When Brad Chivington joined Fas Mart Convenience Stores Inc., he had a sobering realization just a few months into his tenure as senior vice president of sales and marketing: "What have I gotten myself into?"
In early 2000, Chivington came to the Mechanicsville, VA-based chain from TravelCenters of America to expand his marketing horizons. When he arrived, he found himself mired in a company lacking a clear direction for its stores, with an internal culture some have described as "chaotic." In 2001, the company, then headed by a different ownership group, filed for Chapter 11 reorganization to restructure its debt.
A lot has changed since then. Fas Mart, now owned by Israeli investment firm GPM Investments LLC, emerged from bankruptcy in 2003. The company has a solid leadership team, which was recruited by President Dave McComas and Chivington, and a board of directors-from GPM to which it is accountable. Sales have rebounded, buttressed by a stable infrastructure and a renewed company-wide focus on growing the bottom line for its 160 convenience stores and 69 dealers.
"When I came here from TA, Dave McComas had been here for just a few months, and the place was pretty much a mess," says Chivington. "When your lead signed promotion is generic cold 12-packs with no price point, you know there’s a problem. We started to right the ship by emphasizing foodservice, practicing the basics of merchandising and working to get the right team in place."
That team, headed by former SSP Partners exec McComas, includes Chivington, Marketing Manager Russ Quick, Category Managers Phill Oliver and David Arensdorf, Marketing Analyst David Van Dreal and Vice President, Human Resources Allan Ritchie. All came to Fas Mart with impressive retail pedigrees from industry heavyweights such as Circle K, 7-Eleven, Thorntons and Sinclair Oil. Their knowledge and experience guides the chain as it expands into new profit generators and new categories, not to mention new markets.
With the recent acquisition of 36 former DB Mart stores in New England, the chain has expressed a desire to add new pieces to the retail puzzle. As Chivington says, "GPM didn’t acquire Fas Mart to keep it at 160 stores." Fas Mart isn’t actively seeking new stores in a quest to reach a certain magic number; instead McComas and his team want to add stores that "fit the system," are profitable and make sense in terms of vendor support.
"The DB Mart stores we acquired fit the model we have chosen to grow by mergers and acquisitions," McComas says. "If something comes available in New York, we’ll consider growth there. But to be honest, it doesn’t really matter where it is; we’re looking for assets that add value to our portfolio. That being said, we’re not going to pay seven times EBITDA for stores. And if it doesn’t fit our business model, we’ll walk away.
"In order for an acquisition to make sense, the vendor footprints need to match," McComas continues. "McLane, Novelty Inc., Valero, Dean Foods, Frito-Lay—these vendors can handle these [DB Mart] stores by doing nothing different. Having lived through bankruptcy ourselves, we had a handful of suppliers that meant the difference between making it and not making it."
McComas joined Fas Mart in October 1999 at a time of "real transition," he says. The chain had weathered a number of acquisitions and had grown from 22 stores to nearly 170 stores with 60 dealers in less than two years. As a result, the chain had four proprietary credit cards and several different company cultures competing with one another. "At that time, senior management probably hadn’t recognized that it takes a different cowboy to run 170 stores than it does to run 22—it’s not just a matter of adding more stores; it requires different thinking," says McComas. "Within a year of coming here, I had replaced every department head in the company."
In addition to streamlining internal procedures and developing an operations infrastructure, much of Fas Mart’s improvements have come in the form of vendor relations—holding vendors to a higher standard, negotiating contracts more aggressively and developing relationships that maximize profit potential for both sides of the table.
Chivington trumpets coffee as a prime example. A few years ago, when Russ Quick had been overseeing the coffee category, they noticed that total coffee sales were underperforming compared to industry benchmarks. Upon reviewing its options, space considerations and other factors, Fas Mart selected Procter & Gamble’s Custom Caf, a selfdiagnostic piece of coffee equipment that allows coffee drinkers to customize brew strength and flavor, all in a condensed footprint. The company also created a more inviting "theater" look and feel by re-imaging every store’s coffee area to some degree.
"Now our stores with the Custom Caf exceed NACS averages in terms of coffee sales, and we’re pushing toward top-quartile performance in the category," says Chivington. "This year, we’re up 7% to 8% in coffee sales chain-wide. In our Custom Caf stores, coffee sales are up 24%. To get to the next phase, we have submitted requests to add Custom Cafs in more stores—what we consider our top 40 stores."
Coffee isn’t the only cog of the foodservice wheel that’s producing dividends. Fas Mart’s famed chicken program is leading the charge, supplemented by an ever-changing foodservice offer that, depending on the store, includes full-service delis serving hot foods and sides, cold cases featuring pre-made sandwiches and dessert items, and Krispy Kreme donuts. One store has a Dairy Queen.
"We have a wide range of footprints, and that lends itself to different templates," says Chivington. "Some stores have full food, some have limited food offerings, and some have no food. We really have to look at each location as its own profit center, almost as its own individual market. We then look to maximize our offering in that site. Our bestperforming locations are the ones that do well with food."
Foodservice Category Manager Phill Oliver started in the foodservice business at the tender age of 15. Having joined Fas Mart nearly four years ago from Thorntons, he has helped the food program evolve along with the company.
"When I came here we had a lot of programs in place, but we had to pull them together with training programs and the development of our in-store theater," he says. "When I joined Fas Mart, I saw the biggest challenge we faced in food as creating things our field people could execute consistently. We’re very focused on what we do and how it will affect the field people."
He says the chain has worked to perfect its packaging over the past few years to give it more of "a QSR look," since packaging acts as a "mini-billboard for your company." To counter the hesitancy customers might experience in purchasing food in a c-store, Fas Mart focuses on established comfort foods bearing names that people know, such as Tyson chicken and Stouffer’s side items.
"We leverage those brands because those brand names are very prominent— we promote them on our menuboards," says Oliver. "Our menu has expanded and evolved beyond fried chicken, with things like lasagna and corn dogs, and we’re working to add actual meals to the mix. About one and a half to two years ago, we got aggressive and started going after the catering business with party platters and things like that. People will try the product at a church function, see or hear that it came from us, and all of a sudden we have customers we didn’t have before."
One of Oliver’s main areas of focus is to develop more items in the home meal replacement arena, with more value meals and dinner-type items. But Fas Mart also plans to grow foodservice sales by re-thinking its approach to items that are already part of the mix.
"One of our promotions [in November] was a 24-oz. cup of coffee and a biscotti," Oliver says. "Biscotti was not a well-known item in this area, but the promotion has been doing very well—better than I expected, in fact. We looked at the area of the country and had the vendor pull some of the numbers for their sales in coffeehouses. Consumers taste our coffee and realize it’s as good as Starbucks. They already see we have this quality coffee product, so why not sell them a biscotti to go along with it? We’re always trying new and different things, but we need research from vendors to show that it will work before we commit."
Not everything Fas Mart has tried has been a winner, which was the case when it tested a new kind of shredded barbecue pork in its Virginia-area delis. In the mid-Atlantic, barbecue enthusiasts like their pork a certain way. So when Fas Mart tried a shredded-pork product in red barbecue sauce, it flopped. Even so, the will to experiment has helped the chain diversify its menu—and its profits.
"We use a lot of different sources in determining our menus," Oliver says. "I look at what restaurants and other convenience stores are doing and ask, ‘Can we execute it?’ We also look at the demographic shifts happening. We’re seeing that the country is getting older, for example, so we might want to look at items to appeal to that segment."
Fas Mart encourages all its vendors to bring it "the latest and greatest." One example: Fas Mart needed a rice product that would provide exceptional taste and versatility, but without increasing cook time or labor requirements. It got just that. A vendor brought in a microwaveable rice product that has allowed Fas Mart to add ease of execution and create a number of new entres for its dailyspecial menus, like Swedish meatballs and teriyaki chicken.
"We emerged from bankruptcy in March 2003," says Chivington. "Bankruptcy made us evaluate every single aspect of the business. We constantly evaluate cost structures and operating expenses. After you’ve been through what we survived, the things you used to look at you now look at more closely. Our experience has made us better businesspeople, better negotiators."
Category Manager Dave Arensdorf can attest to that. He joined Fas Mart in December 2000. At the time, one person was handling every category but foodservice. Many contracts were structured to maximize slotting fees, with merchandise mix and customer preferences playing secondary concerns. Some of the contracts he inherited made him scratch his head.
"We weren’t doing any kind of analysis-—we didn’t turn around and look at the numbers, and there were no exit programs," Arensdorf says. "Now we’re trying to be a lot more intelligent about what we do with executing in the stores. Now we look at the whole picture, not just, ‘Can you give me a signing bonus?’ For example, when I came here, we were using a small no-name company for disposable cameras. It was an inexpensive item with a decent margin, but we were moving half as many units as we would have with a Kodak or a Fuji program."
He discovered similar anomalies in the cigarette category, which represents more than 30% of retail sales and roughly a quarter of the company’s profits. A few years ago, the chain did not have a contract with the manufacturer of one of its best-selling brands. Now, Arensdorf says, Fas Mart has contracts that enable it to offer discounts at higher levels with the category’s top three manufacturers.
"We price based off of competitive market surveys, and in some cases we are at state minimum," he says. "We’re not traditionally the cheapest per pack, however, we are extremely competitive on our carton and multi-pack price points. And we are the lowest price per pack when customers buy three. Our goal is to have employees plus-sell customers by telling them, ‘You save X amount when you buy three packs.’ In our second quarter of 2004, 18.4% of cigarettes sold were three-pack deals. Prior to the promotion, three-pack sales were just 13% of total sales."
Arensdorf says Fas Mart has also begun looking much more closely at days of supply in the tobacco category. Some stores currently have too many days of supply on slower-selling items, so the company is using scan data to rationalize SKUs. Eventually, Fas Mart plans to carry only items that sell a minimum of one carton per month, while maintaining a 95% customer-satisfaction level.
Entrepreneurial all-star Russ Quick counts contract negotiations, SKU rationalization and movement analysis among his core strengths. A veteran of Duncan Oil and 7-Eleven, the company’s marketing manager says any contract the company signs must help improve its sales position, while meeting the needs of its suppliers, too.
"There’s a balancing act for the retailer-between maximizing profitability and creating a win-win for the retailer and supplier," Quick says. "We have several partners that are integral to our business, and every one of these manufacturers will state that the goal for us is to make sure our relationship is a win for both sides of the table. For example, we had one of the best years ever in packaged beverages, with sales up over double digits. Most retailers probably can’t say that, and that success is largely due to our relationships with key vendors.
"In our contracts, every vendor has an expectations page that indicates what the DSD people are supposed to do," he continues. "This eliminates the confrontation with the store manager because the managers can hold them accountable and can pay more attention to execution requirements rather than squabbling with vendors. If the expectations are not written out, how can you hold anyone accountable? Whatever we can do to make sure things run smoothly on the front line, we will do it."
One size fits one
In the mind of President Dave McComas, Fas Mart’s future success hinges on two things: his people’s ability to execute; and his stores’ ability to act more entrepreneurial in meeting the needs of their communities. While executive management makes all the major decisions, he says, all stores should maintain some degree of individuality.
"There needs to be some things a store has to decide," he says. "Some things don’t work out, of course. We tried beach sets at some stores on the coast because we thought they were tourist stores; they turned out to be neighborhood stores, so nobody bought the tourist stuff. We’ve had people want to try full-service gas. At the end of the day, we need to have a management system that delivers information to help stores make informed decisions to improve their business."
Sales managers, which oversee each of Fas Mart’s regions, have the go-ahead to do just about anything to improve their stores "as long as it’s not illegal, immoral, unethical or unsafe," McComas says. For example, Fas Mart has two stores staffed by full-service waitresses for breakfast. One of those stores, which is in Dillwyn, VA, sells more in foodservice than it does in merchandise. But there are rules. If a Fas Mart sales manager wants to try something new, he/she must first state their case using
- What it is they want to do and why?
- What are the related logistics (i.e., costs, distribution, etc.)?
- How will results be measured?
- What are the expectations, and upon what are those expectations based?
Catching it early
Some companies wait too long to restructure, making it extraordinarily difficult to dig out of whatever hole they have fallen into. After d
iagnosing its symptoms and getting the help that it needed, Fas Mart appears to have rediscovered its health, thanks to a common focus and a shared passion.
"Since 2000, we’ve developed a plan and a strategy to go to market and identified our strengths and opportunities," says Chivington. "We know we can’t do all the same things our competitors do— we’re not hung up on whether we can have touchscreen-ordering terminals like some of our competitors—but we can hone in and focus on what we do best through education and execution."
In the meantime, Fas Mart has plenty on its plate. It’s finalizing its absorption of the DB Marts it acquired by making them look like Fas Marts. It’s in the process of re-imaging store interiors to promote key profit drivers and updating equipment to drive coffee sales. And it’s expanding its scanning capabilities and investing in other technologies, like a wireless area network. While the challenges associated with running a 24-7 business remain, the prevailing mood within this re-born retailer is one of unbridled optimism.
"Murphy (as in Murphy’s Law) is definitely here some days," McComas says. "But we tend to be optimistic given what we’ve been through. We’ve been trudging up this hill and doing a lot of sowing. Now it’s time to reap."
Fas Mart’s fish tale
In November 2004, Fas Mart kicked off a sales-building program designed to create more competition among its various districts. The program—known as the 20% Club—helps drive the top line by focusing on monthly sales growth over the prior year, according to Vice President, Human Resources Allan Ritchie. "The goal is to increase or maximize sales and get where we need to be budgetwise by getting employees more involved," says Ritchie, who came to Fas Mart in 1998 by way of Southland (now 7-Eleven). "Each district in a region has a winner each month, based on sales performance. Every employee that works in that district would get a shark pin. Employees would also be entered in a drawing for prizes to be awarded twice a year. Any manager that has a 20% increase in sales would also receive a 20% Club shark pin."
The program is a joint effort among human resources, marketing, operations and sales managers. But what’s the significance of the shark pin? To motivate employees, Ritchie developed a "fish story" for managers at monthly meetings. In it he compares employees to the denizens of the deep in an attempt to spur individual sales performance. Managers then pass the story along to employees.
"It’s based on the different types of fish in the sea," Ritchie says. "First you have the guppy. The guppy swims around aimlessly and gets eaten by everything. No one wants to be the guppy. Then you have the catfish, which has fewer predators but is susceptible to being caught. Then you have the pike, which is aggressive but stays in a central territory. Next is the barracuda. It hunts in open water and is a fearsome predator. But at the top of the food chain is the great white shark—it dominates the sea. We’re trying to get everyone into the great white atmosphere."
Early into the process, the 20% Club is already reaping rewards. For the month of November, 10 stores in the chain’s central region in Virginia reported a 20% lift in sales over the prior year. The rivalry between districts has begun to intensify, too. One district has started taunting another for being a "school of guppies," according to Sr. Vice President, Sales and Marketing Brad Chivington.