With an aggressive expansion and remodeling plan underway, Casey’s General Stores is in firm control of its future and sits atop the list of Chains to Watch in 2013.
By: Erin Rigik, associate editor.
Casey’s General Stores has come a long way in two years. The convenience store chain is branching into new territory, pushing into Kentucky and Tennessee, and eyeing opportunities in North Dakota.
In addition to plans for building 35 units in fiscal 2013, the chain is also busy with a major multi-year remodel program to expand the physical footprint and upgrade the ambiance of 600-800 stores, while also converting many existing stores to 24-hour locations and adding pizza delivery at several locations. Its multi-platform expansion plans make the Ankeny, Iowa company one of the industry premiere Chains to Watch for 2013.
At presstime, Casey’s operated more than 1,700 stores in South Dakota, Minnesota, Wisconsin, Indiana, Illinois, Iowa, Nebraska, Kansas, Missouri, Arkansas, Oklahoma and Kentucky. It moved into Arkansas during the last fiscal year and currently operates six sites there, with more under construction as it looks to push its geographic footprint deeper into the state. Casey’s opened its first store in Kentucky in August and plans to debut its first store in Tennessee by the end of the 2012 calendar year.
“With Kentucky, Tennessee and Arkansas, we started looking at those states—and particularly the northern part of Arkansas, the western part of Kentucky and Tennessee—because the towns in those geographic areas are very similar to what we see in our current market areas. They are small town, rural communities that are very close to one another, and that is a strategic fit with our business model,” said Bill Walljasper, Casey’s longtime senior vice president and chief financial officer. “We already have stores along the borders of Tennessee, Kentucky and Arkansas, so it wasn’t a big geographic jump for us to grow over the border when we saw an opportunity there. So far in Arkansas our stores have taken off, so we’re hoping that will be the same case in Tennessee and Kentucky.”
Casey’s is also considering a move into eastern North Dakota. “Economically, it’s a booming state and we certainly would like to be part of that,” Walljasper added.
Over the last couple of years Casey’s has been entrenched with several new operational initiatives, one of which is a major remodeling program that began in earnest two years ago.
With the modification program, Casey’s is physically changing the footprint of several stores by bumping out a wall and increasing the number of cooler doors from nine to 14, adding a beer cave and expanding its prepared foods section to make room for its made-to-order sandwich program and an expanded coffee bar selection. “We’re trying to place more emphasis on the inside of the store,” Walljasper said.
Casey’s introduced its sub program about three years ago and offers the program in about 375 of its stores. It continues to expand the program to additional locations. The stores will receive aesthetic changes as well, including new slate floors, hard surface counter tops, cherry woodwork and brush nickel signage, for a more modern appeal. Stores scheduled for remodeling measure about 2,800 square feet, and after the remodel will be about 800 square feet larger.
Transforming a chain of Casey’s size is no easy feat, but the company is knocking off the remodels at an impressive clip. Since embarking on the remodel initiative two years ago, Casey’s has revamped a total of 155 stores, 25 of which wrapped up last month.
“We started the remodels in 2011, took a break in early 2012 to evaluate our progress so we could be as efficient as possible, and returned to the remodel program toward the end of this year,” Walljasper said.
By April 2013, Casey’s plans to complete 75 additional remodels. The upgrade program was designed for a specific style of store, of which Casey’s has about 600-800 in its retail portfolio.
Most of Casey’s core stores operate between the hours of 6 p.m. to 11 p.m., but the chain is also converting many stores in larger communities (those with 5,000-10,000 residents) to 24-hour schedules. “That might be applicable to about half our store base, but it’s too soon to tell for sure how many we’ll convert to that model,” Walljasper said.
Casey’s does plan to convert another 125 stores to 24 hours this fiscal year, at which point about 25% of its store base will be open around the clock.
“As we made acquisitions through the years, more of these acquired stores had 24-hour operations, and as we absorbed these stores into our chain we saw there was a benefit to running expanded hours at select units,” Walljasper said. “We started testing this several years ago and used our point-of-sale capabilities to take a hard look at the sales during the nine core hours and the 24-hour format started to make sense.”
As it improves the buildings, Casey’s is also expanding its pizza delivery program, which it began in February 2011. The chain began testing pizza delivery in just one store and monitored the results to see if the program would gain traction.
“One concern we had going into the project was trying to convert a pizza customer accustomed to picking up a pizza into a customer that would embrace our new delivery offering, so we went very slowly—it was one of the slowest initiatives we’ve rolled out, but it also turned out to be one of the most successful,” Walljasper said.
When the first store’s pizza delivery offering was well received, Casey’s tested it at another five stores, followed by another 12 stores in November 2011. “In February 2012 we made a larger splash and added 50 delivery programs, and this July we added another 50,” Walljasper added.
Casey’s plan for this fiscal year is to add the program to 150 more locations for a grand total of 225 pizza delivery stores. “By revenue lift, our pizza delivery program has done extremely well. We’re targeting stores with higher population and more competition so we can pull some traffic,” Walljasper said.
In addition to pizza, which Casey’s calls its “flagship” item, the chain is known for its fresh-made cake doughnuts. Its sub program, which neatly complements the pizza program, is also starting to get a lot of traction. While Casey’s doesn’t look to partner with any quick-service restaurants, it has inherited about eight Blimpie franchisees and two A&W through acquisitions. Its corporate stores, however, focus exclusively on proprietary foodservice and that remains the plan moving forward, Walljasper said.
Currently, Casey’s pizza is available to customers typically from 4:30p.m.-10:30p.m. However, in monitoring the success of its 24-hour stores, Casey’s was surprised to find that since two employees are always on staff, keeping the kitchen open until midnight proved to be successful. “Now when we do convert a store to 24 hours, we typically keep the kitchen open in the early morning hours. And the nice thing about that initiative is that we can always scale that back,” Walljasper said.
Casey’s aggressive push to roll out new initiatives has benefited the store not just in customer satisfaction, but also on the balance sheet.
“Over the last several years, thanks to our initiatives like pizza delivery, our same-store sales have increased nicely,” Walljasper said.
Quantifying the investments, Walljasper said that for initiatives like a major remodel or a 24-hour conversion, Casey’s typically sees a revenue
lift in the first year of about 20-30% in overall in-store sales, although there is also an operating expense increase of about 15%. The pizza delivery initiative falls under the prepared foods category. Subsequently, Casey’s has seen a 25-30% lift in prepared foods revenue once it puts pizza delivery at a store.
“That’s one of the reasons our goal for this fiscal year is an 11% same-store goal for prepared foods and 6.2% in grocery general merchandise goal. Very strong numbers we’re looking to obtain this year,” Walljasper said.
Building the Future
Casey’s plans to continue with remodels, 24-hour conversions and expanding its delivery capabilities for multiple fiscal years.
“It’s an aspect of our business people should understand and keep an eye on,” Walljapser said. “As we start penetrating these new territories, that will also open up new opportunities for us. In addition to that, we’re very financially sound, with a capacity on our balance sheet to grow. From an infrastructure and operational standpoint, we’re very solid as well. So there are a lot of good things going on in the company.”
Casey’s noted the time is right to grow the store base for numerous reasons.
“First, we are growing because we have the financial capacity and the existing infrastructure to do so. The c-store industry is a challenging industry,” Walljapser said. “There are a lot of pressures in this industry and the market is a very fragmented market. As pressure increases in the industry from increased legislation, taxation on cigarettes, volatility in the gas business, etc. we feel there is going to be continued consolidation in the industry, and we’d like to be part of that on the buying side. We’re interested in acquisitions in our current market or a different state.”
The chain’s position today, is a far cry from 2010 when it was the target of a hostile takeover attempt by Canadian c-store behemoth Alimentation Couche-Tard. Since fending off the Couch-Tard onslaught, Casey’s has remained fairly aggressive in its own business dealings, acquiring 124 stores in 2011 and 2012, in addition to building 50 stores. Among the acquisitions was Kabredlo’s 44-store chain in summer of 2010 and 22 stores from Kum & Go last year.
“The big focus for us is growing the number of units. We’re going to be building 35 stores in fiscal 2013 in addition to any acquisitions we’re able to pull in, and our overall goal is to increase units from 4-6%,” Walljasper said.
Casey’s also aims to drive same-store sales 6.2%, boost prepared food 11% and same-store gallons a modest 1%. “We also have goals for margins. For gas we have a 14-cent per gallon margin goal, for grocery a 32.7% margin, and prepared food 61.1%,” Walljasper said. “The future is bright for Casey’s.”
A History of Success
Casey’s General Stores was incorporated in 1967 and the first store opened in the summer of 1968. Founder Don Lamberti leased a c-store from his father in Des Moines, Iowa, when his friend, fuel supplier Kurvin C. Fish suggested that Lamberti buy the Square Deal Oil Co., and the two went into business in Boon, Iowa. The Boon store was named Casey’s, using Kurvin C. Fish’s initials.
Lamberti went on to build a third store, and realizing all his stores were in small rural Midwestern communities that were underserved, he saw he had a target business model that was working and continued to target areas with populations of 5,000 or less.
Today, Casey’s is one of the relatively few c-store chains that focuses on self-distribution—about 90% of its in-store products come from self-distributions—and owns all of its assets including real estate. Casey’s markets proprietary-branded fuels, and delivers 75% of the fuel it sells using its own trucks.