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Economy Can't Keep Casey's Down

3/22/2010
At a time when other convenience retailers were faltering, Casey's General Stores shared how it was rising above the difficult economic conditions in Convenience Store News' March 9, 2009 cover story, "Casey's Keeps Eye on ROI." Company executives attributed the chain's same-store sales growth and solid customer traffic to a highly disciplined and diligent approach, and said they were applying that same approach to the launch of a new store design and continued expansion through new builds and acquisitions. A year later, CSNews checks in with Casey's to see if the business is still prevailing.

According to Chief Financial Officer Bill Walljasper, Casey's continues to generate positive same-store sales across every category, and all indications are that its new store design, which debuted in September 2008, is being well-received by customers.

While management has yet to release any specific ROI (return-on-investment) metrics for the new store design, Walljasper told CSNews that with 75 of the newly designed stores up and running, the retailer is seeing "positive indications" across all categories.

"We are seeing increased revenues and increased cash flow from these stores above and beyond our older store designs," he said, noting the company is still in the research and development process of determining where the new design works best.

"We're still building these stores in different areas -- small communities, large communities, as well as interstate locations," he explained. "[The design] appears to be a viable option regardless of the population [of an area], but that has yet to be finalized."

Casey's new store design spans 3,700 square feet -- roughly 1,000 square feet larger than its traditional stores -- and was designed by the Ankeny, Iowa-based chain to increase gross-profit dollars by driving traffic to the higher-margin, faster-moving products in the stores, such as packaged beverages and prepared foods.

Half of the additional square footage is used to move the checkout to the center of the store, along with expanding the cooler from an average of nine doors to 14, making room for more variety and different package sizes. The other half is dedicated to foodservice, including a new made-to-order sandwich program and expanded coffee offering.

This fiscal year, Casey's plans to build between 17 and 20 newly designed stores, while replacing an additional 20 sites with the new look. That's compared to the 16 new builds, 14 replacements and nine remodels the company completed in fiscal 2009.

Unlike 2009, Walljasper said there will be no remodels done this fiscal year. Casey's is developing a new remodel program to be put in place in fiscal 2011 -- one that's less expensive, but still incorporates its newer concepts including the expanded cooler space, made-to-order sandwich program and expanded coffee program. "We are just looking for the most cost-effective design to bring these items to our customers," he said.

Casey's proprietary sandwich program, which is in all 75 of the new-design stores, is doing well, and is viewed by customers as a healthier alternative to its other prepared food offerings. The demand is there, and management believes that will continue.

"When we add the program to existing sites, it does cannibalize some, but the overall prepared food volume increases, and that's what we're trying to do," the CFO said. "We want to drive overall revenue and gross profit growth with the sandwich program."

Casey's expanded coffee program, now featured in roughly 120 stores, is off to a strong start, too. In remodeled stores, the retailer has seen a 30-percent revenue lift in the coffee category after introducing the expanded program, according to Walljasper.

"It's a continual tweak of the program. We're always looking to make the customer experience a little better," he added. "Some of the things we've done in the past have been more short-term. We're looking for something now with long-term potential."

While Casey's will continue growing its unit count through ground-up construction of this new store design, Walljasper told CSNews that growth this fiscal year will be weighted more toward acquisitions. The company's acquisition activity picked up in recent months with the purchase of three Green Lantern convenience stores in Kansas; nine Bullseye-branded stores in Missouri; and the four-store chain, All Stop, in Iowa.

All of the acquired stores are up and running as Casey's General Stores -- and other deals are in the works. "We are focused on keeping that pipeline full at all times," said Walljasper. The company is looking for opportunities not only in its existing markets, which are highly fragmented with two-thirds of the operators having 10 stores or less, but also in the bordering states of Arkansas, Tennessee, Michigan and North Dakota.

"The convenience industry has its pressures like any other industry. We feel them and so do other operators. The sum of these pressures has people rethinking whether they want to stay in this business," Walljasper said of the current environment for buyers such as Casey's. "When we look at the [acquisition] activity this year vs. a year ago, it's certainly more robust, and we're cautiously optimistic about the momentum continuing."
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