CSN EXCLUSIVE: ARKO Corp. Balances Quality & Value
RICHMOND, Va. — A mix of inflation, supply chain disruptions and increased demand have caused food prices to steadily rise since the beginning of the COVID-19 pandemic.
While inflation has come down from last summer's high, some Americans continue to feel the effects of price hikes at the grocery store, with the average American household spending more than $331 per week on groceries, according to the U.S. Census Bureau's Household Pulse Survey.
At the same time, consumers still like to eat out and the cost of meals is universally a major contributing factor to how often and where Americans go out to eat. According to a US Foods survey, half of Americans spend less than $20 per person when dining out and spend an average of $166 per person per month.
Convenience stores are well-positioned to cater to consumers' continued desire to dine out while remaining budget-conscious, according to ARKO Corp. Chairman, President and CEO Arie Kotler. The c-store industry has done a good job of breaking the stigma around just selling "gas station food" and is increasingly being considered a viable foodservice destination, he noted.
The ideal balance, the chief executive said, lies in quality and value.
"Especially in this recessionary environment, convenience stores have become a destination for food," Kotler told Convenience Store News. "When you provide quality, consumers will come back. Sometimes, consumers' understanding of quality and value don't go hand in hand. But, like in our case, if you do the right thing and concentrate on providing high-quality at a value, you will win your consumers over and over and over.
"Quality is the No. 1 priority for us. The second is value," he continued. "Forty percent of our portfolio is in towns that have less than 20,000 people and are consumers with medium to low income. We need to make sure that besides quality, we create value [for] those consumers."
Amplified Offers
As consumers continue to face inflationary pressures, ARKO is aggressively positioning itself to navigate these near-term headwinds as the company continues to believe in the longer-term opportunities offered by the resiliency of the c-store industry.
ARKO's high-value promotions and programs are linked to the company's three key marketing and merchandising pillars:
- Growing sales in the core destination categories of packaged beverages, candy, salty snacks, packaged sweet snacks, alternative snacks and beer;
- Using its fas REWARDS loyalty program to develop and strengthen the relationship with customers; and
- Expanding its packaged and fresh food offering.
Last month, the c-store retailer kicked off its second annual "100 Days of Summer" promotion, which runs through Sept. 3. Available across ARKO's network of brands, the company's partnership with various suppliers will allow customers to save on numerous products, including beverages, food and candy. Extra discounts are available for fas REWARDS members.
"We've never had a promotional event like this with the amount of promotions we put together for the '100 Days of Summer' event," Kotler said. "Joining in on those promotions are basically all of the vendors we do business with. That's the reason the long-term relationship we have with them means a lot to us and to the consumer. Because at the end of the day, those suppliers help us provide those valuable promotions to our customers and bring value to them."
These promotions will work in tandem with some of the retailer's most recent foodservice rollouts. In May, ARKO tapped Nathan's Famous to be its new supplier of quality, 100% all-beef hot dogs across more than 450 locations. The hot dogs are available for $1.99 each or two for $3.33 for enrolled fas REWARDS members at select locations.
Prior to that, ARKO kicked off a new pizza program in January after a year in development. Fas REWARDS members can purchase a premium, 12-inch pizza fresh or frozen for just $4.99, while the price for nonenrolled members is $7.99.
Kotler pointed out that when customers pick up one of ARKO's premium pizzas, they will notice the Pepsi logo on the packaging. Leveraging its partnership with Pepsi not only enhances the quality of the pizza program, but also provides an added layer of value to the customer, he explained.
"Enrolled members can get a pizza for $4.99. But now [during '100 Days of Summer,'] you can walk into any of our stores that carry pizza and if you buy two Pepsi 12- or 15-packs, you basically earn a free pizza. Or, if you purchase a pizza for $4.99, you can add a 2-liter Pepsi for $1. Customers can also buy a 20-ounce Pepsi family soda and get a Big Slice for only 79 cents," Kotler said.
"I'm very proud of [GPM Investments Executive Vice President, Chief Merchandising and Marketing Officer Michael Bloom] and his team for bundling promotions with our vendors to make sure we deliver the consumer a valuable promotion," he added.
[Read more: ARKO Corp. Shifts Focus to Organic Growth]
Another attractive offer has been a value-oriented chicken sandwich, which debuted at the end of 2023. ARKO collaborated with Tyson for the offering, which is available in 300 select locations and sold for $2.99 for fas REWARDS members.
"We are focused on bringing valuable promotions to our customers and making sure that from a price standpoint, it's attractive," Kotler shared. "If you can actually feed the family right now for less than $10, that's the goal for us. And I think that's the role that we play given that everyone is suffering in the wallet right now."
A Rewarding Journey
As budget-conscious shoppers cope with inflation, Kotler is observing across the convenience channel what other retailers are also seeing: less foot traffic. But leveraging fas REWARDS is helping the c-store operator see bigger basket sizes.
Currently, the program has more than 2 million enrolled members. ARKO is aiming to have 3 million enrolled members by the end of 2024, as Convenience Store News previously reported.
"With more than 2 million enrolled members, we know our customers. And because we know our customers, we are designing promotions on sellable items and those items our customers would appreciate," Kotler told CSNews. "Members are taking advantage of the fas REWARDS program and we see that in basket size. Their basket is up more than 30% when compared to nonmembers."
To draw attention to the fas REWARDS program, ARKO strategically advertises the platform through promotional signage and packaging across multiple touchpoints inside and outside the store.
Additionally, loyalty members receive special in-app promotions available only to them, creating higher value and retention, the chief executive noted.
[Read more: GPM Investments Upgrades Rewards App]
All of these elements are laying the foundation to support ARKO's long-term journey to become a foodservice destination. Kotler believes the company's foodservice proposition is a multiyear process.
As part of that process, ARKO recently announced a new transformation plan. In partnership with a national consulting firm, the company is developing and executing a pilot program to improve its customer experience and value proposition, with plans to expand the refined offering across its larger store network.
The pilot program is currently underway in the Richmond market, the company's home base. Kotler expects the pilot to take three to four months to complete.
"We expect that this investment will support our efforts to grow share in expanding markets and maintain our competitive positioning in more stable markets," he said.
With 1,500-plus stores operating under 34 banners across more than 30 states, ARKO is No. 6 on the 2024 Convenience Store News Top 100 ranking. GPM Investments LLC is a wholly owned subsidiary of ARKO.
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