Valero Focuses On Expansion

The chain is growing through new stores, acquisitions and new supply contracts

Earlier this year, Valero Energy Corp. reported that 2011 was its best year ever in terms of profits for its retail division, which includes 1,027 company-owned stores in the United States and 775 stores in Canada. And in a recent report of 2012 second-quarter earnings, its retail growth continued with a net profit of $172 million compared to $135 million in the second quarter of 2011.

While the primary factor contributing to the 2011 growth was strong fuel margins, it was also an improvement in non-fuel gross profits and better management of expenses, Gary Arthur, president of retail at Valero, told Convenience Store News.

"In both the U.S. and Canada, we had really strong fuel margins in 2011, and in Canada, we had very strong fuel volume to go with that margin," he explained. "We also had growth in non-fuel dollars, and were able to drive cost out of the business and gain efficiencies."

One of the programs that added efficiency and cost savings is a new labor model created to make sure the right headcount is at each store at the right time of day to meet the sales requirements. The company also grew its use of part-time employees to take advantage of the labor pool.

"We spent a lot of time focused on managing overtime, and have been able to keep it low," Arthur noted, explaining technology plays an important role, including systems handling the company's invoicing from vendors and service providers. "They are paid automatically and never touched by a person. We rely on systems to automate and drive cost out of the business. Then, we can take resources and redirect them to other areas."

BRAND EXPANSION

During its second-quarter earnings call, Valero announced plans to separate its retail business from the remainder of the company, which could be done via a tax-efficient distribution of the retail business to its shareholders. However, the brand continues to expand, both on the retail and fuel sides, through new store builds, acquisitions and new supply contracts.

This June, the company acquired 29 stores from The Crackerbox Stores in Arkansas, and it is in the process of converting those locations to the Valero Corner Store brand. This should be done within four to six months.

"We were in Arkansas 20 years ago, but exited the market because the sites were older and required investment. We were not investing in retail then like we are today," Arthur explained. "It is right next to Texas and adjacent to where we are today, and we had access to our own fuel supply. These are the type of acquisitions we want to look at in the future."

The company is focused on markets it's already operating in, but Arthur said the chain will expand its footprint if the right opportunity presents itself. In the meantime, future growth will be through building new stores, with plans to have 11 new locations by the end of 2012 and purchase approximately 20 pieces of land.

"Next year, we will build another 15 new stores and buy another 20 pieces of property. In the long term, we will buy and build more than 25 stores each year," Arthur noted.

INSIDE THE STORES

As the chain continues to increase its profits from within the store, Arthur believes the company's programs and promotions are contributing to the strong earnings. This summer, the chain expanded its fountain drink promotion, which offers free music downloads from Billboard, to also include movies via Redbox. Every customer that purchased a 44-ounce fountain drink received a free download.

"We have done this for a couple of years, but now we added movies for the first time," Arthur relayed, explaining the chain also launched a new retail-centric website at www.cornerstore4U.com where customers entered one of the three million available codes in order to access the downloads. This not only drove traffic to the new site, but also allowed the chain to capture e-mails for future marketing.

"We are getting over 10,000 hits to the website each week specific to this promotion, and half of them are new customers," Arthur said as of press time. "Redemptions are up this year over last year as well."

Another main focus at Valero is private label brands, including Fresh Choices and Uforce. Last year, the chain announced it would add 50 new SKUs to the line and it's halfway to reaching that goal. New private label products include energy shots, sports drinks, sodas (both 24-ounce single serve and 2-liters) and salty snacks.

"We continue to hammer away at private label," Arthur said. "We think it's a point of differentiation in the marketplace and it offers consumers significant value, especially today when they are watching their dollars."

This year, the chain added to its salty snacks line of kettle chips to now include four new products — cheese puffs, onion rings, cheddar fries and corn chips — in six different flavors. It also launched two new energy shot flavors, and is looking into extending its private label jerky line, introducing more in sports drinks and energy shots, and branching out into nuts and seeds, Arthur revealed.

"Private label is making a significant contribution in [terms of] gross profit dollars, and we have seen double-digit increases in our sales so far this year," he said.

LOOKING AHEAD

Valero continues to expand its advanced food program to more stores, which includes a pastry program, along with grab-and-go hot sandwiches, tacos and fried foods. Currently, more than 300 stores offer the program, and the rollout will continue over the next couple of years to eventually encompass half of the chain.

On the technology side, the company is rolling out new safes that will allow for fewer courier pickups at the stores and reduce expenses. The implementation of PriceAdvantage fuel pricing software from Skyline Products Inc. is also underway.

"We have 100 locations and expect to have the rest of the chain rolled out in the next few months," Arthur said of PriceAdvantage, explaining that it will allow for real-time pricing and for stores to respond quicker to price changes. "We may also move to centralized price changes throughout the day rather than having to call stores or send messages for them to change signs on-site."

Additionally, Valero recently rolled out PDI Enterprise to its entire network of stores, offering automation and back-office efficiency, and launched a new smart-phone application with a store finder, directions from Google maps, real-time fuel pricing, store offers and promotions.

For comments, please contact Tammy Mastroberte, Contributing Editor, at [email protected].