Constant Reinvention Propels Sheetz

Industry leader stays on top by anticipating and meeting consumer needs

The leaders of one of the most-recognized and most-successful brands in the convenience industry have a dream: To put Sheetz stores out of business.

The irony: These folks are named Sheetz.

"Our vision is one of total customer focus," said Steve Sheetz, chairman of the 375-store chain, which celebrated his 50th anniversary in the c-store industry this year. "We are constantly trying to find out what customers want and what we can do to give it to them. We want to create the stores that will put the Sheetz stores as we know them today out of business."

To Sheetz, it's all about never being satisfied.

"As Peter Drucker said, business has two functions, marketing and innovation," added Steve Sheetz in an exclusive interview with Convenience Store News. "Marketing and innovation produce results — everything else is just a cost. Our vision speaks to that."

Built on a foundation of hard work, hospitality and humor, Sheetz Inc. is entering a new phase of growth — one that has the retailer opening or rebuilding 25 stores a year (a number that may soon be ramped up to 30), testing new ice cream and pizza programs that will require significant chainwide retrofitting, and trying drive-thru windows. The goal is to position Sheetz primarily as a clean, friendly and convenient provider of restaurant-quality food — gas and convenience products, second.

The retailer has evolved into a vertically integrated machine composed of a fleet of gasoline tankers; a 10-year-old distribution center; and the two-year-old, $46 million, 140,000-square-foot Sheetz Bros. Kitchen, which produces sub rolls and buns, Shweetz baked goods, packaged sandwiches and other perishables, such as prepackaged fresh salads and parfaits, for daily delivery to every store (as far as 300 miles away).

The distribution center has been key to lowering costs while raising customer satisfaction levels, as stores receive merchandise deliveries three times a week. "The distribution center helped us develop competency in buying products," according to CEO Stan Sheetz. "We've learned how to make people bid for our business."

Sheetz Bros. Kitchen took the pressure off of store employees, who were preparing all of the fresh foods on site. "We found in some locations we couldn't make food fast enough," Stan said. "We thought through the power of our brand, we could convince customers that a selection of premade sandwiches and salads was worthy. Instead of losing a customer at that lunch-time [rush], we've converted him and increased our capacity."

The infrastructure has allowed the chain to venture into new markets, as far from its Altoona, Pa., base as Ohio and North Carolina, with a consistent, robust offer. The ever-evolving menu includes made-to-order (branded MTO) hot and cold subs; breakfast sandwiches (Shmuffins, Shmiscuitz or Shmagels); deli sandwiches; Saladz, Wrapz, Burgerz and Hot Dogz; Nachoz; grilled chicken sandwiches; Pretzel Meltz; and Fajitaz and burritos (new this summer), not to mention two types of macaroni and cheese, and a bevy of fried sides and Chicken Stripz, since fryers were added to the stores in 2007.

The three-year-old Sheetz Bros. Coffeez program, meanwhile, introduced lattes, espressos, mochas, steamers and hot chocolate, as well as iced and frozen coffee drinks, fruit smoothers and Creamz, a blend of cream, flavoring and ice.

The entire menu is available 24 hours. "That fact tends to get lost," Stan noted. "If you want a breakfast sandwich at 10 p.m., we will give you that. It's a huge undertaking, never shutting down the stores' kitchen."

To pull this off, every store employee must be trained to make every product on the menu. As new products are added, the system, logistics and training get more complicated. "If you can't execute something, you are shooting yourself in the foot," Stan said.

One strategy has enabled Sheetz to perform this feat, according to Louie Sheetz, executive vice president of marketing — the employees are assemblers, not preparers. Associates do not handle raw product, cutting down on preparation time and risk.

"We've become very adept at holding things in small portions at the stores," Louie said. "The real challenge is knowing how much food to make for the day of the week and time of day."

Orders coming from Sheetz Bros. Kitchen are based on each store's point-of-sale (POS) data, leaving managers to focus on selling the food, not worrying about the size of the order. (Managers may request more if a big event or large preorder comes in.) The mix will soon become more diverse with the likely rollout of Sheetz Bros. Creamery, a soft-serve-and-topping concept being developed at the Sheetz restaurant, and whole-pie pizza, the chain's fourth attempt at that menu item.

The Sheetz Bros. Creamery will offer two flavors by cone or cup, as well as the Shimmy, an ice-cream and mix-in item; and the Swifty, which creates an ice cream float out of a smoothie base. The store's by-the-slice pizza program — a premade product is topped to order and cooked — will likely add whole pies soon. The chain's last attempt at wholepie Sheetza Pizza failed because the chain couldn't produce them fast enough or cheap enough, Louie said.

"Pizza is such a promotion-laden, coupon-driven category, with everyone doing buy-one, get-one or $5 pies," Louie noted. "The last effort had high marketing costs and high discount costs. With the oven we used, if you wanted a whole pie, it was a minimum eight-minute wait. We couldn't compete, though the quality of the product was good and the demand was there."

Now a handful of test stores are equipped with high-speed ovens making the prep time of the premade cheese pie, which will be topped to order, about three minutes, within Sheetz' standard for MTO foods. "We've been trying to crack the code for years, and it looks like now we have," Louie said.

Added Stan: "It says something about our culture that we've failed several times and keep coming back."

THE SHEETZ WAY

Indeed, it is the Sheetz corporate culture — one born under founder Bob Sheetz' extreme focus on customer service, which was sidelined for a brief time in the '80s when the chain was more focused on growth — that encourages and rewards innovation.

"I'm a big believer in a healthy corporate culture," Stan said. "It can be and should be managed. Not to take all of the touchy-feely stuff out of it, because there is a lot of that. But I really think a healthy corporate culture is just as important as having full shelves or being open 24 hours."

For nearly any issue that arises, Stan asks himself: "What impact will this have on our customers, our people and our culture?" This helps nurture a culture of engaged, happy, customer-focused employees.

"I use that as my first filter on anything that comes near me," Stan said. "If a new program creates stress at store level or some other level in the company, it will have an impact on the culture. Stress is a big indicator [that things are out of whack]."

His second filter is: "Is it positive or negative?"

"Sometimes you run into a catch 22, where you have to do something, but it will be negative," he continued. "Or it will be great for customers and not so great for employees. In that case, you have to find a positive way to sell it to the staff."

In May, Sheetz, which offers an employee stock option plan, was named one of the best employers in Ohio for the fourth time in five years, after employees were questioned about their experiences, and the retailer's workplace policies, practices, philosophy, systems and demographics were evaluated. The retailer also took home a similar honor in North Carolina and made Pennsylvania's list of best employers for the eighth year in a row.

This customer and employee-centric culture can be traced back a few decades, said Steve. "In 1972, when we doubled in size to 14 stores, I first found out I wasn't a very good manager. I was pretty much doing everything — hiring, setting stores, working the checkout, making schedules, doing orders. Then as we left Altoona, we realized how critical our people would be if we were going to grow. I had to learn how to trust people and delegate."

Over time, Steve realized retail experience was a less-important employee attribute than friendliness. "We can teach people skills needed to work in the stores," he said.

Still, as the young chain grew rapidly, employees complained about the lack of recognition. "That is a key to keeping people satisfied and is now a key part of this culture," said the company's chairman.

In 1976, Sheetz held its first employee event at the Seven Springs Mountain Resort in the Alleghenies. Now an annual tradition, each August Sheetz celebrates employees' five-, 10-, 15- and 20-year anniversaries. As employees stay and the company grows, the event has ballooned, now taking place over three nights in a ballroom holding 850 people.

Each January the retailer holds a managers' trade show, and in September, Sheetz' fiscal yearend, store managers are invited to share in the chain's success with an all-expenses-paid two-night retreat. "When we have a good year, everyone knows we're going to take them somewhere really nice," Steve said. "When it's not such a great year, we still take them somewhere, but it may not be as big a celebration."

Technology keeps Sheetz' vaunted foodservice operations humming. The retailer wants its foodservice offering uppermost in customers' minds.

Among the destinations in the past: Williamsburg, Va.; Scottsdale, Ariz.; and Naples, Fla. "In the past," Steve said, "we didn't tell them where they were going. We just told them to pack for warm weather, chartered planes and off they went."

In the mid 1980s, as Sheetz entered a speedy growth phase, opening 53 new convenience stores and 11 restaurants in three years, resources were stretched thin. "We lost our customer focus," Steve admitted.

Indeed, from 1984 through 1988, Sheetz' sales were stuck at 10,000 gallons of motor fuels per week per store and $10,000 in merchandise per week per store. "Customer counts were going down," Steve remembered. "We hadn't made the conversion from take-home groceries and traditional products to immediate-consumption items."

After talking with customers, the competition's customers and employees, the management team renewed its mission to provide fast and friendly service, and sell quality products in a clean, convenient location. "That mission serves us today," Steve said. "We really had to get back in touch with the customers. I vowed I was never going to let us [lose sight of this] again."

Humor, a cornerstone of the company culture, is evident in the executive offices — Stan told this editor not to make him sound like an expletive — as well as in the convenience store chain's advertising and on its Web site. An example is from the company's online FAQs: "If you are open 24/7, why do your doors have locks?" Answer: "Do you know how difficult it is to find doors without locks?"

"Using humor in communication is important because it's who we are," Louie said. "It's how we work and play. When we communicate with the customer, we laugh across the counter and across the airwaves.

"You can't take yourself too seriously. My God, it's just retail," he added.

The culture and personality projected by Sheetz is effective in drawing potential employees. "If we can perfectly communicate who we are, why someone should shop here as a customer and, at the same time make someone think this is a fun place to work, we should try to do that," the marketing executive continued.

The playful image also sets customers' expectations. "Not that it's pressure, but it is a promise you make to the consumer: 'Hey, this is a fun place. When you come in, we do our job well, but we are lighthearted. Expect friendly conversation and a smile,'" Louie said. "That expectation is incentive for our folks behind the counter to treat people well. We have a reputation to uphold."

The culture is deemed so important to Sheetz' success, the chain will not move into a new market without transplanting a district manager and store managers from established markets. (For more on Sheetz' growth strategy, see "Sheetz' Growth Strategy: Buying, Building, Blooming," on page 42.)

Not to say the culture doesn't sometimes need tweaking. "One of operations biggest opportunities is to ingrain into our people a food culture," said Travis Sheetz, vice president, operations, who oversees the retailer's southern region. "Many of our employees have been with us a long time, managing our stores when they were more traditional c-stores selling gas. But food is our future, our differentiator and our cash generator. We need to get to a food-first mentality with all managers."

Travis emphasized that the retailer needs to focus on food quality. "We've come a long way, especially compared to others in the c-store industry, but now we are comparing ourselves to QSRs and restaurants."

Incorporating the food-first mentality starts with recruiting, but is maintained by the metrics kept and the company's values. "What [the family and executive team] measures and treasures is what the employees focus on," Travis said. "It has to start with us, obviously, and we're still evolving."

Much of the executive team's discussion still centers on gasoline, he noted. (See "Quality, Low Prices Fuel Sheetz Gasoline Strategy," page 48.)

"It's a big part of our positioning, and volume and revenue," the executive said. "But let's talk about what our food sales are first, not how many gallons we pump."

For comments, please contact Barbara Grondin Francella, Senior Editor, at [email protected].

SHEETZ' GROWTH STRATEGY:

BUYING, BUILDING, BLOOMING

Perhaps more than any other c-store operator, Sheetz Inc. consistently makes large investments in its stores, building larger facilities, and remodeling, rebuilding and relocating older stores to meet the standards — and hold its growing offer — on which the chain has built its reputation.

Twice a year, the chain's leadership team and key real estate personnel gather to review all 375 stores. Using Google Earth, every location is reviewed for potential improvement.

"Our goal is to constantly reinvent ourselves," said CEO Stan Sheetz. "The reason we tear down old stores and build new ones right where the old ones were is because [the new ones] are better."

Stan's one criticism of other operators is that most don't reinvest in their businesses enough. "The magic words to the customer are 'new' and 'sale,'" he said. "If you are trying to operate out of a 40-year-old operating a 40-year-old facility, there's nothing new in there."

This is why, every six months, the leadership team makes a decision on every store. "Does the store need to be on a remodel list in the next two years? Does it need to be torn down and rebuilt, and if so, do we have enough room on that site? Can we buy adjacent land or can we move it across the street? Does it need to be moved to the other end of town because of changing traffic patterns? Or, and this happens rarely, should it be closed?" said Joe Sheetz, executive vice president, finance and store development.

"Our goal is to constantly reinvent ourselves." — CEO Stan Sheetz

The team closely manages the list of rebuilds, remodels and potential closings. "We allocate capital money based on how the list looks," Joe explained.

In 2006, the list was loaded with rebuilds, so Sheetz began rebuilding six to eight stores a year. Now that the size of the list more manageable, the retailer is focusing on remodels, doing two or three a year until it figures out the most cost-effective, efficient way to remodel many stores quickly.

"After we decide what the remodel program will look like, we'll probably remodel 150 stores at a $300,000-$400,000 level," he said.

NEW MARKETS

At the same time, Sheetz is moving into new markets, trying to hopscotch no more than 20 miles from an existing market. One of its greatest challenges is "phasing" the brand into new areas.

"We may go into a small town, where we will never have more than one store," Joe said. "But if we go into a market like Raleigh, N.C., one store is a blip on the radar and we have to go with a plan that ensures we have, say 10 stores, in a short period of time. We need enough presence to advertise effectively and affordably. We can't be a bit player in some of the bigger markets."

The typical new lot is two acres, to accommodate a 6,200-square-foot store, drive-thru and car wash.

To avoid risky growth, Sheetz strives to balance opening in new markets with opening in mature markets, since stores in mature markets perform better, faster as customers are already familiar with the Sheetz offer.

"We have three legs to our stool — food, gasoline and the core products, of which cigarettes is the biggest player," noted Travis Sheetz, vice president, operations, who oversees the fast-growing southern region. "Typically, the gas business comes first and the cigarette sales follow. The sales that take the longest — and must be worked with marketing — is the food and beverage business."

BUILDING, POSITIONING A BRAND

"We battle the perception of the gas station," said Louie Sheetz, executive vice president of marketing. "We've created that perception ourselves because we build great gas stations. The pump offer is huge. But all of that tremendous gasoline history and marketing we've done with the facility, aggressive pricing and our fleet of tanker trucks on the road 24/7 has cemented into people's minds that Sheetz is first and foremost a gas brand. It's hard for a gas brand to be recognized as a legitimate restaurant."

To better push its position as a quality food purveyor, the chain uses television, radio and outdoor advertising, and more recently, especially in its new markets, direct-mail and event marketing.

The event-marketing component primarily targets young adults at concerts, on campus and at sporting events. The Sheetz presence is usually anchored with the Sheetz Bros. Coffeez truck, from which associates hand out — for free — hot or frozen beverages, depending on the venue and season.

"We want to use those opportunities to allow people to see we are a great food and beverage brand, as well as the gas brand they see on the corner," Louie said.

In the same vein, the Sheetz rewards program is being reworked. Now a gasoline discount program — customers earn cents off per gallon for making foodservice purchases — the electronic card-swipe deal will soon be structured as a traditional punch-card frequency program. The more food and beverages customers buy, the more free items they'll earn.

"People responded to the gas discounts, but it wasn't necessarily the best model for us," Louie said. "We wanted food and beverage, not gasoline, to be the reward. If a customer buys 10 cappuccinos, he'll get one free. It will go a long way to build frequency and loyalty. People like free stuff."

While the chain has considered tapping into social media — there is an unofficial, unsanctioned Facebook page with some 80,000 fans devoted to Sheetz — the retailer believes the best use of social networking is a program it hasn't yet debuted. While tight-lipped on the application, Louie said it will be "compelling and meaningful to help us design, develop and improve our offer."

He added: "We're looking at an opportunity to gather feedback. If we can make it interesting enough for the consumer by giving them a little something for participating — like a coupon or sweepstakes entry or invite to a local event — we think it will be very effective. It may make more sense to do this than have people interact with us over a Web site rather than over the counter."

The most valuable communication Sheetz can have with consumers, he said, is being in their neighborhood. "And we're going as fast as we can."

QUALITY, LOW PRICES FUEL SHEETZ GASOLINE STRATEGY

Guaranteeing "high quality gasoline at the lowest prices," Sheetz Inc. is firmly established as a formidable gasoline marketer. Selling three grades of gasoline, diesel fuel, K-1 kerosene and E85 at some sites — and equipping some pumps with food-order technology — Sheetz' motor fuels facilities are bigger than many major-oil-branded locations.

The retailer managed to stake out this low-price position through careful buying. At one point, Sheetz purchased 90 percent of its gasoline on contract from refineries. Today that figure is zero.

"On a fairly regular basis, we change the way we buy gasoline, which is something you have to do, because it is a very involved commodity," said CEO Stan Sheetz. Sheetz now buys on the wholesale spot market and from refineries, though not on contract. "They don't exactly bid for our business, but a refinery may tell us they have 4 million gallons at a certain price and we'll take it. Since there is a surplus of fuel now, it's almost like the refineries are bidding against themselves."

The chain regularly buys product out of Houston and ships it up the Colonial Pipeline, out of terminals in the New York harbor and in Philadelphia. Western stores may be supplied out of Chicago or Kentucky. "It is a never-ending jigsaw puzzle," Stan said. "There is no one way to buy all the time. If you don't change with the market and stay flexible, you are in trouble. When there was a shortage of gasoline a few years ago, that was the time to be a contract buyer. Now we've learned, whoever has cash gets the gas."

As for selling alternative fuels, Stan said that strategy will be dictated by the consumer. "If whoever is making the alternative fuel vehicle can convince the consumer to buy it, we will sell that energy source. If we stay close to the consumer, we will be OK. We have to remain flexible. And if we can't be flexible we better be nimble." Years ago, for instance, the chain began setting underground pipes in a way to handle new products that may come to market.

"I don't think there is going to be a single fuel source that will take over in three years. If you look at the number of years it would take to turn over the cars in America to another energy source, you can predict what the rate of change will be," said Stan. "If a new energy source, say an electric plug, is a home run, the rate of change probably won't exceed more than 5 percent to 8 percent a year."

A SHEETZ HISTORY

Sheetz Inc. was founded in 1952 by Bob Sheetz after he purchased one of his father's five dairy stores in Altoona, Pa. Nine years later, Bob hired his brother Steve, then 12 years old, to work part-time at the store.

In 1963, a second store was opened under the name "Sheetz Kwik Shopper." Five years later a third store welcomed customers. In 1969, Steve joined Bob in the business as general manager. The brothers planned to expand at the rate of one store per year with a target of seven stores by 1972.

That year, the brothers doubled the size of the company expanding from seven to 14 stores. In 1973, Sheetz added gasoline pumps and introduced self-serve gasoline to central Pennsylvania.

By 1983, Bob and Steve opened 100 stores. The following year, Bob retired and handed over the leadership of the company to Steve.

In 1995, Stan Sheetz, Bob's son, became president and Steve assumed the position of chairman of the board, where he still serves.

Today, the Sheetz family operates 375 c-store locations in six states — Pennsylvania, Maryland, Virginia, West Virginia, Ohio and North Carolina — and has more than 13,000 employees.