CSNews Exclusive: Valero Retail Attacks Business from Both Sides

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CSNews Exclusive: Valero Retail Attacks Business from Both Sides

By Linda Lisanti

SAN ANTONIO -- Two years since Valero Retail Holdings underwent a major restructuring, eliminating more than 130 jobs in the field and at corporate headquarters, and aligning all retail employees under a single entity, the convenience store division of Valero Energy Corp. continues to seek out new ways to control costs.

While Valero Retail Holdings Inc. is not planning to make any more wholesale changes to its organizational structure, the company’s management team is constantly reviewing the needs of the organization and evaluating its allocation of resources.

"I don’t think we could be any more pleased with the restructuring, and the results we’ve seen since then," Gary Arthur, president of Valero Retail Holdings, told CSNews Online in a recent interview. "We were able to create a standalone organization within Valero that is lean and focused on the retail channel. We really have positioned the company to be focused and long-term competitive in this business. If you work in a retail environment, though, cost control is always a focus."

In the last couple of years, this focus has become more important than ever, "especially in the current environment, we’re watching our costs closely," Arthur said.

In fact, Valero Retail eliminated a number of additional positions across the organization beyond the numbers achieved during the restructuring. As individuals retire or leave to take jobs elsewhere, the company has chosen not to fill some of those vacant positions—with the exception of the operations area, according to Arthur. As a result, resources have been reallocated in certain areas to maintain proper coverage.

"This has helped bring our overhead down even more," he said, noting the division is running well below the original amount budgeted for 2009 operating costs. "When you’re operating lean, you need to make sure you have the right resources working on the right opportunities, so that’s what we’re doing now."

Besides attacking the business from the expense side, Valero Retail is also aggressively going after the gross profit and sales side by building more large-format stores, growing its private label business, and expanding and refining its foodservice offerings.

Valero currently operates 1,000 Corner Stores in nine states, and believes it’s found a winning format with the new store design it unveiled in early 2008. Built with a distinct yellow and blue color scheme and interior wood grain detailing, the new 5,500-square-foot stores devote roughly 30 percent of their floor space to prepared foods.

These larger stores also feature Valero's proprietary Cibolo Mountain coffee program, with more robust taste profiles, and a 30-head Flavors 2 go fountain dispenser.

"The new stores are being well received by our customers, and are meeting or exceeding expectations in terms of merchandise and fuel volumes. We will continue to move forward with this new store format in all our new constructions," Arthur said.

Three new stores opened this April and another is now under construction in Tucson, Ariz. Once completed, it will bring the total number of new format stores to eight.

While foodservice is a major focus in these larger stores, Valero is expanding its prepared foods offering in existing Corner Stores as well. To date, about 250 of the company’s stores have what Arthur calls "the advanced food program," which includes fresh-made sandwiches, pastries baked on site, and a hot grab-and-go case.

The retailer plans to continue rolling out the advanced program to additional stores, with another 50 installations slated for this year. Within the next couple of years, Arthur told CSNews Online he expects half the stores to have advanced foodservice.

"The program offers higher margin and a point of differentiation," he said, adding as Valero expands the program, it is also refining the offering to make it more profitable, more attractive to the consumer and easier for store operators to manage.

Another point of differentiation for Valero’s Corner Stores is "Fresh Choices," its private label brand. The line now includes bottled water, ready-to-drink teas, sandwiches, soda and chips, and the chain is in the process of debuting a host of new products, including:

-- Three new proprietary fountain beverages—root beer, cherry limeade and cream tangerine—are being added to every store’s Flavors 2 go area. The drinks are made with pure cane sugar, a preference of Valero’s Hispanic customers.

-- In terms of packaged beverages, a Fresh Choices sports drink will be introduced this month in five flavors—fruit punch, orange, lemon-lime, grape and blue raspberry.

-- A new, private label energy drink, "U Power," is expected to launch in September.

In addition to new product development, Valero Retail is completely redesigning and launching new packaging for all Fresh Choices products. The new packaging, which will be coming in the next few months, is bright, colorful and has a lot more energy about it, keeping with the new image of the stores, according to Arthur.

"The brand has been out for several years and we felt it was time to freshen up the image," he noted.

In every aspect of the business, Arthur said the retailer is not sitting on the sidelines.

"We think we’ve got a great network of stores, many of which we’ve invested in to upgrade their quality. Now, our job is to determine how we can become more relevant to the customer and how we can leverage these improvements to keep existing customers, attract new customers and increase the spend [of both]," he said.

For more on Valero’s retail division, check out the June 22 issue of Convenience Store News, which spotlights "A Day in the Life" at the powerhouse chain.

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