Hypermarkets are beginning to encroach on the petrol retailing business in the US in the same way they did in Europe more than 10 years ago, according to Stan Sheetz, president and chief executive of Pennsylvania-based Sheetz Inc, which runs a chain of 298 convenience and service stations in the Mid-Atlantic region. He has also just assumed chairmanship of the board for NACS – America’s National Association of Convenience Stores – which held its annual show last month in Chicago. The show featured more than 1,300 exhibitors organised into six major product areas covering the needs of convenience store and fuel retailers, as well as a programme of seminars.
Much of the focus in the seminars was on the fact that despite a slight increase in sales last year, profits for the US convenience store industry plunged 24 per cent as retailers struggled with fuel and tobacco margins and ‘big box’ retailers.
The traditional lines of retailing are blurring as everyone wants to home in on the convenience and one-stop-shopping customer. Drug stores market themselves as convenience stores; convenience stores are moving into foodservice, car care and banking; and the hypermarkets are adding fuel retailing and convenience on their properties.
Convenience stores sell the majority of fuel purchased in the country – more than 70 per cent overall – with four out of five convenience stores offering fuelling services (80 per cent), including 92 per cent of all new stores.
At the end of 2002 about 2,400 hypermarkets (supermarkets, discount retailers and warehouse clubs) sold motor fuels compared with 101,000-plus convenience stores, but that figure is rapidly expanding. Currently hypermarkets comprise approximately two per cent of the number of motor fuels retailing outlets, but six per cent of total sales, compared to the 70-plus per cent sold by c-stores.
“Supermarkets have been a growing problem for a couple of years,” says Sheetz. “They are discounting fuel and pulling margins down. In some markets it’s much more prevalent than others. One of the most competitive markets in the US is Dallas because of the supermarkets and Wal-Marts.
“Nationwide the average margins on fuel have remained around 12 cents a gallon. But the dealer market here is so large – there are some areas where the margin is 2c and others where it’s 20c. People who don’t have another string of income and are involved in a low-margin market are struggling. We’ve had some major bankruptcies of convenience store retailers.”
Sheetz said that in his company – which is ranked 100 on Forbes’ 500 list of top private companies – fuel is used as a traffic generator. “Our strategy is to be able to profitably operate on a very low fuel margin because if the hypermarkets want to take the margins down that low, we’re ready for it. Fuel has become very price sensitive. There’s not the brand allegiance that there used to be, and the fuel sold in the US is so heavily regulated that we’re all selling pretty much the same thing. Therefore you’ve got to find gross profit dollars elsewhere. We’re trying to do it through foodservice – we’ve been doing it for 25 years and still trying to get better at it. It’s not easy.”
While hypermarkets and low fuel margins are a familiar tale to British retailers, one big difference in America is that fuel consumption continues to grow – currently at the rate of two to three per cent a year – because of the shift in vehicle purchasing to the more thirsty utility vehicles, pick-up trucks and large family vans which make up more than 50 per cent of all vehicles sold there. “The US has also just passed a milestone – there are now more cars in the country than there are drivers,” says Sheetz. “How crazy is that?”
Another key difference compared to the British way of doing business, is his relationship with oil companies. “We don’t have any,” stresses Sheetz. “We’re independent. We buy gas direct – wholesale from the refineries. We’re unbranded in terms of fuel. We can buy from anywhere but we usually structure most of our fuel purchases as long-term contracts with the refiners. The oil companies own only 40 per cent of the refineries in the US. The rest are owned by independent refiners, or smaller oil companies that also have refining operations. It’s a very open market in this country. It’s good for us. There’s no middleman, so we don’t have a wholesaler or a jobber. We ship our own fuel on a pipeline. We have our own trucks and deliver 100 per cent of our fuel. We have complete control of the fuel side of the business and any price changes on our sites are our decision.” It’s been a successful formula. The Sheetz organisation employs 9,000 people; it serves 600,000 customers a day; and continues to grow – opening 25-30 stores a year.
As chairman of the NACS board for one year Sheetz hopes to make his contribution to improving NACS’ international outreach. “It’s a worldwide business and we can learn from each other. Nobody has a monopoly on great ideas!”
OPENING CEREMONY
At the opening ceremony, outgoing NACS chairman Hank Armour, said having a strong mindset and strong strategic goals would help retailers prepare for the road ahead and take their business from good to great. “Personally I think our single greatest strength is that our core-value proposition to consumers, namely convenience, stands out from the crowd of competition and differentiates us every time a consumer wants or needs something quickly,” he says. However he warned that to keep convenience king, retailers would “have to innovate around the convenience proposition”.
A NACS survey had revealed that 83 per cent of c-store customers made weekly trips to convenience stores, and many made multiple trips – and were largely satisfied with the service.
“This type of information means that our core proposition is intact and only ours to lose,” says Armour.
KEYS TO SUCCESS
Business strategist and entrepreneur Gary Hoover, gave his thoughts on how to develop winning businesses. From a very early age – he subscribed to Fortune magazine at 12 – he had been interested in what separated the winners from the losers. One of the key things he’d learnt was that successful enterprises have a driving sense of curiosity, hence they are aware of, and can anticipate emerging trends.
Understanding the customer was also key to success. He said the big news in convenience was that customers wanted to take prepared food home, a trend that was tearing down the boundaries between grocery and restaurants altogether.
He gave examples of how a clear consistent vision – sticking to the things you do well; as well as finding a way to be unique – such as by defining your own style – had led to success for well-known companies. He said Volvo had not sold a car for 30 years, but had sold safety and reliability instead. Passion was also a major factor in success. “There are no secrets in retail,” says Hoover. It’s easy for rivals to copy what you do. “But passion is harder for would-be competitors to see and almost impossible to copy.”
GUILIANI INSIGHTS
A strong sense of humour, combined with a genuine love for people, were critical assets to developing leadership skills and truly becoming a leader, according to Rudolph Giuliani, the former mayor of New York.
Giuliani said he had identified six leadership traits that were key to both personal and business success. The first was strong beliefs. “You have to know what you believe…in a crisis you always go back to what you believe,” he says. The second was optimism – “To be a happy person, you need to be an optimist. To be a leader, it’s essential. Optimistic leaders understand that problems have solutions – and they seek them out.”
Next came ethics – you have to know what’s right and wrong and be able to win within the rules. Courage featured strongly, but he explained that just because you have courage, doesn’t mean you don’t have fear. “Fear is a part of courage…and nothing gives you more satisfaction than overcoming fear.” Meanwhile relentless preparation means that you are always prepared for the worst – even if you don’t know what the worst is. “If you have a plan in place for everything else, you can develop a plan that includes the unforeseen,” he stresses. Finally teamwork, which, Giuliani said, was probably the most important. A key part of teamwork was to develop a team that understands the things you don’t know.
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