By Erin Rigik Del Conte, Senior Editor
Yesway’s convenience store chain may be fewer than two years old, but it boasts an aggressive expansion plan, which it intends to achieve by leveraging veteran c-store industry leadership, developing expanded foodservice offerings within its targeted rural and suburban areas, capitalizing on the real estate expertise of its founding firm Brookwood Financial Partners LLC and excelling in its commitment to build community relations.
Brookwood, a Massachusetts-based private equity investment firm specializing in acquiring and managing value-add commercial real estate and related businesses, launched Yesway with the acquisition of Country Stores, a 10-store portfolio in western Iowa, in December 2015. From there, the chain’s growth has blossomed.
In July 2016, Yesway established its regional headquarters in western Des Moines, Iowa and immediately acquired 21 stores from Kum & Go. In the months that followed, Yesway expanded its store count to 38 locations in Iowa and Kansas and recently acquired the Wes-T-Go and Chillerz chains in Texas and Oklahoma, bringing its store total to 73.
“We expect to grow to 100 stores by the end of the summer across an expanded Midwest region,” said Thomas Trkla, chairman and CEO of Yesway. Yesway recently executed purchase and sale agreements for six new stores, submitted or executed letters of intent to acquire 70 more, and is reviewing hundreds of potential locations across a swath that includes Missouri, Arkansas, Wisconsin and several other budding markets in the Midwest. Ultimately, Yesway plans to acquire approximately 500 locations within the next five years.
Brookwood began considering a move into the c-store industry six years ago as it sought businesses not tied to the same “peaks and troughs” of the real estate industry.
“As ‘value buyers,’ we acquire properties when they are relatively inexpensive, sell them once they have achieved their respective business plans, and then wait for the market to repeat the cycle, generating new opportunities for investment. We were seeking businesses that were counter-cyclical to our real estate strategy,” Trkla said. “By contrast, the c-store industry is relatively recession-resistant, while still providing a tremendous opportunity for adding value.”
Once Brookwood settled on the c-store business, its next task was selecting the best states in which to grow. Considerations included demographic, economic and gas consumption trends, as well as regulatory concerns and market saturation metrics. Yesway chose to put down its flag in the Midwest due to the abundance of target markets that ranked highly on these metrics.
The Brookwood team understands the Midwest markets well. “I grew up in the Midwest, and so did many members of our senior management team,” said Trkla. “The regions in which we are looking to expand are not as dominated by one major player as are other areas of the country.”
Yesway has the benefit of an all-star team of industry professionals in its senior ranks, most of whom come from household-name chains such as Walmart, 7-Eleven and BP, and include names like Joseph Petrowski, the former CEO of The Cumberland Gulf Group, and Brian Trout, former vice president of operations at both The Pantry and 7-Eleven. With its veteran team bringing the best practices from most of the major c-store chains in the country, Yesway plans to marry best-in-class operations with its targeted acquisition strategy in the rural and suburban markets where it believes it can add the most value.
All this (and more) makes Yesway a 2017 Chain to Watch.
To date, all of Yesway’s stores have been acquired as operating businesses. Yesway specifically targets rural and suburban mom-and-pop locations with long histories of profitably supporting their communities, but it also requires that locations offer further opportunities to increase profitability through capital and operational improvements and rebranding initiatives. In particular, Yesway is focused on dramatically improving the foodservice offering at many of its locations.
“We create value in our real estate private equity business by making very targeted capital and cosmetic improvements to the physical property, by reducing operating expenses, by rebranding the property in its respective submarket and by improving operations to make the asset more appealing to tenants,” said Trkla. “We believe we can add value in a similar way with our c-store strategy.”
Locations where development costs can be controlled are attractive areas.
“We are one of the few c-store chains of which we are aware that is growing by acquiring rural and suburban locations from more mom-and-pop owners, where we can make capital improvements, reduce operating costs, streamline operations and add and/or improve foodservice or other product offerings,” Trkla said. We are not interested in urban locations, which are higher-priced and have fewer ways to add value.”
Yesway is in the process of completing over $10 million in capital improvements on its first 73 locations in addition to evaluating several raze-and-rebuilds. The majority of Yesway’s stores are sized between 2,000-4,500 square feet, and the company is developing layout prototypes for each type and size of footprint. While Yesway is open to building new stores from the ground up, that is expected to be the exception instead of the rule.
“As we evaluate stores for acquisition, we develop a detailed and site-specific business plan for each location. We model the impact of cosmetic improvements, deferred maintenance, expanded foodservice offerings, upgraded underground storage tanks, improved operations and greater energy efficiency, to name a few,” said Trkla.
As it grows, Yesway is crafting its brand. “We hired [global branding firm] CBX out of New York, which did a terrific job working with us to create our brand name and design,” Trkla said. “We understand the importance of branding to our growth and improvement strategy, and we have an entire branding and marketing department at work on it,” Trkla said. “Building the Yesway brand from concept through store roll-out has been incredibly exciting,”
Because Yesway is acquiring individual locations and small mom-and-pop chains, its stores come with little uniformity in terms of layout or product offer. As a result, it is implementing several iterations of its capital plan to fit the needs of different locations. Even as the square footage varies, Yesway stores will feature uniformity in terms of signage, color schemes, equipment, loyalty offerings, fleet cards, uniforms and restroom design. Yesway has also partnered with a range of gas brands including Cenex, Conoco, Phillips 66 and BP, and plans for several locations to offer Yesway-branded fuel.
TACKLING THE FOOD EQUATION
Yesway plans to utilize industry best practices, which it follows closely. “We are constantly evaluating the operational, promotional and marketing best practices from exceptional c-store operators in business today, but we are particularly focused on the foodservice offering that we can introduce into our stores,” Trkla said.
Yesway’s new fresh portfolio-wide foodservice improvement program is already up and running in many of its current locations. Featured items include roller grills with bold flavors such as chipotle bourbon and sriracha cheeseburger roller bites, fresh commissary sandwiches, salads, fresh fruits, veggies, snack trays, fruit parfaits and a full bakery.
The program features three levels of foodservice, depending on a store’s square footage and customer demographics. “The bigger the store and the more targeted the customer-base, the more we can offer,” Trkla said. Many of the stores Yesway acquires arrive with limited, inconsistent or nonexistent foodservice programs.
The chain plans to implement a basic foodservice offer in the locations where none existed before, and then, over time, upgrade individual locations further as merited.
To create the most effective foodservice program possible, Yesway plans to hire a full-time chef and develop a test kitchen, most likely within its recently-acquired store in Grimes, Iowa, only a few miles from Yesway’s headquarters.
While it has not ruled out the idea of a future commissary, Yesway is currently partnering with local suppliers to provide fresh grab-and-go sandwiches and other items.
“As we get closer to 250 stores, we will likely establish delivery warehouses, but, right now, we want to walk before we run,” said Trkla. “Our Texas markets are different from our Iowa markets, so we are partnering with local food suppliers to support each region. Many of our stores have never had salads, bakery items, or fruits and veggies before, and we are seeing an increasing demand for fresh products like these.”
By creating a new brand in the market, the team at Yesway has a completely blank slate to define what it wants to be as it grows to become one of the largest c-store chains in the country. Yesway wants to let the industry know that it is different, and expects technology to play a major role in setting it apart.
Yesway partnered with Paytronix to launch its “Yesway Rewards” loyalty program on June 28, which works via the Yesway app and/or a physical loyalty card. The program uses gamification to reward customers based on purchase frequency and dollars spent, while providing invaluable data on purchasing habits and trends.
“We place great emphasis on collecting, analyzing and using specific and targeted data to inform all the decisions we make,” Trkla said. “With Millennials now the largest block of population, Yesway plans an ‘incredible emphasis’ on social media and digital marketing communications “that is deeply baked into our loyalty program.”
Currently, Yesway is developing its own white-label, proprietary products, set to launch by the end of 2017. It will begin with staples such as bottled water, which allows for higher margins and more aggressive pricing, and plans to expand into additional product categories over time. Yesway has also added Fidelity Express money-order and walk-in bill payment services in its stores.
But c-store’s biggest differentiator is its people, both its veteran senior team and front-line employees who offer the kind of first-name-basis customer service small towns value.
Yesway aspires to be a great neighbor that builds and gives back to the communities it serves.“We will be providing new services in a lot of these towns,” Trkla said. “We also actively support local charities such as the Reading Buddies literacy program in Ottumwa, Iowa, as well as civic organizations like the North Iowa Community Emergency Response Team in Mason City. We are committed to supporting local first responders and those who serve or have served in the military.”
Trkla believes in his team’s ability to execute on their strategy. “Over the past quarter century, we have earned a well-deserved reputation for efficacy—for doing what we said we would do—and for being fair and honest negotiators, operators and excellent corporate citizens,” he said. “These attributes are now benefitting us in the c-store industry. As a result, we are seeing a tremendous increase in the number of owners interested in selling us their stores. We are excited about what the future holds for Yesway and our customers.”
All-Star Senior Team
Yesway features a veteran senior team with years of experience:
Thomas Trkla Chairman and CEO
Thomas Brown President, Director of Acquisitions
Ericka Ayles Managing Director, Director of Finance
Mark Daniels Chief Strategy Officer
Doug New Chief Technology Officer
Joe Petrowski Senior Advisor, Director of Fuels
Jayne Rice Managing Director, Director of Marketing
Brian Trout Senior Vice President of Operations
Rick Winter Senior Vice President of Human Resources
Jerami Davidson Associate General Counsel
Jennifer Fermano Vice President, Retail Controller
Greg Gardner Senior Vice President of Acquisitions
Jamie Hatch Vice President of Construction and Maintenance
Darrin Samaha Vice President and Brand Manager
Tony Sparks Vice President of Merchandising
Frank White Director of Food Service
Doug Wald Vice President of Operations