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Convenience stores find it tough to compete

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Sunday, April 10, 2011
 

Giant Eagle's new GetGo store in South Fayette bakes bread for its made-to-order subs. It sells 30 varieties of coffee, cappuccino and tea, frozen drinks in eight flavors and milkshakes from a self-serve blending machine with a touchscreen.

Motorists can fill up their vehicles at 16 pumps, and clean them at the WetGo car wash.

Customers are impressed. Competitors with older, smaller convenience stores are worried.

"Everything is fresh, and it's all good," said Josh Aldrich of Moon as he waited for a bagel sandwich one recent morning. He said he stops at GetGo about four times a week.

Two other gas stations with stores are closer to the Midas auto shop off the Interstate 79 Bridgeville exit, where Aldrich works. "But they don't have anything like this," he said. "Plus, you get the perks for your gas."

Modern convenience stores with gas pumps bear little resemblance to converted garage bays and other small stores that sell drinks, hot dogs and windshield-wiper fluid. The newest Sheetz, GetGo and Wawa locations in Pennsylvania and nearby states, for example, "are the franchisee-owned convenience store's worst nightmare," retail expert Burt P. Flickinger III said.

"The meals-to-go program Sheetz has is one of the finest anywhere in the world" including high-end convenience stores in Japan, Beijing and Europe, said Flickinger, managing director of Strategic Resource Group in New York. "The GetGo program is superb, and the brilliance of the food and fuel frequent shopper card overlay makes it that much tougher to compete against."

New convenience stores tend to be double or more the size of those built a few decades ago. They feature wider selections of foods prepared on-site, drinks stacked in wall-long "cold vaults" and better decor and lighting.

The number of stores more than doubled in the past 30 years, to 146,341 as of Dec. 31. In-store sales grew 4.4 percent last year to a record $190.4 billion, the National Association of Convenience Stores said last week, compared to 3.4 percent for restaurants and 2.3 percent for grocery stores.

In a continued tough economy, sales at a typical Sheetz store rose 7 percent last year and customer count was up by 3 percent, CEO Stan Sheetz said. He noticed cold beverage sales "didn't go down, but the rate of growth slowed" as gasoline prices rose by more than 40 cents during the past three months.

Sheetz stores always have sold fresh food to go, starting with a sit-down counter at the first store Sheetz's father, Bob, opened in 1952 in Altoona.

Now, "We focus on trying to allow the customer on the go to multitask when they visit," Sheetz said. "That can be any combination of filling up the car, getting a beverage or getting enough food to take home to the whole family. They can do that 24 hours a day."

Altoona-based Sheetz Inc. has 390 stores in six states, and plans to open 30 more this year including one in May in Plum. Newer stores are 5,000 square feet or more in size.

Convenience stores "are maturing into a relatively sophisticated retail channel with a pretty well-developed fresh prepared foods offering that's inexpensive, yet still quick," said David Portalatin, executive director of industry analysis for market research firm NPD Group.

"The consumer today is still squeezed economically. Yet we have to find ways to eat." NPD's monthly surveys conclude that traffic to the stores is up 9 percent from a year ago.

O'Hara-based Giant Eagle started selling gas in 1995 from an attendant's booth and four pumps outside a Youngstown, Ohio, supermarket. Its store network got going just eight years ago.

The grocery chain started the GetGo concept as a joint venture with fuel supplier Guttman Enterprises of Belle Vernon, to run about 20 former Crossroads marts. Guttman Oil Co. continues to fill tanks at GetGo filling stations.

GetGo now has 162 stores, including 75 in the Pittsburgh area.

The South Fayette location that opened in November "is our platform for new stores, going forward," said Dave Daniel, vice president for GetGo operations.

The 5,500-square-foot store is the first to sell Old Fashioned Subs pioneered at the company's Giant Eagle Express concept store in Harmarville. A seating area has wi-fi service, and a circular "cash wrap" counter has several checkout points.

Flickinger called Sheetz, GetGo and Wawa, which has stores in the Philadelphia area, "three of the most formidible, well capitalized and most capable competitors anywhere in the world." Their highest-volume stores may ring up $350,000 a week in sales, half inside and the rest at the pump.

Sales at an average convenience store range from $15,000 to $25,000 a week. And some chains make a disproportionate amount of income from high franchise fees, and aren't investing in store improvements, he said.

One standout has been new promotions at Sunoco Inc.'s APlus stores, Flickinger said. Every month, APlus promotes different breakfast sandwiches and other items tied to gas rewards under a sales growth program that started last year, said Joe McGinn, spokesman for the Philadelphia-based company.

Customers have visited more often: Monthly same-store sales at Sunoco-owned APlus locations were 21 percent higher last year than in 2008, McGinn said. Sunoco also partners with Pittsburgh area Shop 'n Save supermarkets to offer gas rewards, a program that started after Giant Eagle kicked off its gas discounts.

The company will demolish an APlus convenience store occasionally to replace it with a bigger store, and has such a project set for this summer in Kittanning, McGinn said. Sunoco has 150 gas stations in Southwestern Pennsylvania, and about 30 close to Pittsburgh have corporate- or franchisee-owned APlus stores.

Superior Petroleum Group's Fueland stores run Rollback Rewards, which knocks a penny off gas for every $5 spent at the store or at a Foodland supermarket.

The program has helped to keep sales stable at the stores, which sell gas under the BP, Valero or Citgo brands, said Don Bowers, manager of petroleum and transportation for Ross-based Superior.

"But in some areas, it's still down because of the Giant Eagles," he said. Running convenience stores "is a tough business. You don't make money selling gas, so you try to make up for it on Twinkies."

Rewards programs are key in the industry, Flickinger said. Consumers can save $500 a year or more on fuel and other purchases, and when they're prevalent in a market, such as in Pittsburgh, they help to keep prices lower overall.

Wheeling-based Tri-State Petroleum Corp. is working with Elias/Savion Advertising of Downtown on a marketing campaign for about 50 stores in Western Pennsylvania and nearby parts of Ohio and West Virginia. Changes should start to appear in a couple months, Tri-State CEO Colleen C. McGlinn said.

Tri-State owns and operates more than 30 of the sites, and dealers with franchises run the rest. BP, Exxon, Mobil and other petroleum brand signs mark the pump areas, but the stores are unnamed.

McGlinn wouldn't discuss the campaign, but said the company wants to offer more fresh, healthy and affordable foods. "Everyone is so busy these days, that they expect and demand new and different products. Retailers are trying to meet their needs," she said.

Additional Information:

Quick facts on convenience stores:

• Gas is sold at 80 percent of convenience stores and acts to attract driver traffic, National Association of Convenience Stores spokesman Jeff Lenard said. Stores ring up about 70 percent of total sales from the pumps, but gas represents less than 30 percent of profit. Per-gallon, stores make about 2 cents, he said.

• Beer is sold at nearly 80 percent of convenience stores, accounting for 10.2 percent of in-store sales. But Pennsylvania, New Jersey and a few other states prohibit or restrict sales. In Pennsylvania, Sheetz Inc. sells beer in one Altoona store built to comply with state law -- and that came after five years of court battles. 'I would love to put beer in every store,' CEO Stan Sheetz said, but restrictions prohibit it. An example: a store selling beer must be on land deeded separately from the gas pumps, he said.

• Sunoco's APlus stores upgraded their coffee recently to a special roast from Coffee Bean International of Portland, spokesman Joe McGinn said. In all, 95 percent of convenience stores sell coffee and many chains are adding more specialty flavors and loyalty programs to compete with coffee houses. APlus customers who buy a 20-ounce coffee get 4 cents per gallon off a gas purchase.

• Because 23 percent to 25 percent of coffee drinkers add creamer first, a traffic jam can result if creamers sit next to the coffee pots. GetGo in South Fayette, off the Interstate 79 Bridgeville interchange, has an island counter across from the coffee with eight spots where customers can get add-ins, stirs and lids, said Dave Daniel, Giant Eagle's vice president for GetGo operations.

Source: National Association of Convenience Stores, other research.

 

 
 


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