the success of the Milk For Kids program. The program aligned well with our mission and commitment to the communities we serve. In addition to raising more than 512,000 servings of milk for local food banks, we were able to build our community presence and bring new consumer traffic to our stores. All around, it was a win-win-win for Circle K, the communities we serve and The Great American Milk Drive. We’re thrilled with the impact we were able to make as the first convenience store to activate, and we hope other stores see the value and opportunity to help their communities by partnering with this important cause. There is a true need for donations of nutrientrich milk across the country, and we can help. CSN

TECHNOLOGY

2015 TECHNOLOGY STUDY

Enterprise + POS + Digital + Payment Systems + Business Intelligence

Mobile Movement C-store chains shift technology focus to apps and EMV By Brian Berk

onsidering smartphones are quickly becoming the No. 1 form of communication for many consumers, convenience store retailers are going “all in” in regards to launching mobile apps for their brands, which often incorporate loyalty programs and mobile payment, according to the 2015 Convenience Store News Technology Study. Convenience giant 7-Eleven Inc.’s debut of 7Rewards was one of the highest-profile industry apps to debut in the past year. In addition, the power of c-store retailer apps was proven when Cumberland Farms Inc. announced on Oct. 1 of this year that its SmartPay app reached $1 billion in sales volume just two years after its release. Nearly 39 percent of c-store chains responding to this year’s CSNews Technology Study reported they now offer an app to their customers, more than a 10-percentage-point rise compared to the 2014 study. More than 62 percent of chains also offer a loyalty program, a solid 4-percentage-point increase year over year. Adoption of mobile payment saw an even larger jump on a percentage basis. Nearly one in four c-store chains (23.5 percent) are offering some form of mobile

Convenience store chains are increasingly realizing the importance of technology. Ninety-six percent of chains said they spent on technology/automation in full-year 2014, a 4-percentage-point increase vs. the previous year. More than $1.8 million was spent per chain, on average, with a median spent per company of $325,500. These figures massively outpace the prior year. 2014

96% 4% $1,876,380 $325,500

Source: Convenience Store News Market Research, 2015

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More than two-thirds of chains spent their technology budgets in 2014 on replacing equipment, with the remainder buying new equipment. More dollars were spent on store-level technology vs. headquarters technology. 2013

2014 Type of InvesTmenT Capital expenditures

51.9%

48.1%

Other tech spending

46.6%

53.4%

Technology equIpmenT InvesTmenT Adding new equipment

Replacing equipment

31.6% 68.4%

Spending on Technology/Automation

Spent Did not spend Average spent per company Median spent per company

Technology Investments

34.7% 65.3%

Where Technology InvesTmenT Was spenT Headquarters technology

Store-level technology

32.3%

36.8% 2013

91% 9% $1,425,000 $100,000

63.2%

67.7%

Source: Convenience Store News Market Research, 2015

TECHNOLOGY Enterprise + POS + Digital + Payment Systems + Business Intelligence

Planned Technology Investments for 2015

Nearly 43 percent of chain retailers expected to spend on replacing aging POS technology, ranking third on the list, proving in-store EMV upgrades are top of mind. This category ranked eighth last year. Conversely, only 35 percent of chains planned to spend on social media in 2015, plummeting 16 percentage points year over year.

payment in-store — such as those available from Apple, Google and PayPal — compared to just 7.8 percent of chains in 2014 and 2.1 percent in 2013. Advancement of mobile payment adoption at the pump is equally impressive, with 21.1 percent of chains stating they currently employ the technology, vs. 6.5 percent in 2014 and 2.3 percent in 2013. Hence, although several media reports have alleged mobile payment growth has been slow with the exception of Starbucks Corp., this data refutes that claim. UPS & DOWNS IN EMV

Another interesting takeaway from this year’s Technology Study relates to the Oct. 1 EMV (Europay,

Expected 2015 Technology Spending vs. 2014 More than 56 percent of c-store chains expected to spend more on technology for 2015, compared to 49 percent last year who made the same comment. EMV (Europay, MasterCard and Visa) upgrades are likely high on the list of what these dollars were earmarked for. Year ago

Current Will spend more

Will spend less

Will spend same amount

45.8% 45.4 42.9 38.3 37.6 37.5 35.2 33.4 25.3 25.0 17.7 16.8 15.2

Source: Convenience Store News Market Research, 2015

Payment Systems

(percent of chains using each) Mobile payment saw a massive leap in usage at c-store chains in just one year. Slightly less than one-quarter of chains report now using this form of payment, compared to just 7.8 percent last year. Mobile payment is also growing exponentially at the pump, with 21 percent of chains stating this technology is now available at their forecourts, vs. 6.5 percent last year. currenT

year ago

100.0% 70.6 58.8 52.9

100.0% 48.6 46.8 50.2

23.5 17.6 1.2

7.8 9.4 1.8

In-sTore:

Credit/debit Prepaid/stored value card Electronic benefits transfer (EBT) Electronic check verification Mobile payment (Apple Pay, CurrentC, Google, PayPal, etc.)

RFID Self-checkout aT pump:

19.1% 24.7%

Reduce theft/shrink Better management of store-level inventory/revenue Replace aging POS technology Increase customer payment options Better management of store labor expense Increase reliability/capacity of bandwidth for data communications Social media Employee training Provide store manager with decision tools Speed customer checkout process Implement business intelligence reporting Integration of systems Improve HQ accounting systems

29.0% 56.2%

21.6%

49.4%

Credit Partial debit authorization Prepaid/stored value card Mobile payment (Apple Pay, CurrentC, Google, PayPal, etc.)

RFID Cash acceptors Source: Convenience Store News Market Research, 2015

Source: Convenience Store News Market Research, 2015

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96.2% 58.6 45.3

21.1 10.5 5.3

6.5 12.4 6.2

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Mobile Apps Nearly 39 percent of c-store chains offer a mobile app to their customers, a massive 10-percentage-point increase compared to last year. This yearâ&#x20AC;&#x2122;s research shows all c-store chain mobile apps feature a store locator, with many also offering mobile coupons, customer feedback, loyalty program tie-ins and limited-time specials. are mobIle apps avaIlable To consumers?

38.9% YES MasterCard and Visa) in-store point-of-sale (POS) liability shift deadline. For the first time, CSNews asked c-store chain operators if they are EMV compliant at the POS. The results from the study, fielded shortly before Oct. 1, yielded both good and bad news. First, the good news. All c-store chain retailers responding indicated they have at least begun the process of upgrading their in-store POS devices to be EMV compliant. On the negative side, however, only 35 percent of chains said they were EMV compliant at the time CSNews fielded the survey. It is certainly possible more retailers have upgraded to EMV in the time since. In addition, fraud may not be massive at some c-store chains, leading them to decide they can afford to wait before making EMV upgrades. EMV aside, c-store chain retailers are certainly placing an emphasis on overall technology upgrades. Ninety-six percent of chains responded they made a technology/automation upgrade in full-year 2014, compared to 91 percent the prior year. Chains spent an average of more than $1.8 million on upgrades, with a median of $325,000 spent per company. Both these figures easily trump the amounts spent the prior year. Nearly two-thirds of this money was spent on store-level technology, with the remainder remitted to boosting headquarters technology. For full-year 2015, the majority of c-store chains said they expect to invest more in technology compared to 2014. More than 56 percent of respondents expect to spend more this year, compared to 46 percent who made the same assertion last year. CSN

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61.1% NO

Features oF Mobile app

Store locator Coupons Customer feedback Loyalty program tie-in Limited-time specials Fuel prices

100.0% 71.4 64.5 60.2 58.8 46.2

Source: Convenience Store News Market Research, 2015

EMV Compliance

More than 35 percent of c-store chains were fully EMV compliant at the time CSNews fielded the study, just prior to the Oct. 1 liability shift date. The remaining 64.7 percent said they were not compliant but had already started the process. Is company emv complIanT aT The pos? Yes, we have met the specifications for our level No, but we have started the process

64.7%

Source: Convenience Store News Market Research, 2015

35.3%

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STORESPOTLIGHT Alon/7-Eleven

Bigger & Better in Texas Alon’s newest 7-eleven prototype store in el Paso caters to professional drivers By Danielle Romano

hen Alon Brands LLC bought West Convenience in 2001, the site that is now its newest 7-Eleven prototype store was included in the deal. However, Alon tried to unload the El Paso, Texas, location because it didn’t think it was “c-store material,” recalled Jonathan Ketchum, senior vice president of Dallas-based Alon Brands, the largest U.S. 7-Eleven licensee. That was until the state built an international bridge and loop from Mexico into El Paso, and the area became increasingly busy. Alon soon switched gears and instead of unloading the site, it purchased two adjacent parcels in 2015, totaling

Alon’s el Paso prototype store measures 5,200 square feet.

two acres of land to build upon. “We are committed to growing our presence in the Lower Valley and East El Paso,” Ketchum said of the chain, which operates more than 300 c-stores in Texas and New Mexico. Alon is also committed to keeping up with the rapid evolvement of the convenience world, adapting and

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changing to take its 7-Eleven stores to the next level. Its newest prototype store in El Paso — the second of this concept — is proof of that. The store opened for business Oct. 19, just four months after Alon debuted its first 7-Eleven prototype in Rio Rancho, N.M. A New KiNd of LegAcy

While Alon’s legacy store network features sites that are typically 2,400 square feet, the company had launched a larger format measuring 3,500 square feet. Still, Alon felt that square footage didn’t provide sufficient capacity for a foodservice area with in-store seating. Thus, the retailer decided its first prototype store in Rio Rancho would be 4,503 square feet. As they say though, everything is bigger in Texas. And so when it came to the El Paso prototype, Alon added even more square footage, taking it to a hefty 5,200 square feet, which company officials noted exceeds the c-store industry norm. For El Paso, Alon worked with Advancement Branding and used the Rio Rancho store as a starting point for graphic design. However, it then melded that design with the company’s classic truck stop layout. “We wanted to replicate what we did in Rio Rancho, but this site was a unique opportunity,” Ketchum told Convenience Store News. Using much of the same interior graphics, as well as most elements of the Rio Rancho prototype, Alon recognized the difference in demographics and wanted to accommodate El Paso customers. The newest site differs from Rio Rancho because it is more commercial than residential.

STORESPOTLIGHT Alon/7-Eleven

“Rio is upscale and growing, and this is more El Paso,” Ketchum explained. UNiqUe offeriNgs

Appealing to El Paso’s blue-collar demographic, the store targets OTR (over-the-road) drivers who travel between the United States and Mexico, as well as longand short-haul commercial and professional drivers. While the store incorporates much of the Rio Rancho décor, Alon substituted more traditional quick-service restaurant (QSR) hot foods to appeal to this demographic, rather than the bakery and smoothie offerings of Rio Rancho. El Paso also does not feature a wine wall like Rio Rancho does. But the location does offer a beer cave, due to El Paso being a strong market for beer sales, according to Ketchum. In fact, he noted that beer performs better than cigarettes in this market. This uniqueness gives Alon the opportunity to sell iced-down beer and move more singles. “El Paso is a cash market, [which means] people tend to buy in smaller quantities,” Ketchum said. “This is the first time we’re doing this.” The El Paso 7-Eleven store additionally differs from Rio Rancho in that its customized foodservice offering includes a Chester’s Chicken restaurant. “We hoped to put in a local Mexican QSR, but they were reluctant. So, we went with a Chester’s that is bilingual to give us a Tex-Mex customized foodservice program,” said Ketchum. Alon wanted a foodservice program here that included chicken because it has universal appeal. Other amenities offered in El Paso include: • Three diesel fuel islands • 20 fueling positions for cars • Trucker supplies like electronics, books and clothing • Wi-Fi • Adva, Alon’s new proprietary brand of water • A full complement of 7-Eleven’s 7-Select and GO!Yum private brand products • Interior seating, for which an extra 800 square feet was dedicated. “We felt that we wanted our guests to stay and consume their food on-site,” Ketchum said. LooKiNg to the fUtUre

In its first year, Alon anticipates the new El Paso prototype store will achieve 3.5 million gallons in fuel sales, or approximately 300,000 gallons per month, as well as $2.4 million in in-store merchandise sales, or $200,000 per month, according to Ketchum.

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qsr-style hot foods, including a chester’s chicken restaurant, appeal to el Paso’s blue-collar customer base.

Using the El Paso and Rio Rancho stores as a design template, the retailer intends to expand this new concept. Alon already has plans for three other interstate travel stops. The targeted sites are in El Paso and Midland/Odessa, Texas, and Albuquerque, N.M. “We hope to procure capital to build new or raze/ rebuild up to 10 sites next year,” Ketchum said. CSN

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EXPERT’SVIEW

The Impact of Election Day 2015 Employer issues will continue to creep into state capitols and city halls across the country

oming out of the 2014 elections, Republicans won by historic margins at the state level, installing 31 Republican governors and winning control of 67 of the 98 state legislative chambers. On Election Day 2015, Republicans not only defended those advances, but added to that margin by By Joe Kefauver, winning decisively in Kentucky. Align Public Strategies At the same time, Democrats swept mayoral races in the largest metro areas across the country, most notably in Charlotte, N.C.; Columbus, Ohio; San Francisco; Orlando, Fla.; and Philadelphia. Democrats also gained the mayor’s office in Indianapolis. The end result for the business community is probably more of the same: the partisan gridlock in Washington, D.C. will continue to create a dynamic where employer issues creep into state capitols and city halls across the country, with employers having to continue to defend their employment practices in city after city. That gridlock could very well reach a fever pitch heading into the 2016 elections, because it’s likely both sides will emerge from Election Day feeling they have a mandate from the voters “to lead.” More “Big City” mayors will pursue progressive agenda items like paid leave, huge minimum wage increases and scheduling mandates, and Republicans at the state level will continue on a path to rebuff the Obama agenda.

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By example, Kentucky Governor-Elect Matt Bevin nationalized his race, portraying his opponent Attorney General Jack Conway as a supporter of national Democratic priorities like gay marriage and Obamacare that were unpopular with conservative Bluegrass Democrats. On the other end of the spectrum, Philadelphia Mayor-Elect Jim Kenney secured the Democratic nomination, and ultimately the election, by running to the far left of the entire field, endorsing a $15-an-hour minimum wage among other progressive agenda items. This year’s Election Day results also highlight that the political divide between urban and suburban/rural America is as pronounced as ever. That’s not necessarily news, but traditionally these two groups of voters haven’t been so neatly organized on the ideological spectrum. In the past, some issues cut across geography or political affiliation. This divergent dynamic continues to erode constructive policy conversations, and every Trump Twitter bomb and Fight for $15 meme pushes us closer to total dysfunction at every level of government. While we always hope that sound public policy will win the day, both sides of

EXPERT’SVIEW the aisle would be wise to exercise caution on account of political considerations. The White House in 2016 is the ultimate prize and while Republicans have cause to celebrate, the electorate that showed up this Election Day is very different than the voters who will show up on Election Day 2016. For Democrats, voters in the liberal bastions of Portland, Maine, and Tacoma, Wash., rejected a $15-an-hour minimum wage mandate, demonstrating that ideology won’t always trump common sense. Unfortunately, these learnings will probably be lost in the shuffle of primary season. With the 2015 elections now in the books, it is the official start of the 2016 campaign season. Right on cue, and timed to coincide with the Republican presidential debate in Milwaukee, employers again contended with protestors on their collective doorstep as the Fight for $15 campaign executed its largest “National Day of Action” to date. For entry-level employers, the political winds have chosen you to be one of this cycle’s piñatas and

More “Big City” mayors will pursue progressive agenda items like paid leave, huge minimum wage increases and scheduling mandates, and Republicans at the state level will continue on a path to rebuff the Obama agenda. everybody has a political mandate from the voters, so buckle up and hang tight. CSN Joe Kefauver is managing partner of Align Public Strategies, a full-service public affairs and creative firm that handles national issues and multi-state strategy for a portfolio of flagship clients including the country’s largest employers, Fortune 100 brands and national associations. For more information, go to AlignPublicStrategies.com. Editor’s note: The opinions expressed in this article are the author’s and do not necessarily reflect the views of Convenience Store News.

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EXPERT’SVIEW

A Peek Into the M&A Marketplace of 2016 Growth in multiples are under pressure and may have peaked

s 2015 comes to a close, the mergers and acquisitions (M&A) market in the convenience and gas station (C&G) industry is showing no real signs of slowing down any time soon. While the C&G industry has experienced a tremendous amount of M&A activity over the past several years, it is still extremely fragmented and ripe for further consolidation. In addition, for the most active companies in the M&A marketplace, acquiring a major competitor can be the easiest and most cost-effective option to fuel their future growth plans in existing trade areas, or By John C. Flippen Jr. & John Sartory, Petroleum Capital and Real Estate LLC to expand their current marketing footprint. However, as 2016 quickly approaches, there are certainly signs that the growth in multiples that the most active consolidators have been willing to pay for C&G retail assets are under pressure and may have peaked in 2015. Before we discuss the outlook for 2016 in more detail, let’s briefly review some of the largest transactions that were announced or have closed in 2015, and some of the common themes in all of these acquisitions. • Global Partners LP acquired 97 retail gas stations and seven dealer supply-only agreements located in New York and Maryland from the Capitol Petroleum Group for $156 million. This acquisition quickly followed the master limited partnership’s (MLP) earlier acquisition of petroleum marketer Warren Equities Inc. for approximately $387 million. The Warren Equities acquisition included 147 company-operated sites, 53 commission agent locations and more than 300 dealer supply-only agreements.

82 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

• TravelCenters of America (TA) continued its expansion into the convenience store space by completing or announcing six separate transactions that included 124 retail sites. These acquisitions reportedly cost TA approximately $230 million. • CrossAmerica Partners LP acquired the West Virginia-based One Stop convenience store network. The MLP paid all cash for the assets and the funds were secured from its corporate credit facility. • United Pacific, formerly known as United Oil, purchased 251 gas stations and convenience stores from Pacific Convenience & Fuels. The locations are in the states of California, Nevada, Oregon, Washington and Colorado. United Pacific is a portfolio company of the Fortress Investment Group LLC, a diversified global investment management firm. • 7-Eleven Inc. acquired the Tedeschi Food Shops retail network that included approximately 180 sites in the Northeast section of the United States. • Cumberland Farms Inc. announced the sale of its Gulf Oil LP fuel business to the Boston-based private equity firm ArcLight Capital Partners. It has been reported that the transaction will exceed $1 billion. The public announcements and post-closing industry analysis concerning all of these acquisitions clearly indicates MLPs, the publicly traded convenience store companies and buyers backed or controlled by private equity firms are firmly entrenched as the leading M&A players or consolidators in the C&G industry. A motivated seller with attractive C&G assets will continue to seek out these strategic buyers because of the financial resources of the companies and their proven ability to close almost any transaction. In addition, the ability of the larger consolidators to access the historically inexpensive capital

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EXPERT’SVIEW markets should continue in 2016 since the Federal Open Market Committee (FOMC) — and Federal Reserve Chairwoman Janet Yellen in particular — are still hesitant to raise market interest rates to a range that would be commensurate with the actual level of economic activity in the economy. The Fed seems to agree with former U.S. Treasury Secretary Larry Summers that the problem of “secular stagnation” in the major industrial economies such as the United States and the decline in the growth of emerging market economies have created too big of a risk to end the Fed’s accommodative monetary policy any time soon.

ness plan assuming retail margins will continue to expand at a pace equal to the past two years. • Increased Labor Expenses: The recent announcement by Wal-Mart Stores Inc. and several other major retail chains that the growth in store labor expenses will have a major negative impact on future profitability was certainly a wakeup call for all investors and retail operators. New York Governor Andrew Cuomo’s push for the Empire State to become the first state in the country to adopt a $15-per-hour minimum wage for all industries cannot be ignored or considered an isolated event.

Master limited partnerships, the publicly traded convenience store companies and buyers backed or controlled by private equity firms are firmly entrenched as the leading M&A players or consolidators in the C&G industry. A motivated seller with attractive C&G assets will continue to seek out these strategic buyers because of the financial resources of the companies and their proven ability to close almost any transaction. Therefore, while the bullish U.S. employment report for October may finally nudge the Fed to increase short-term interest rates by 25 basis points during its December FOMC meeting, no one expects rates to rise to a level that will significantly dampen M&A activity throughout the economy. UNDER PRESSURE

While all the current market incentives that have been fueling the merger mania in the C&G industry over the past several years are still in place, we would like to use the remaining portion of this article to briefly highlight several external macroeconomic issues that should inhibit the future growth in purchase multiples and the overall site-level prices that have been recently paid for C&G retail assets. These forces will put pressure on the future profitability of the C&G industry and the aggregate amount of capital available to chase these assets. • Retail Margin Expansion: The massive decline in crude oil prices that has had a positive impact on retail margins seems to have come to an end. While it is always difficult to predict the movement in worldwide crude oil prices, it seems unlikely a major consolidator is preparing a five-year pro-forma busi-

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The progressive forces in the United States certainly seem to be winning the national discussion over what is an appropriate “living wage” and as a result, even conservative states such as Arkansas, Nebraska and West Virginia have enacted fairly robust minimum wage increases for 2016 and/ or beyond. In addition, President Obama has announced plans to greatly expand the number and categories of employees that are entitled to overtime compensation through revisions to various national labor rules and regulations, and several large class-action lawsuits have been filed in the U.S. alleging that C&G operators failed to properly pay overtime wages to employees. As the overall level of retail wages continues to rise throughout the United States in the near future, C&G operators are going to have to pay higher wages to compete for the most talented employees, and these increased labor costs will also directly lead to higher payroll taxes, unemployment insurance and workers compensation expenses. All of these issues will have a negative impact on store-level profitability and the ultimate price or multiple that buyers will be willing to pay

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EXPERT’SVIEW for a network of C&G sites. • The Weaker IPO Market: The initial public offering (IPO) market in the United States has suddenly slowed down as the sharp stock-market swings or volatility in the late summer and early fall have trimmed investor appetite for risk and, as a result, numerous companies have delayed or put off plans to go public. The change in the IPO market seems to have impacted several large privately held C&G companies that had been planning to go public by forming new MLPs. If the IPO market environment does not rebound in 2016, the growth in new capital and the expanding number of publicly held companies that have helped to fuel the C&G merger mania over the past several years will start to subside. • Threat of an Interest Rate Increase: Although no one can know with certainty how quickly interest rates may rise in 2016, it is clear that the discussion of an increase in interest rates by the Fed and the general economic downturn in the exploration and production portion of the petroleum industry

has had a negative impact on the unit prices (the MLP equivalent of stock shares) of MLPs. The general reduction in MLP unit prices will eventually result in a market increase in the cost of capital for the industry, place additional pressure on lender credit terms, and create a more challenging environment for raising capital. Any increase in the cost and availability of capital typically has a direct and negative impact on purchase multiples. Although all these factors are most likely going to impede future profitability in the C&G industry, the M&A activity within the sector remains strong and we expect this will continue into 2016, albeit at slightly less robust multiples. CSN John C. Flippen Jr. and John Sartory are managing directors of PetroCapRE (www.PetroCapRE.com). The firm provides buy-side acquisition, refinancing, capital restructuring and select sell-side advisory services in the convenience and gas station industry. PetroCapRE has assisted clients in completing transactions valued at over $1.3 billion. They can be reached at jflippen@PetroCapRE.com and jsartory@PetroCapRE.com. Editor’s note: The opinions expressed in this article are the authors’ and do not necessarily reflect the views of Convenience Store News.

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CSNews.com/industryreport2015 86 Convenience Store News | DECEMBER 2015 | WWW.CSNEWS.COM

OUTABOUT &

Spotlighting major industry events

Fuels, Tech & Much More SIGMA Annual Meeting brings together thought leaders in the petroleum retail market By Brian Berk

he future of fuels was the main topic discussed during the 2015 SIGMA Annual Meeting, the largest gathering of SIGMA members throughout the year. The trade association’s roughly 260 corporate members command nearly 50 percent of the petroleum retail market, selling approximately 80 billion gallons of motor fuel in the United States and Canada each year. When it comes to fuel trends, petroleum and convenience store retailers are always looking for bright spots. There has been much talk that the millennial generation is not keen on driving or buying new The opening general session featured a “Thought Leaders Forum,” which began with a forecast of energy supply and demand trends and then posed questions to a panel of prominent fuel cars, which would affect fuel sales. But SIGMA attendees got some good industry leaders. news in that U.S. consumers are buyThere are a few items on the negative side, though. ing new cars again — and bigger cars at that. One is sales of electrified vehicles, Caldwell said, Presenter Jessica Caldwell, senior analyst and direcdefining this segment as hybrid, plug-in and electric tor of pricing and analysis for vehicles. These vehicles still only have a 2.8-percent automotive industry website SIGMA Annual share of the market. “Consumer interest is low. Some Edmunds.com, reported that Meeting go to a showroom with the intention of buying an new car sales are expected to Nov. 9-11, 2015 electrified vehicle, but they don’t often leave with reach a record 17.4 million Boston vehicles in the United States this one,” she said. Regarding U.S. fuel consumption, the SIGMA year. And the prognosis is even Annual Meeting also provided an outlook on energy, better for 2016, when Edmunds.com projects 18 milall the way to the year 2040. Paul Tanaka, energy and lion new car sales. Of course, these vehicles will need technology advisor, corporate strategic planning for to fuel up somewhere. Exxon Mobil Corp., revealed diesel fuel will show the “Things look pretty good. It’s the best news I’ve most growth. Consumption of higher ethanol blends is delivered,” Caldwell said. More positive news for petroleum and c-store retail- also expected to increase. Conversely, electric vehicles will have growth on a ers is that consumers are buying larger vehicles again, percentage basis, but Tanaka stressed the increase is with small SUVs especially attractive to women and coming from a very small base and electric charging baby boomers.

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will still only be a small part of the U.S. fuels landscape in 2040. THOUGHTS ON INDUSTRY CONSOLIDATION

This year’s SIGMA Annual Meeting, which took place at Boston’s Westin Copley Place, kicked off with a “Thought Leaders Forum.” Considering who the panelists were, it was no surprise merger and acquisition activity was a hot topic. The panel included: Jack Pester, chairman of Pester Marketing Co., who sold his company to World Fuel Services Inc. on Oct. 30; Eric Slifka, president and CEO of Global Partners LP, which has acquired several c-store assets over the past couple of years; and Bob Espey, president and CEO of prominent Canadian retailer Parkland Fuel. All three executives agreed c-store industry consolidation will continue for the foreseeable future. “There is a mature product with potential declining demand,” noted Espey. Slifka pointed out, though, there is value in oil companies holding onto retail assets. “Big Oil companies used to be integrated. That has been blown up. [But] I believe there is value in integrating. Value can be driven through the chain, but you have to make sure not to be too disparate,” he remarked. Pester spoke about how there is always some regret when selling your business. However, he said he’s glad he made the decision he did. “I’m very happy with the sale. I’m a happy boy.”

SULLY’S STORY With the final day of the 2015 SIGMA Annual Meeting falling on Veterans Day, Nov. 11, the trade association took the opportunity to honor those who have served the country. Air Force veteran Chesley B. “Sully” Sullenberger delivered an enthralling speech, recounting the day of Jan. 15, 2009, when he piloted U.S. Airways flight 1549 to

Chesley B. “Sully” Sullenberger

a safe landing in the Hudson River after Canadian geese struck the plane. Now known as the “Miracle on the Hudson,” Sullenberger’s actions saved all 155 people onboard. In great detail, he described his thought process during the stressful 208-second process, which he acknowledged was the “hardest day of my life.” “My first thought was, ‘This can’t be happening,’ Then I thought, ‘This doesn’t happen to me,’” he recounted. “I knew this would not end on a runway with an aircraft undamaged.” Sullenberger offered leadership advice to the SIGMA attendees. “Leaders are made, not just born,” he said. “There’s a difference between leadership and management,” he added, noting all leaders must learn what he called human skills in addition to technical skills. “It is unlikely later in life we will count our money and deals we made,” he concluded. “Instead, we will ask, ‘Did I make a difference?’ I hope your answer is yes.”

CYBERSECURITY: A SCARY TOPIC

Shifting from talk of fuels to talk of technology, the SIGMA event delved into cybersecurity, “one of the scarier topics for people doing business today,” according to speaker Bethany Coleman-Fire, associate with law firm Davis Wright Tremaine LLP in Portland, Ore. Cybersecurity is so scary because it is constantly changing, making it difficult for companies to figure out how to thwart attacks. Only one thing is for certain: Nobody is immune from cyberattacks. In fact, 71 percent of attacks are waged against smaller businesses. While skimming incidents are most common at convenience store locations, Coleman-Fire cautioned that new types of hack attacks keep coming down the pike. For instance, ransomware is an occurrence where hackers breach a computer system, with the attacker demanding money in order to regain control of the operating system. Many retailers have decided to pay off the criminals because it is so difficult for law

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enforcement officials to bring the offending party to justice, Coleman-Fire acknowledged. She presented an approach to fight back against cyberattacks. Included in the plan: • Create an effective internal response team with clear responsibilities; • Select outside counsel; • Implement fast, low-cost changes; • Select an incident response team; • Consider cyber insurance; • Review hiring and termination practices, such as pre-employment background checks; • Update/implement written information security policies and procedure; • Develop a response plan; • Implement security awareness training; • Establish technical controls; and • Test and maintain the system. CSN

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PM SNACKING The hottest c-store daypart Snacking during the 2 to 5 p.m. time period is now the fourth most common daypart in convenience stores after breakfast, lunch and dinner. In fact, the “PM snacking” daypart is projected to outpace all other meal parts in growth in 2015, according to the Convenience Store News Industry Forecast Study for 2015. C-stores are in a unique position to be one of the top venues for PM snacking and small meal options. Nearly 40 percent of consumers indicate they have purchased a snack at a convenience store in the past 30 days, making it the top choice among drug stores, QSRs and casual dining restaurants.

C-stores are top choice for snacking Which of the following venues have you visited for a snack in the past 30 days?

38%

Convenience store Drug store

31%

24%

Fast-food restaurant Sit-down restaurant

12%

Source: March 2015 Stagnito/Carbonview Consumer Research

U.S. snack sales are expected to reach $47.5 billion this year, up from $34.2 billion in 2005. SOURCE: STATISTA

The role of consumer trends in PM snacking growth Te explosion in PM snacking is part of a larger overall upward trend for consumer snacking. In 2014, annual “eatings” per capita of snack foods consumed at meal times by individual diners reached 191, compared with 167 in 2011, according to NPD. And from a dollar perspective, U.S. snack sales are expected to reach $47.5 billion this year, up from $34.2 billion in 2005, according to Statista. PM snacking growth will continue to be driven by a number of timely consumer trends, including: Grazing: Grazing, or eating multiple small meals, tends to occur in the late afernoon between lunch and dinner—particularly late afernoon to early evening—when consumers are looking for something indulgent such as specialty cofees or ice cream, or a more substantial dish such as a sandwich, fries or Mexican fare.

The hottest c-store daypart

PM SNACKING