Get Big, Get Great or Get Out

The second-annual Convenience Store News Fuels & Tech Summit was chock full of information about both categories, but it was the overall c-store industry commentary provided by Joseph Petrowski, former CEO of The Cumberland Gulf Group and current managing director of private equity group Mercantor Partners, that stole the most headlines.

In his trademark candid and conversational style, Petrowski delivered the event’s keynote speech to a room filled with 27 c-store retailers from across the country. In order to survive, he said convenience store operators must “get big, get great or get out.”

The industry veteran further explained that having 1,000 sites at a minimum is important to support a retailer’s information technology, human resources, procurement and finance departments. “You need to have 1,000 stores to really compete,” Petrowski said. “You can have less, but you need 1,000 for economy of scale.”

During the Summit sponsored by Growth Energy, Warren Rogers and ZipLine, he went on to say that c-store retailers should aim to sell 2 million gallons of fuel per site per year as a benchmark. In-store, each location should generate a minimum of $340,000 in annual cash flow.

Shifting gears to the mergers and acquisitions market, Petrowski predicted that whether big or small, c-store retailers can expect continued contact about being acquired. Even as stocks of master limited partnerships decline, he expects M&A activity to be hot in 2016.

One group in particular that will keep calling on c-store retailers about potential M&A activity is private equity groups, which have $1.6 trillion under management, according to the executive.

FUELS IN FOCUS

Considering his keynote speech was entitled “The Future of Fuels,” Petrowski discussed this topic at length as well. Offering his outlook on the category, he garnered even more headlines by predicting hydrogen to be a “significant fuel of the future.”

He believes hydrogen has a tremendous future as an alternative fuel for many reasons, including its local abundance, ability to provide the same fueling experience for customers in terms of fill-up times, and mouth-watering profit margins for convenience store retailers — as much as $5 per fill-up. Additionally, hydrogen produces superior gas mileage compared to traditional gasoline, and the “fire marshal says it’s safer than CNG and LNG [natural gas],” he noted.

He did acknowledge, though, that hydrogen fueling may not take off immediately since consumers cannot retrofit a gasoline vehicle to accept hydrogen; they must purchase a specific hydrogen vehicle. Additionally, on the retailer side, building the infrastructure for a hydrogen fueling station — which can service four vehicles at one time — carries a price tag of approximately $200,000. There are only a few hydrogen fueling stations thus far in the United States, but Petrowski said the number has begun to grow.

Another alternative fuel, E15, was also the subject of much discussion at the Summit. The blend of 15-percent ethanol and 85-percent gasoline — approved for use in 2001 and newer vehicles — appears to have a bright future based on exclusive research presented at the event.

Just a few years ago, some convenience store retailers and consumers alike were hesitant to sell and purchase E15 fuel, respectively, due to misfueling concerns and allegations that the blend could cause damage to vehicle engines. Today, the thought process about E15 has changed. Approximately 175 convenience stores in 19 states sold E15 as of December, and consumers are increasingly favoring it as a fueling option, according to the research conducted by Carbonview Research, a sister company of Convenience Store News.

Carbonview surveyed 942 fuel decisionmakers aged 18–64 in eight Midwest cities ripe with E15 expansion. Randi Etzkin, manager of client research for Carbonview, shared the results:

• 55 percent of respondents want to find out more about E15;
• 44 percent find E15 “appealing;”
• 35 percent want to use E15 for their car; and
• 34 percent said E15 is “believable.”

Price is the biggest factor consumers use to determine whether to purchase E15 (cited by 71 percent of respondents). If E15 — which carries an 88 octane — was sold at the pump at the same price as traditional E10 petroleum, 38 percent of those surveyed said they would likely buy the alternative fuel, Etzkin pointed out. The percentage goes up as the price differential goes up. If E15 was priced 5 cents less, 49 percent said they would likely buy it. A 10-cent difference would entice 60 percent of consumers to purchase E15 over the traditional E10.

TECHNOLOGY TALK

Shifting the focus from fuels to technology, c-store tech veteran Ed Collupy presented a session in which he addressed an important topic in the world of IT: implementation.

Collupy, the former top IT executive at The Pantry Inc. before its acquisition by Circle K parent Alimentation Couche-Tard Inc. last year, is now an executive consultant with W. Capra Consulting Group. While at The Pantry, Collupy directed, managed and supported all of the retailer’s store systems and technology efforts, with a focus on bringing system solutions to the chain as it grew from 400 stores to more than 1,500 during his tenure.

Drawing on his experience, Collupy shared tips on how to simplify even the most complicated technology implementations with:

• Thorough planning;
• Setting a top priority (not a lot of important todos; only one thing can be priority);
• Trusting in your people; and
• Effective communication about the project to both management and users.

Also on the subject of technology, the CSNews Summit featured a case study on Cumberland Farms’ successful SmartPay mobile payment and loyalty card rollout, presented by Roger Brooks and Danny Portal of Zipline, the retailer’s partner on the initiative.

The Zipline executives noted the main objective of Cumberland Farms’ SmartPay project was to change consumer behavior and increase customer spending.

Other goals included reducing dependency on Visa/Mastercard/American Express, thereby reducing transaction fees, and leveraging alternative payments technology into a merchant-to-consumer connection that would drive adoption and loyalty.

Portal explained that SmartPay functions like an electronic check, is branded to the merchant, and the payment is processed via an ACH (automated clearing house) system. The retailer is charged a flat fee per transaction and there are no chargebacks.

Cumberland Farms originally piloted the SmartPay program in a 200-store test with PayPal in 2012. However, since it was a mobile-only strategy then, consumer adoption was low with less than 1-percent penetration and no in-store payment option.

In February 2013, SmartPay was converted to Zipline and relaunched with the SmartPay Card, in-store payment and a significant marketing campaign that incorporated television, radio, digital and store signage. The theme of the campaign was “Save 10 cents on every gallon, every day.”

The results were phenomenal. The retailer’s four-month enrollment target was reached in just four weeks, according to the Zipline execs. About 100,000 people enrolled within the first six months, with a peak of 3,000 enrollments in one day.

Today, nearly 700,000 members are enrolled in SmartPay, with about 15,000 new members added every month. Roughly 80 percent of members are active in the program.

Having both the SmartPay Card and mobile payment available has been the driving factor in the program’s success, the presenters stated. About 67 percent of the program’s sales are made on the card and 33 percent are made via a mobile device.

Cumberland Farms has seen a 5-percent chain-wide sales lift due to SmartPay, and it has become the second-leading payment method after Visa.