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The Pantry's Cultural Revolution


The transformation of the largest independently operated chain in the Southeast starts with a new attitude — and a fresh take on convenience retailing

"Employees were eager for change. The more time I spent getting a better understanding of the business and talking with employees, the more I was blown away by the commitment of our people, whether in the stores or headquarters. If there's not engagement, you have a tough uphill battle. But we found a large group of people who wanted to be successful and part of a winning team."

— Terry Marks, president and CEO of The Pantry Inc. since September 2009.

Listening to The Pantry's executive team speak about the changes in the retailer's corporate culture, priorities and in-store offer, one can't help but feel the operator of 1,641 stores has been reborn — and the baby's vital signs are looking good.

Under the leadership of Marks, formerly president of Coca-Cola Enterprises Inc.'s North American Group, the largest independently operated chain in the Southeast is in the midst of a total repositioning. Dubbed the "Fresh Initiative," the overhaul comprises a new business strategy and management philosophy, a huge investment in information technology, and a reimaged store menu and sales environment. This transformation is supported by a newly created operating framework and sense of common purpose long missing among the employees of the large, but often underperforming company.

The chain's new mission statement sums up the management team's ultimate goal: "To be an indispensable part of our guests' daily lives by always satisfying their on-the-go needs in a fast, friendly and clean environment." By acting on those 25 words, the huge ship Pantry, now operating primarily under the Kangaroo Express brand, is effectively changing course.

"Over the years, the company had done a good job of acquiring quality assets and building a business of some meaningful scale concentrated in a great part of the country to do business," Marks recently told Convenience Store News. "What struck me was the opportunity to really improve the performance of these great stores. If you look at some common measures of performance across the industry, such as foodservice share of total revenue, we really lagged."

Changing the corporate culture was also critical and readily observable during Convenience Store News' visit to stores and support centers in July for its A Day in the Life special report (see pages 49 to 72).

"From a corporate culture standpoint, there was much more of an inward focus and emphasis on tight controls — which are important in running a business — but we saw an opportunity to shift our focus outward and better meet evolving consumer needs," said Marks.

The focus on executing the fast, friendly and clean strategy has led to more input from store-level employees; the creation of hospitality associates responsible for the presentation of Kangaroo Express' revamped Bean Street Coffee program and better customer service; and more responsibility for enthusiastic managers.

The Fresh Initiative's public side was unveiled to customers in late June at converted locations in The Pantry's hometown Raleigh, N.C. market. There, customers found newly uncluttered aisles; lower gondolas; the Bean Street Coffee surrounded by flavored syrups and creamers; and an assortment of fresh sandwiches, salads, pastries and fruit. The Fresh Initiative will reach 60 more stores in Charlotte, N.C., bringing the total to 100 by the end of the year as it continues to roll out to every Kangaroo Express store across 11 states in a scale appropriate to each store's footprint.

But before determining what they wanted the Kangaroo Express brand to stand for, the executive team — including Brad Williams, senior vice president of sales operations (who changed the name of his department from field operations to sales operations as a signal of the organization's new focus); Paul Lemerise, senior vice president and CIO; John Fisher, senior vice president of marketing; and Keith Bell, senior vice president of fuels operations and construction — had to understand what the Kangaroo Express brand currently meant to customers.

"A brand should connote certain expectations in the minds of the users of that brand, and those expectations are built over time by virtue of how they experience that brand — and consistency is very important," Marks said.

The team challenged everyone working for The Pantry to stop thinking about the stores as convenience stores selling traditional convenience items. Instead, the stores would be positioned and run to deliver against consumers' needs. "When you think about the business this way, your competitive universe widens dramatically and our strategic competitive advantages become clearer," the CEO noted.

That advantage — saving people time by meeting multiple needs in one trip — starts with the coffee run. The Fresh Initiative encompasses everything that must happen in the organization to deliver that super cup of coffee, which will act as a foundation to sell on-the-go sandwiches and perishable snacks. Indeed, as the team explains it, the future of the chain may rest on that perfect cup of coffee, which is now served in upgraded cups topped by lids that are dispensed in a customer-pleasing, one-touch manner, one lid at a time.

"We're really focusing on getting the fundamentals right because we don't have the ability to cookie-cutter execute a foodservice program," Marks said. "We needed a program that is scalable and modular. There is no reason we can't put forward a great coffee experience in every store. If we can convince someone we are a great choice for morning coffee and on-the-go breakfast, the chance for repeat business is really high."

With changes coming fast, the CEO has been careful to avoid overwhelming the organization with complexity. "I don't think we can be accused of being overly aggressive in terms of breadth of offering," Marks said. "Over time, we will develop our capabilities and broaden our offer. Right now, there is a lot of gold to be mined getting the basics right. If our store employees forget everything else we talk about, but remember to be fast, friendly, clean, we'll live to fight another day."

Executing the fresh case of sandwiches, pastries and other fresh foods is logistically challenging — the chain is sourcing product for daily delivery from each market's best local providers, Fisher said. However, management believes coffee will carry the day and lead customers to discover the rest of the offering.

As the marketing executive explained, The Pantry's "fresh" is different than Wawa's, QuikTrip's or Casey's, because it's the front for the chain's cultural change," Fisher said. "It's the shift from being very focused on ‘stuff and things and inventory,' to setting up a store that people love to shop to fill their on-the-go needs and building a brand known for that."

To transform the stores and become the consumers' first choice, the entire organization must be on board. "There is a great deal of change happening, but whatever we do, it comes down to two sales associates working in the store at 11 p.m.," Fisher said.

Building the Foundation

The retailer devoted the last 10 months to building an operating framework to support the mission and the employees executing it. These efforts have included new processes and technology enhancements to support fundamental changes in the way people work.

In order to react more quickly to changes in local markets, the company recently redivided operations, going from three to five divisions, now overseen by divisional vice presidents. "We left millions on the table every year because we were not reacting in a timely way to changes in the markets we serve," Williams said, adding the company is considering lowering the number of stores for which each district sales manager is responsible, especially as foodservice expands. "This change lets us react fast and better leverage our investments in technology and market basket data."

As localization is enabled by technology, Fisher said headquarters will set some 80 percent of the stores' offer and consider customizing the rest, with district and store sales managers' input. "Some managers will do that really well and get more license than others," said Williams.

The team also identified a significant opportunity for departments to work cross functionally. "Real, true, collaborative cross-functional teamwork is something that was not part of the culture here," Marks said. "We are trying to create a culture where executive leadership team members represent a specific function, and when we come together to discuss big opportunities or problems, they bring with them special skill sets and knowledge of a space. But they are not a senator representing their state. It's a nuanced difference, but a critical one."

Taking that a step further, The Pantry moved away from a top-down management style. In that vein, the retailer elevated the store sales manager and district sales manager position in terms of responsibility and engagement.

"They are the agents of this change," Williams said. "They are critical to driving that consistent experience so that we are an indispensible part of our guests' daily lives."

Learning from past mistakes, when initiatives sometimes failed because they weren't executed as envisioned, The Pantry created a management advisory council of 170 store sales managers acting as a voice for each district, and district sales managers acting as a voice for each region. "We want to close the feedback loop," Williams said.

Before launching a new program, the sales operations leadership team talks to the council, asking key questions: Will it work? What needs to be changed? Is the program practical? Can it be executed in the stores? Is it what the guests are asking for? "In the past, we would throw a lot at the stores or make emotional rather than fact-based decisions, and didn't do enough research up front," Williams said.

As store-level expectations rise, the company has devoted time daily to explaining why the changes are being made. "I'm very passionate about that," Williams said. "I go so far as telling store sales managers if their district sales manager doesn't explain why a program is wildly important to the company, the stores and the guests, they have permission not to do it, because it's obviously not that critical. I want them to challenge the status quo."

To support this change in the manager's role, the company is stepping up its recruiting efforts, reaching out to community colleges and other organizations, reworking its compensation and incentives, rewriting training modules and developing new ones. "As we continue to change the culture by bringing in associates who value what we are trying to accomplish and have a real passion for serving our guests, we're seeing a huge difference in the store experience," Williams said, adding the chain's companywide turnover rate is now 88 percent; store-level turnover once topped 200 percent.

Too keep the retailer's Kangaroo CARES standards top of mind, each associate wears a name tag with the CARES acronym: Customers are always greeted; Always in stock; Restrooms are clean and properly supplied; Exceptional store conditions; Speed of service.

"In the past, we sometimes asked the store sales manager to do the impossible without the proper tools to succeed," Williams said. "CARES automatically prioritizes tasks. If we accomplish these things, that will give us permission to be in the foodservice business in a big way. It will be magical when we have 12,000 sales associates delivering on this."

The challenge The Pantry continues to face is sequencing all of the changes happening at the store level. "If you work in a c-store at 8 a.m., it's like combat," said Fisher. "You are working the register when coffee runs out and someone spills something, and someone else breaks a glass bottle at the beer vault and the gas dispenser stops working, and you are supposed to code in some promotion as five people want to buy lotto tickets.

"We know that is happening. While our job is to keep things moving and look for opportunities, we have to remember we need to execute it all through our sales associates."

The Technology

To support the chain's strategic goals, The Pantry initiated four major technology projects: an upgrade to a Wide Area Network (WAN) for all stores; the upgrade and implementation of PCI compliant point-of-sale (POS) hardware and software; the addition of a fuel pricing system; and the upcoming rollout of a workforce management system that improves functionality in task management, labor scheduling, and time and attendance.

"If you are using technology to enable and support a more than $7-billion business, you need to ensure you have a solid technological foundation in place," Lemerise said. "We are confident we will realize a very significant return on these four initiatives. Plus, each offers benefits beyond return-on-investment."

The WAN for example, allows faster debit and gift card activation. The POS improvements enable detailed market basket analysis, plus enhanced sales and promotion capability. "With these additional benefits, it made good business sense to implement these projects in parallel," Lemerise said.

The chain made a significant investment last year when it converted more than 1,000 stores' POS systems and related hardware in the first phase of its PCI compliance project, eliminating many of the inherited POS systems, which has made sales checkout easier and faster for associates. "Our goal is to continually reduce hardware and software variations we have to support," Lemerise said. "Customers will now see the same promotions and pricing in every store, coupled with faster and friendlier service."

As the stores are refreshed and re-equipped to make them Fresh-friendly, the chain is investing an average $30,000 per site, in addition to the historic average per-store maintenance spend of approximately the same amount. "We have been very disciplined in how we have gone about the upgrades," Marks said. "Combining these spends allows us to leverage the investment more effectively. Fortunately, we are a good generator of cash, which gives us flexibility to do that."

Still, being a public company, The Pantry receives a quarterly report card on spending decisions. "It serves to remind us we have to be very disciplined," Marks said. "We don't get to choose between creating a quality experience for shoppers and creating value for shareholders. We have to do both. It may make running the business more difficult, but it is certainly something we embrace."

As Williams said, the company is in the midst of a great deal of change that entails extra hard work. "But you'll find us motivated and excited about the future. There is a lot of low hanging fruit out there."

For comments, please contact Barbara Grondin Francella, Senior Editor, at [email protected].

"We saw an opportunity to shift our focus outward and better meet evolving consumer needs."

— Terry Marks, president and CEO, The Pantry

Marketing ‘Fresh'

After decades of growing through acquisition — a strategy that remains — The Pantry's assets are extremely varied. With building to image not an option, the chain is challenged to project a consistent brand in many different footprints.

Rather than buy local air time to boast about the changes in store, the retailer tries to demonstrate to customers what Kangaroo Express stands for. One tactic: sampling Bean Street Coffee, pastries and sandwiches in the stores and via mobile vehicles.

"We'll be creating an event atmosphere as we roll out," according to President and CEO Terry Marks. "We are confident people who try our new coffee and see the way it's served will come back."

To allow the stores to better focus on the new brand positioning, The Pantry has moved from monthly promotions to programs of longer duration. This summer's sales initiatives are running for three months and are focused on selling food bundles. Coffee and a Jimmy Dean sausage biscuit sold for $3.33; the addition of a Hostess Gem doughnut pack brought it to $4.44. Two Grill Depot Items (hot dogs, sausage, Tornados, etc.), plus a fountain drink sold for $3.33; a bag of chips brought the total to $4.44.

The deals were promoted with window signs — the sole promotion getting play there. "You can do combo meals in c-stores if you focus on it," said senior vice president of marketing, John Fisher. "The margins are northward of 50 percent, and it was very successful."

Smaller deals, such as two bottles of Gatorade for $3, were promoted only at the shelf and didn't involve crew participation. "We will always have a traffic-driving message outside, which this summer was a 99-cent drink," Fisher said. "The idea was to get [customers] inside and then bundle them up with a hot dog or sandwich, or trade them up to a larger size drink. Then we added a coupon to get them to buy a bundle next time."

Historically, the chain has had no radio and little outdoor advertising, Fisher said. "When we launch our phased media this fall with the Bean Street Coffee, it will be all about great-tasting coffee at Kangaroo Express. A year from now, I want people to say, ‘Man, Kangaroo Express has great coffee, the store is easy to shop, it's clean, the people are friendly, and the prices are fair.'

"We want to show our customers, rather than tell them. I know our employees can make great coffee, so we will advertise that. But we want people to say: ‘They're more than coffee — they can execute.' We want to surprise people."

The Pantry Fuel Strategy is a Gas

With the implementation of new fuel pricing software, The Pantry is predicting healthier sales and more consistent margins at the pump, boosting a category that now accounts for 70 percent of revenue and 30 percent of net income.

With two-thirds of its locations flying a major-oil flag and the rest carrying the Kangaroo Express brand, The Pantry is able to position gasoline uniquely on each of its corners.

"There is a role for major oil brands and a private label, and within that, roles for a number of major-oil brand choices," said Keith Bell, senior vice president of fuels operations and construction. "As we continue to grow through acquisition, we will have locations next to a preexisting store, on the opposite corner or in markets we don't yet have any brand presence. Having both allows us to have branding flexibility."

As the quality of the Kangaroo Express-branded facilities reached or surpassed the major oil facilities, private-label volume has grown, especially appealing to the price-sensitive customer. Still, there are customers who prefer to use major oil credit cards or believe the fuel quality attributes the majors tout, Bell noted.

While the bulk of the channel still determines street price as it always has — someone rides down the street and looks at the competitor's price to make a decision — The Pantry's team sees a huge opportunity for more fact-based decision making. Now, the chain will look at many other variables. For instance, in some locations, it may make more sense to consider day-of-the-week pricing, rather than day-before pricing.

"We may find some Kangaroo Express-branded sites should be a penny less than the competition, or in some cases two pennies less," Bell noted.

The channel has long lived by the axiom: "If I can get them on the lot with an aggressive gas price, I will convert them and drive them into the store to buy my high-margin stuff," CEO Terry Marks noted. But with 85 percent of the industry's gasoline trips being fuel-only buys, Marks remains skeptical of investing heavily in conversion strategies aimed at fuel-only buyers.

"A better strategy is the reverse — creating an in-store experience that is differentiated and becomes the destination," he said. "If the place is always clean, well lit and offers good coffee and pastries in the morning, the customer won't go somewhere else to save a penny a gallon."

To that end, The Pantry is using its pump toppers to advertise immediate consumables. "We are no longer trying to convince someone at the pump to buy a 12-pack of soda," Marks said.

"If you are using technology to enable and support a more than $7-billion business, you need to ensure you have a solid technological foundation in place."

— Paul Lemerise, CIO, The Pantry

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