Distribution Models That Deliver

Cenex1A self-distribution model can cut out the middle man and help your chain save on costs, but is a big capital investment. Partnering with a good distribution provider can be the right course of action, but only if the arrangement brings value to your operation.

By David Bennett, Senior Editor

Candy, tobacco, drinks, food and other fast-need items are the staples of the convenience store industry. But such items don’t grow on shelves. Rather, they have to be supplied.
Getting the products from the producer or manufacturer to the store location is a vital link to customer sales, especially today when time is of the essence. The way consumers make purchasing decisions has been dramatically altered: they stand in stores, using their smartphones to compare prices. In turn, the retailer must be flexible in order to serve the customers’ needs.

Meeting demand requires sound distribution and supply strategies, including the process of identifying the best distribution means available.

Bigger chains like Kwik Trip and Sheetz are investing in distribution centers and warehouses that accommodate direct store delivery (DSD), where the company ordering product is also the company delivering product and merchandising.

‘GONE TO CAROLINA’
Sheetz Inc. opened its initial distribution center in Claysburg, Pa. in 2001. As the family-owned company has grown, so has the facility, which now occupies 550,000 square feet. However, because Sheetz plans on bringing 20-30 stores on line every year for the next few years, the need for a second distribution hub became essential.

The Altoona, Pa.-based company currently operates 470 retail locations throughout Maryland, Ohio, Pennsylvania, Virginia, West Virginia, and 56 stores in North Carolina. More than half of Sheetz’ stores are in Pennsylvania, where trucks depart Claysburg daily to deliver fresh food products.

Work is underway on a new, $45 million distribution center now in Burlington, N.C. Plans call for the new distribution center to service stores in parts of Virginia and West Virginia, as well as all of North Carolina, which Sheetz has pegged as a market that will foster robust growth for the company. The center—with the capacity to double in size if future need dictates—will house new kitchen, bakery, distribution and warehousing operations, and serve as the main terminal for Sheetz’s fuel carrier, CLI Transport.

“We’ll have 100 stores in North Carolina in another four or five years, so it made sense to anchor in North Carolina, said Ray Ryan, executive vice president of distribution services for Sheetz. After surveying different locations, the city Burlington, located within the I-40/85 and US 70 corridors, seemed the best strategic fit for the new center.

The 250,000-square-foot center will house the company’s bakery and food operations that will churn out ready-to-eat items, such as sandwiches, salads, pastries and other
convenience foods. Because foodservice is such a significant part of Sheetz’ retail plan, more timely delivery of fresh goods is vital to its foodservice offerings.

“The bigger factor is it’s going to relieve a lot of transportation miles, because we’re running to North Carolina every day,” Ryan said. “The main thing is to reach our (outlying ) stores, so instead of 10 hours away, they’re one or two hours away. So our reaction time and our ability to recover or serve the needs of the stores from a foodservice perspective is going to enhance the experience of the customer in terms of product availability and product quality.”

Sheetz, which generated more than $6 billion sales last year, expects to save about $4 million annually in transportation costs, once the Burlington center is fully operationally in 2015, Ryan said. Once the center is online, it will continue with its distribution model, which has served Sheetz well so far.

“Third-party partners are essential to the industry and the business, there is no question, and there are some great ones out there,” Ryan said. “But, essentially, being as vertically integrated as we are, our main and only focus is success at the retail level per the stores.”

Sheetz expects the Burlington distribution operation will employ 230 by the end of 2018.

SUPPLY CONSIDERATIONS
Of course going with an outside distribution provider is another option. However, multiple considerations come into play when supplying one store or several locations.
Price usually tops the list, but other issues to explore when going with an external supplier include: product availability, delivery frequency, the type and frequency of support provided by the supplier and contract terms, according to Steven Montgomery, president of b2b Solutions, a consultancy that works with retailers and suppliers in the convenience retail/petroleum marketing industry.

However, the process begins with good inventory management.

“Too much inventory and the retailer is not generating the turns and therefore maximizing the ROI on their inventory investment,” Montgomery said. “Too little and the retailer runs the risk of being out of stock. Regardless of the category, out-of-stock means lost sales and in some categories it means lost customers.

In the end finding a distributor that is trustworthy and will complement your business are vital qualities when establishing a good distribution relationship with an external vendor.
“The bottom line is retailers need to find a distributor that works best for them, which may not be the one with the lowest price,” Montgomery said.

CENEX GOES THE DISTANCE
Snoqualmie Pass is a mountain pass that carries Interstate 90 through the Cascade Range in the state of Washington.

The geography is scenic and can be tough to negotiate as Cenex Zip Trip of Billings, Mont. learned years ago.

Cenex Zip Trip c-stores have operated in the Washington and Idaho markets for more than 50 years. At least a decade ago, the chain relied on a national distribution outfit to supply its stories—a bulk of which are spread over many rural locations. According to Jon Fleck, merchandising manager for Cenex Zip Trip, the former distributor couldn’t navigate the Snoqualmie Pass one year because of heavy snow.

As a result, inventory was curbed, hurting business.

Cenex Zip Trip retail operation now relies on an distribution partnership with Core-Mark International Inc. ever since the previous distributor was snow bound.

It seems that Mother Nature was looking out for the chain, which now includes stores in Idaho, Minnesota, Montana, North Dakota, South Dakota, Washington and Wyoming.
Describing the c-store chain as a “proverbial big fish in a small pond here,” Fleck said the company found that Core-Mark not only values Cenex Zip Trip’s business, but goes out of its way to accommodate the chain’s need to serve different customer demographics, found in the diverse geographical areas of the country. The arrangement has made for a successful partnership.

“They treat us like we’re they’re No. 1 customer,” Fleck said.

Core-Mark operates 29 distribution centers, supplying different convenience store products, such as cigarettes, snacks, candy, groceries and dairy to more than 29,000 customer locations in all 50 states. Its center in Spokane, Wash. supplies most of Cenex Zip Trip’s locations.

Fleck, who has been with Cenex Zip Tip for 29 years, said there is plenty of opportunity for the company to grow in the states where it already has a presence. Having a distribution provider that understands its specific needs is an important ingredient for the c-store’s future success.

Contract negotiations

Often the last stage in the vendor selection process is developing a contract negotiation strategy. Managing direct costs through vendor negotiations remains important, but is no longer the only consideration.

The following negotiation objectives might be factors when evaluating the overall contract:

• Explain clearly all essential prerequisites, terms and
conditions;
• Goods or services to be provided are unquestionably defined;
• Compensation is clearly stated: Total cost, payment schedule, financing terms;
• Acknowledgement of: Effective dates, completion/termination dates, renewal dates;
• Identify and address potential risks and liabilities;
• Define and set reasonable expectations for this relationship currently and into the future.
Source: Jim Bucki, Genesee Community College.

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