ARKO's Marketing & In-Store Initiatives Lead to Strong Q2 Performance
RICHMOND, Va. — ARKO Corp.'s strategy to grow merchandise sales and gross profits while decreasing the company's exposure to cigarettes led to another quarter of record in-store performance.
[Read more: ARKO's Three Key Pillars of Marketing & In-Store Initiatives Drive Positive Q1 2023 Results]
During the company's recent second quarter 2023 earnings call, Chairman, President and CEO Arie Kotler provided an update on the three key pillars of the convenience store chain's marketing and store initiatives that have contributed to strong in-store performance. They are:
1. Grow sales in core destination categories through data-driven decisions and strong supplier partnerships.
ARKO continues to invest in the assortment square footage allocated from merchandising and loyalty promotions for the core destination categories of packaged beverages, beer, candy, salty snacks, sweet snacks and alternative snacks.
During the second quarter, these categories drove approximately 65 percent of same-store sales, excluding cigarettes, and 45 percent of total same-store sales. Year over year, same-store sales for these six core categories grew by 5.6 percent, with 12.2 percent same-store growth in candy. Margin rates grew 150 basis points year over year.
"We work to ensure that our stores meet our high space assortment standards for these core destination categories, and that we offer our customers the right assortment and value proposition," Kotler said. "This reinforces my belief that we are doing the right things by way of assortment and marketing."
2. Drive increased frequency and total spend through order and delivery, and relevant in-store and in-app personalized deals via the fas REWARDS program.
ARKO went live with new upgrades to the fas REWARDS loyalty app on March 28. The program develops and enhances ARKO's relationship with its customers, drives more trips with its existing customers and attracts new loyal members. The program currently has 1.48 million enrolled members.
To support the growing loyalty program, ARKO's GPM Investments LLC launched its 100 Days of Summer loyalty enrollment offer across its network in late May. Additionally, new customers who enroll with a valid email address and phone number are rewarded with $10 in fas BUCKS delivered to their new app wallet.
As a result of these efforts, the retailer is "seeing increased cadence of enrollment, and importantly, of marketable loyalty members," Kotler said.
Marketable members, which are loyal customers with whom the company can communicate, are up approximately 37 percent over the prior year period and 10.5 percent higher than Q1 2023. Since the launch in March, ARKO added more than 250,000 net enrolled marketable members.
"We know that enrolled marketable members make more trips and spend more in our stores than nonenrolled members. In Q2, enrolled members made an average of almost six more trips per month vs. nonenrolled members," the executive reported. "For the same period, they also spent, on average, more than $60 per month more than nonenrolled members. Given the increased frequency and spend of enrolled members, we are very excited about the upside opportunities as our program gains more traction."
3. Develop high-margin food programs.
ARKO continues to expand its branded food franchises; packaged, fresh and frozen food offerings, including pizza, chicken, roller grills; and hot, cold and frozen dispensed beverages offerings.
ARKO's current footprint boasts:
- 150-branded food franchises offerings;
- 370-plus roller grills;
- 160-plus hot grab-and-go units;
- 1,200-plus cold grab-and-go units;
- 160-plus in-store delis; and
- 700-plus stores with bean-to-cup coffee, with 135 additional stores since Q1 2023.
On a same-store basis, branded franchise food sales increased 10.4 percent year over year, while grab-and-go sales increased 13.4 percent in Q2 2023 compared to the year-ago period.
By the year's end, ARKO is targeting to add roller grill offerings to approximately 124 stores, and food or bean-to-cup coffee to an additional 230 stores.
"Our goal is to become destination for package, preferred and fresh food, and we look forward to providing further updates. Our objective is to make continuous improvement in each pillar and position our core convenience store business to continue delivering great results and exceeding our customers' expectations," Kotler said.
The chief executive also provided an update on ARKO's electric vehicle (EV) charging network journey. He noted that there is very limited penetration in ARKO's core footprint; however, the company continues to assess installation on a site-by-site basis with a view on return on capital. Currently, ARKO has 15 EV charging locations with 62 ports across nine states.
"I remain excited about the many achievable opportunities in front of us," Kotler concluded.
As of June 30, ARKO operated 1,547 c-stores in more than 30 states under more than 25 regional brands. The retailer added 159 company-operated stores year to date in 2023 through closed acquisitions.
[Read more: ARKO Ranks Among America's Top Large Companies]
Richmond-based ARKO, which owns 100 percent of GPM Investments, operates in four reportable segments: retail, which includes convenience stores selling merchandise and fuel products to retail customers; wholesale, which supplies fuel to independent dealers and consignment agents; fleet fueling, which includes the operation of proprietary and third-party cardlock locations, and issuance of proprietary fuel cards that provide customers access to a nationwide network of fueling sites; and GPM Petroleum, which sells and supplies fuel to its retail and wholesale sites and charges a fixed fee, primarily to its fleet fueling sites.