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The Future Post Proxy Fight

6/10/2014

Now that the proxy fight is over and a dissident investor group was able to get three of its candidates elected to The Pantry Inc.?s board of directors, Convenience Store News sat down with CEO Dennis Hatchell to discuss what changes might be seen at the Cary, N.C.-based company, which operates 1,537 Kangaroo Express convenience stores in 13 Southeast states.

Hatchell, The Pantry?s chief executive for the past two years who has been trying to turn around a company that has been cobbled together from multiple acquisitions over the past decade, spoke with CSNews just days after an orientation was held with the new directors.

?We [the new board members and management] exchanged views on how we think the business should go forward,? Hatchell relayed. ?I think we [management] have more in common with their ideas than not. They have a lot of good ideas that are similar to ours even if we differed on the pacing of those ideas.?

As an example, he mentioned the dissidents? push for The Pantry to open more quick-service restaurant (QSR) franchises in its stores. ?We?ve already studied that and found that just over half our stores are good candidates for QSRs,? Hatchell said. The retailer currently has 223 QSRs operating in its stores. Plans call for more than 20 additional ones this year and 30 to 50 more in 2015.

?We are in agreement [with the new board members] on this and we are accelerating the rollout, but we face headwinds. In many cases, we must expand the size of a store or we have to get additional land to expand, and we must get franchise rights for certain locations.?

As a success story, Hatchell pointed to the retailer?s newest franchise, Little Caesars. ?That?s been very successful for us. We have five open now and 15 more planned over the next two years,? he said.

This is an area where the new directors, two of whom have extensive restaurant industry experience, will help accelerate the plan, according to the chief exec.

Proprietary foodservice is also getting a renewed focus at The Pantry under the leadership of longtime c-store industry veterans Jon Bratta and Tom Terlecky. ?Only 11 percent of our volume is proprietary foodservice, so we have a ways to go to reach the industry average,? Hatchell acknowledged. Coffee, grill, bakery and dispensed beverages are all among the areas being addressed.

Like many large convenience store retailers, The Pantry has many smaller stores that cannot accommodate the ideal c-store/QSR combination. ?Many of these stores without QSRs are successful in their markets,? he said. The Pantry is taking a market-by-market approach to evaluating these stores and prioritizing which ones it will remodel in an attempt to get the best return on them.

PEOPLE FOCUSED

Talking about the small stores brought Hatchell around to the topic of people. ?The magic in the small stores is the people. If you have a manager that?s good, he or she makes the biggest difference in the sales and profitability of the stores. Good store managers know all their customers by name. The stores seem like a big family. Our goal is to engage those good managers and keep them engaged,? he said.

The retailer has focused on improving communications between the stores and support center. ?We are much more store focused than we were a few years ago,? he claimed.

Senior management, in particular, has been challenged to ?own? new initiatives dealing with change management and values. Hatchell said the management team has been spending a good bit of time talking to employees about the company?s values and how to treat people. And communication has improved as store employees are telling management things it needs to know about what needs improvement.

One specific example the CEO cited was the retailer?s March Madness Values Challenge, a takeoff on the NCAA basketball tournament, which resulted in engaging employees to talk about the company?s values and mission.

When talking to CSNews, Hatchell seemed to be in a good state of mind after all the drama of the past few months with the proxy fight. He said the biggest negative was the many pieces of misinformation about the company that was circulated by certain shareholders and parroted by some press outlets.

?I?m really proud of our people. Given all the market pressures we?ve faced and the proxy battle, we could have lost our way pretty easily, but we didn?t. Our people are energized. We?re giving them the tools and training, and I think we are on the right path,? he said.

Hatchell is also proud of the progress his team has made in evaluating the stores by market, and he?s confident all the company understands how The Pantry is going to proceed and grow the business.

?The results are not showing up yet, but we?re seeing a lot of good progress. We?d like it to be faster, but we are getting better and better every day,? he concluded. ?Moving forward, we?ll embrace the new directors and I?m very excited about the future.?

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