Earning Its Stripes

Five years ago, when touring the country wooing potential investors for the company's initial public offering, Susser Holdings Corp. President and CEO Sam L. Susser laid out a six-part roadmap for how he and his team would use the capital to grow the business.

He vowed they would:

• Double EBITDA within five years;
• Continue to grow same-store sales and same-store cash flow;
• Switch from a licensed national brand to the new proprietary Stripes brand;
• Grow foodservice sales, decreasing reliance on cigarettes; and
• Continue to execute an acquisition strategy.

The plan was ambitious, but one Susser knew his team could execute because they were "hungry for growth" — a hunger that remains just as strong today.

"Our company and our team are built for growth. We would atrophy if we weren't able to keep pursuing growth opportunities," Susser said. "A retail company cannot stay at one size and be successful. You grow or you die."

Every decision and every action made over the last five years has aligned with these six growth goals, and in an exclusive interview with Convenience Store News, Susser shared how his Corpus Christi, Texas-based business has not only met its targets, but exceeded them.

Susser Holdings operates the Stripes chain of convenience stores and a wholesale fuel division, Susser Petroleum, which is the largest wholesale motor fuel distributor in Texas.

Since going public in October 2006, the company has made good on its promises to shareholders by more than doubling its adjusted EBITDA from $45 million in 2006 to $120 million in 2010; turning in its 22nd year of consecutive same-store sales growth last year; and building 53 new big-box stores since 2006, with those open three plus years producing over 20 percent ROIs.

Additionally, the chain grew its foodservice sales to $166 million in 2010, from $71 million in 2006; integrated three acquisitions, bringing its current store count to more than 525 locations in Texas, Oklahoma and New Mexico; and as of this March, the rollout of its Stripes store brand was completed and company research shows it is already the No. 1 recognized c-store brand in its markets.

According to Susser — who joined the company in 1988 and is the third generation to lead the business his grandfather founded — achieving these goals did not happen because of any single doing. Rather, it's resulted from several tenets that have been ingrained over the years.

Nearly five years since its IPO, Susser Holdings delivers on the promises it made to investors

The first being a firm conviction that there is inflation in operating expenses in the convenience store business. As the cost of utilities, labor, healthcare and so forth goes up each year, the company believes it has to find a way to grow the top line to cover that inflation.

Secondly, Susser Holdings' executives are big believers in market share as a means to create efficiencies in management, efficiencies in the supply chain and efficiencies in marketing. "Part of the reason we feel a bias toward market share is because we're in attractive markets. We're in a part of the world that's growing," Susser said. The state of Texas, which encompasses 90 percent of its business, added four million people in the latest U.S. Census.

Lastly, the company's ownership realizes the importance of investing back in the business, and not just in the front-end where it's visible to customers or in new builds only. As a matter of fact, Susser said its legacy stores are where its investment back into the business really shows.

"A lot of folks think we're successful just because we make acquisitions or because we build new stores, but we are really focused on our old stores. They are the engine of our company. We only want to grow by new stores and acquisitions to the extent that we are doing a good job with our legacy stores. That's what gives us the license, in our minds, to make other investments," he said.

"We treat every store like a brother. They're not statistics for us; they're special. And we try to invest in each store, recognizing that it brings something special to our business."

A HOUSEHOLD NAME

At the time of the IPO in 2006, Susser Holdings was already in the process of converting its convenience stores from the Circle K brand to its new proprietary Stripes brand. The relationship with Circle K was very positive; however, the company's ambitions were growing beyond the particular areas where the territory was licensed, and the chain had reached a size where the economics of royalty no longer made sense, Susser explained.

The vision for the Stripes brand, according to the CEO, was to be a name the retailer could use forever, recognizing that c-stores go through a metamorphosis every 10 to 20 years. It was also critically important that the name not be offensive in any way in the Spanish language, given that most of the company's stores are in heavily Hispanic-dominated markets.

Stripes passed both tests. Susser said the team loved the patriotic look and feel of the name, and knew they could have fun marketing with it. "You can earn your stripes every day. You can follow the stripes down the highway to a fast, fun, friendly convenience store. You have stars and stripes forever. There are a lot of good plays off it," he noted.

The company has been rolling out the Stripes brand, market by market, for the last five years. In March, stores in the last remaining market — San Angelo, Texas — were converted.

Even though the brand is relatively new, it is already a household name in the company's core markets. In a recent study commissioned by the retailer, respondents ranked Stripes as their favorite c-store in those core markets, and it was the most recognized c-store brand.

Stripes also emerged as the most visited c-store in its markets, as 97 percent of respondents who said they visited a c-store in last 12 months shopped at a Stripes store, the study found.

Market penetration has been a key to gaining brand awareness and loyalty so quickly, according to Vice President of Marketing Rod Martin, who joined the company two years ago. "We've got such a good presence in our markets that it's really hard to miss our stores," he said.

In fact, Stripes is not afraid to grow on top of itself in high-growth areas. In every case, the company has found that while there's a slight decline in the first year that the new store opens, the existing stores generally are back to meeting or exceeding the thresholds they were at previously within 24-36 months, said Richard Sebastian, senior vice president of retail operations.

Aside from its physical presence, Stripes maintains a consistent marketing presence as well, using a mix of radio, outdoor advertising, highway signs and sponsorships to drive traffic to its stores. In regards to brand messaging, Martin said the communication has evolved over the last five years to where Stripes now aims to connect with customers at a "values level.".

"What we've tried to do is understand our target audience and what their motivation is, not only as it relates to convenience store shopping but where they are in their lives," he said, noting Stripes' core heavy users are young, working-class Hispanic males.

"One thing we want to hear from our customers is ‘you get me.'"

MERCHANDISING SAVVY

While all 525-plus stores now sport the Stripes brand, by no means are they all alike.

Store footprints vary widely: as of this January, 145 locations were less than 2,500 square feet; 166 were between 2,500 and 3,500 square feet; 89 were 3,501 to 4,500 square feet; and 126 were more than 4,500 square feet. Stripes' new big-box stores, which typically cost around $3 million to build, are twice the size and have three times the cash flow of its legacy stores.

The typical new format differs from the legacy stores in that:

• Total land spans 50,000 square feet vs. 20,000 square feet;
• The store building averages 4,800 square feet vs. 2,400 square feet;
• Parking spaces number 25-40 vs. six to eight;
• Fueling positions number 10-20 vs. four to six; and
• All new stores feature the proprietary Laredo Taco Company foodservice concept.

Given their size, the big-box stores are able to offer greater variety across all categories, and deliver an elevated experience aesthetically, as they feature higher ceilings, bigger windows, better lighting and larger restrooms, said Steven DeSutter, president and CEO of Stripes LLC, who came to the company in 2008 having past experience with British Petroleum and quick-service restaurants such as Burger King Corp.

"The larger scale creates an all around better customer experience," DeSutter added.

Separate from these big-boxes, Stripes also has a supersized store model that spans 6,000 to 10,000 square feet and offers dedicated truck diesel islands. The chain operates more than 60 of these large-footprint locations, and continues to seek properties where it can build others.

With so many floor plans, Stripes is in no way a cookie-cutter operation. And neither is its merchandising approach. The chain continues expanding its use of store-specific merchandising, which it started in 2001 with store-specific beer planograms.

The non-alcoholic section of the cold vault is the latest area where the retailer is doing individual store planograms that are updated twice a year. Stripes' stores in lower income areas may have an entire cooler door of malt liquor, whereas truck stop stores that don't sell much beer may only have two doors of it and instead carry a far larger selection of new-age drinks.

Kevin Mahany, vice president of retail merchandising, foresees a day when Stripes will do store-specific merchandising for every category. "We're moving little by little in that direction," he said. "It's not next year or the year after, but I see it just continuing to expand."

Still, all merchandising decisions today are driven by scan data. Merchandising team members review data daily, and Mahany said the goal is to continually shorten the timeframe of the data they're using to judge the performance of products. Now, 13 weeks is the maximum. "The longer you use the data, the flatter the lines get," he said. "We want to jump on trends quickly."

With its store base concentrated heavily along the Rio Grande River — where the population in many areas is up to 95 percent Hispanic — another major merchandising and marketing focus for Stripes is to become "the brand of choice for the Hispanic consumer."

To achieve this, the chain's stores carry a large selection of authentic Hispanic products, such as Bimbo breads and pastries, Coca-Cola from Mexico and candy items from Ricolino and Lorena Pelon Pelorico. In addition, fresh, packaged tortillas are delivered daily to the stores.

The authentic brands Stripes offers are the same ones Hispanic consumers find in their home countries in focus groups, customers notice that and say, "You tempt us with what we like," DeSutter noted. "Sometimes there's not scan data available to say you should add this unique Hispanic specialty snack or candy, but we're willing to put it in the stores and try it."

MADE FROM SCRATCH

Authentic Hispanic foods are also the cornerstone of Stripes' original foodservice concept, Laredo Taco Company (LTC), which is offered in just over 300 of the chain's stores. The retailer this March completed the conversion of all Country Cooking' restaurants that were part of its November 2007 Town & Country Food Stores acquisition to Laredo Taco.

Annually, LTC sells roughly 34 million tacos — or about 95,000 tacos a day.

Mom-and-pop taquerias are the biggest competitor to Laredo Taco in Stripes' core markets, so the c-store concept focuses on serving up food "the way grandmother used to make it."

Every item is made from scratch; nothing is pre-cooked. Ingredients come to the stores as raw materials and each day employees crack the eggs, dice the peppers, roll out the tortillas, etc. What's more, they do it all in the front of the house where customers can see it.

"We want the theater," said Ben Hoffmeyer, senior category manager of foodservice. "The steam coming off the grill, the sizzle of the meat cooking, it all reinforces how fresh and authentic our food really is."

Since launching LTC 10 years ago, the retailer has tried several times to make the program easier for its store employees to execute, but every attempt to simplify has failed. As Susser noted, "It's just a very complex concept. The beauty of what we do is it's really delicious, and if you want yours a little different, you can get exactly what you want."

While all LTC locations serve certain core menu items, other selections vary per store. Breakfast options may include chorizo and egg, potato and egg, potato and chorizo, carne asada, sausage and egg, or bacon and egg. For the lunch daypart, customers may find beef and/or chicken fajitas, barbacoa, enchiladas or tamales. Side items, such as rice, corn, mashed potatoes and plantains, are available as well.

The company gives its stores leeway to cater to regional preferences. For instance, some areas prefer their tortillas smaller and thicker, while others like them larger and thinner. Customers will go to a specific Stripes store exclusively because they like the LTC cook there.

Along with 99-cent tacos, Laredo Taco offers $3.99 "plate meals" consisting of a protein, two sides and a tortilla. The most popular plate meal is the half chicken. Hoffmeyer said these meals present an extraordinary value, as the same thing would cost at least $5.99 at a taqueria.

"We spend a lot of time worrying: is our food delicious, are we getting it served up as quickly as possible for customers, and are we delivering it at really great price points?" Susser said. "A lot of other companies in our region are now trying to do a taco program. But we spend our time worrying about how to improve our business not following what our competitors do."

LTC is not only a foodservice program for Stripes, it's also a loyalty program.

The retailer's recent study showed an overwhelming connection between Laredo Taco usage and average frequency of visits. Among heavy c-store users, those who said they were also a Laredo Taco customer visited an average of 1.5 times more each week vs. non-LTC customers, according to Martin. Laredo Taco emerged as the biggest driver of Stripes being the favored c-store, too.

"If we can get our fresh, authentic food into their hands, then we become something special to them," Martin said.

The research also found that more than 70 percent of all Laredo Taco transactions include additional purchases. The most common add-on is a fountain or packaged beverage, followed by a snack or candy purchase. Stripes merchandises authentic Hispanic snacks and candies in front of the foodservice counter, which is something often seen at mom-and-pop taquerias.

To further leverage LTC across the store, company executives decided within the last year to move foodservice under merchandising, instead of keeping it a separate entity. They set up a Food Leadership Team, consisting of DeSutter, Mahany, Sebastian, Martin and Hoffmeyer, as well as David Wishard, vice president of business development, and Conrado Saldivar, senior director of foodservice operations. The group meets every two weeks to review performance and talk about new projects, marketing opportunities and sales initiatives. Every decision made about Laredo Taco Company — whether minor or major — comes out of these meetings.

"Now, we're able to be on the same page for the entire store, and have an [all-encompassing] view of how we go to market," Mahany explained. "We're always thinking about how we can cross-promote other categories with our food. Everyone wants to tie into food now."

Add-on purchases are not so much driven by bundling, but rather by cross-merchandising and product placement, said Wendell Funk, director of category management. When you bundle, he said it can change the value messaging. "We're offering a 99-cent taco, and it's a big taco with four ounces of food. That's the traffic driver," Funk said. "For our consumer, especially in this tight economy, 99 cents means 99 cents."

By focusing on quality, value and awareness, Stripes has nearly tripled its foodservice sales since 2005, and the retailer sees plenty of opportunities to keep increasing sales. Currently, the focus is on improving speed of service, particularly during the breakfast daypart, and growing the lunch daypart. Hoffmeyer said LTC is more heavily skewed toward breakfast now.

Snack and dessert items are also a work in progress. LTC recently started offering two varieties of churros, priced two for 99 cents, along with fried apple pie and Hispanic pastries.

Dinner will be the final piece, according to DeSutter. "What's worked for us is building a big breakfast business, which creates a lot of interest in coming back and trying our lunch. A big lunch business in place will be the natural extension to dinner offerings," he said.

STILL HUNGRY

Looking ahead to the next five years, Susser said the six growth goals he laid out during the IPO process are still very much the company's roadmap for the future.

The plus of being a publicly traded company now is the strength it gives Susser Holdings financially in terms of access to capital and the ability to withstand competitive pressures and unforeseen issues, whether it's a crisis in the Middle East or a hurricane.

Back in 2006, Susser Holdings was like a puppy dog in that it was spirited, frisky and eager to try different things, Susser recalled. In the years since, the CEO said the company has evolved into a more disciplined, focused organization that's more repetitive in what it does.

"But hopefully, we are still as hungry for growth as ever," he quickly added.

Given its access to capital, penchant for growth and the depth of its management team, Susser said he doesn't ever see the company deleveraging and not being a growth company.

"We're just trying to become excellent. It's a journey and we know we have a lot of work to do," he said. "Progress has been made, but gosh we have a lot of opportunities and we're just out there trying to tackle a few every day — trying to get just a little bit better."