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The c-store paradox

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Articles - October 2013
Monday, September 30, 2013
1013 CStore 06
Above: Plaid Pantry CEO Chris Girard has a background in engineering. "I'm the numbers guy," he says.
Below: Consumers say in surveys they want health offerings, but c-store industry spokesman Jeff Lenard calls such responses “aspirational.”
// Photos by Eric Näslund
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The convenience store industry in Oregon encompasses a diverse array of businesses, from Idaho-headquartered Jacksons to fuel-based mini-marts such as ampm and the countless independent retailers located along the state’s intersections and thoroughfares. The field is dominated, however, by two players: Plaid Pantry and 7-Eleven.

The former was founded in Portland in 1963 by convenience retailer John Piacentini. Over the course of two decades, Piacentini built Plaid Pantry into a regional empire. In the late ‘80s, however, that empire suffered severe financial difficulties, and the company filed for Chapter 11 bankruptcy.

Enter Chris Girard, Plaid Pantry’s current CEO. Initially joining the company as a workout/turnaround consultant, Girard helped pull Plaid Pantry from the wreckage. As it celebrates its 50th anniversary this year, the chain is the 41st largest private company in Oregon. It boasts 109 stores (approximately matching 7-Eleven in the Portland area), $203 million in annual revenue and average yearly nonfuel sales growth of 8% since 2009.

Assembled in a conference room at the company’s unassuming Beaverton headquarters, Plaid Pantry’s management team agrees the chain owes its success in large part to its local roots. Although 7-Eleven has 190 stores in Oregon, the convenience giant, with more than 51,000 locations and 2012 sales of $84.8 billion, is owned by a Japanese company and is based in Tokyo. (Its American subsidiary is headquartered in Dallas.) Plaid Pantry vice president of marketing Tim Cote, whom Girard calls a “guru” for his ability to land extraordinary deals with suppliers, says being based in the Portland area enables Plaid Pantry to work more closely with local businesses than 7-Eleven, and, thus, to take advantage of opportunities the multinational corporation can’t.

“There are lots of opportunities in the market we get exposed to because we’re here,” he says. “By the time you have found the person you need to talk to at 7-Eleven, the opportunity would have come and gone.”

For an example, Cote points to the dramatic increase in sales of craft beer in recent years. “We saw it coming,” he says, “and why we saw it coming, probably, is that most of the major craft brewers live within 40 miles of this office. We know them by name. 7-Eleven hardly knows they exist.”

Having 96 of its 109 stores in metro Portland (the others are in Salem and Seattle) also lets Plaid Pantry tailor its product assortment more closely to the local market. For instance, the chain noticed that Natural American Spirit, a cigarette brand that markets its tobacco as “100% additive-free” and is popular among young, hip smokers, was selling well in the tricounty area. “We gave it display space before anybody else, because that brand and the Portland customer are a perfect fit,” Cote says. Plaid Pantry is now among American Spirit’s top 10 accounts.

Operating in a city with a bumper-sticker campaign to preserve its weirdness also gives Plaid Pantry leeway to be less conventional. “We’re not afraid to be a little weird,” Cote says.

Just go into any of the company’s stores and compare it with a typical 7-Eleven. The former, Cote admits, is a visual cacophony of promotional displays, presided over by an eccentric-looking cashier; the latter is an ordered tableau, overseen by a clean-cut salesclerk.

Girard, who has an ex-pilot’s haircut and a straight shooter’s manner of speaking, doesn’t disagree with that characterization. “You go into a gasoline-based store or a 7-Eleven, everything’s kind of perfect — they’re kind of sterile,” he says. “You go into a Plaid Pantry, you’re exposed to more promotions. It’s organized, but it looks kind of chaotic.”

Despite their differences, 7-Eleven and Plaid Pantry, along with their competitors, are faced with the same looming challenge: finding new revenue sources as their old cash cows, gas and cigarettes, become less reliable.

About 80% of convenience stores pump gas, and fuel sales comprise approximately 70% of the average store’s revenue. Gas, however, has long been an extremely low-margin and volatile product. And as the price has gone up, demand has declined. Meanwhile, credit card companies have continually increased their transaction fees, taking an ever-larger cut of profits. The result is that convenience stores earn, on average, just three cents per gallon of gas they sell. In Oregon, the labor cost associated with the state’s ban on self-service narrows this margin even further.

“Gas has become a product you need to sell, but there are an awful lot of challenges associated with it,” says Jeff Lenard, spokesperson for the National Association of Convenience Stores (NACS).

The same could be said of cigarettes. They currently make up 10% of the average convenience store’s revenue, but that share is shrinking as taxes push up the price of a pack and the smoking rate declines. At Plaid Pantry, cigarettes are the largest product category. Girard is optimistic about the potential of e-cigarettes, but he acknowledges tobacco’s issues. “It’s a decreasing category,” he says. “People are looking at it and saying, ‘We ought to figure out how to replace some of those sales in the future.’”

For much of the industry, becoming less reliant on gas and cigarettes has meant focusing more on prepared food. 7-Eleven has led the way, building an infrastructure for the delivery of prepared food to its stores on a daily basis and steadily expanding its fresh-and-hot product selection. Margaret Chabris, 7-Eleven’s public-relations director, says the company’s research shows there is demand for grab-and-go meals like sandwiches and pizza — “and, of course,” she adds, “the sales of these products indicate customers want these kinds of foods.” That holds true even in Portland, where, as in other urban areas, receipts from prepared food have been high.

Increasingly, customers also want something healthy. 7-Eleven’s consumer research has found shoppers are becoming more conscious of their diet, and the company has responded with more healthful offerings, such as sliced fruit and yogurt parfaits. Meeting the rising demand for fresh, healthy food is also part of the industry’s necessary shift away from challenged traditional profit centers like fuel and tobacco, says NACS’s Lenard. He’s not convinced, however, that convenience store customers truly want healthier products.

“We’ve done countless surveys, and there’s a general sense customers want more healthy food,” Lenard says. “But people tell you what they would like to be, not what they are. You have to pay attention to the food they put into their mouths, not the words that come out of their mouths.”



 

Comments   

 
Guest
-1 #1 it takes all kindsGuest 2013-10-02 17:54:59
This is a good object lesson for "progressive" (or substitute your favorite label) thought leaders and media darlings who are just sure everyone really agrees with them. What real diversity actually looks like...
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Guest
0 #2 Happy to See The Growler GuysGuest 2013-10-15 23:43:57
This summer I was reentering the east side of Bend after a camping trip, which is where I discovered the the Growler Guys as nestled inside a gas station. The idea was interesting, despite the questionable pairing of beer and driving. I was delighted to see nods to nondrinkers like myself, in the form of Townshend's Kombucha and Rogue Root Beer, with free samples flowing. The Stop 'n' Go the Growler Guys shop was attached to had an old-timey service station feel, with uniformed employees carefully cleaning windshields wearing fresh uniforms (complete with hats!) and asking to take our trash. Everyone at the shop was really friendly and the whole outfit seemed very service oriented. To me, those aspects are what I'd like to see in the convenience store of the future, more than the ability to get a growler filled.
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