valeros got a brand new bag

Valero expects customers to munch as many as 1.5 million bags of its new Fresh

For years Valero Energy Corp. has offered a proprietary line of sandwichesunder several brand names. Two years ago it took a step into the bottled watercategory with three packages of spring water under its Fresh Choices label.Its most recent proprietary introduction—a line of Fresh Choices Chips—givescustomers the third leg of the “meal deal.” The four Fresh Choices flavors—cornchips, nacho cheese-flavored tortilla chips, potato chips and cheese puffs—areavailable at Valero’s 1,030 corporate stores in grabsize bags and priced at75¢ with the purchase of any non-alcoholic beverage, or 89¢ if purchasedseparately.

“The foundation of any proprietary product we launch is it has to be a qualityproduct that represents some sort of value to the consumer, whether it’s ata lower cost or a new package size,” says Hal Adams, vice president of retailmerchandising for Valero (San Antonio, TX). “In chips, we found the entry priceof snack bags was rising in the marketplace. As it continued to go up year afteryear, we thought there was a niche for a ‘below $1’ bag that we could make ata high quality that offered more pennies per unit than an entry-level size ofsnack bag for a national brand. Also, we wanted a package size we could usewith a combo offer on an everyday basis without significantly impacting pennyprofit per unit. That’s why we attacked salty snacks.”

Valero worked on the development of the chips for about a year, which is longer than the chain intended, but it expects to streamline the process as it introduces more private-label brands. Three to four months of that development was spent on gathering consumer feedback, which was done in conjunction with the product manufacturer.

“It wasn’t a quality issue we were lookingat with this line,” says Adams. “Ourgoal was to attack the value side of the equation. We wanted to match nationalbrand quality and taste with a better value for the consumer. As we taste-testedthe product, we were mainly concerned that the consumer was receiving a similaror better quality product than the national brands.”

Like everything Valero does, developing the product was a team effort. Thecompany’s category management group worked with its strategic sourcing representativeon the concept, the need, the promotional plan and the sales strategy. The sourcingteam also helped with the consumer testing and found a manufacturer that coulddeliver a quality product at the best cost. Then the advertising departmentdeveloped the packaging—-making sure the different chip flavors maintainedthe “family” look.

Valero cruised over one speed bump that’s often encountered when trying to introduce new items: getting them through the distribution network. Thanks to the introduction of its retail distribution center in April (see In Control, April ’05, p. 26), Valero efficiently got the products in its stores, but also offered them to customers at a low cost.

“How about we provide an everyday value to the consumer at an entry price below99¢? The Fresh Choices chips retail in our stores for 89¢, but theycarry a sticker promoting the chips for 75¢ with the purchase of any non-alcoholicbeverage,” says Adams. “We’ve been very successful with combo deals over thelast five years, and this is the perfect opportunity to tell the consumer thatthey don’t have to wait for an item to go on special—it’s an everydaydeal. We’ve been doing it from Day One and it’s really helped us get the wordout about the chips.”

The Fresh Choices line of chips has been on the market for two months, and Valero expects to sell 1.5 million bags this year. So far, Adams says the company is well on track to meet its goal. At least 75% of the chips have been sold with a beverage.

Fresh Choices future
In its next promotional period, Valero will offera fountain drink and a bag of Fresh Choices chips for $1 with the purchase ofany roller grill product.

“Essentially, our customers are getting the drink for 25¢ because they’re already getting the chips for 75¢ with the beverage,” says Adams. “We won’t promote it that way, but that’s the deal.”

The Fresh Choices chips have not replaced SKUs of national brands, according to Adams; rather, they are used as a complement to the national brands.

“In our first eight weeks on the market, our numbers show that the sales are more than 90% incremental, which is exactly what we wanted to achieve,” says Adams. “This proves that there was a void in the marketplace for a snack with a price point under $1. We didn’t want to steal business from the national brands; rather, we wanted to add to the business we were already doing.”

With the success of its existing proprietary products, Valero sees great potentialin other categories. For example, the company has products in different stagesof development for flavored soft drinks, single-serve pastry items and, a Southwestfavorite, meat snacks.


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