Susser Holdings Corp. at a glance A dynamic marketer Based in Corpus Christi, Texas, Susser Holdings is the largest non-refiner, convenience store operator in Texas, with additional stores in Oklahoma and New Mexico. It operates 516 convenience stores through its Stripes LLC division and is the 19th largest c-store chain in the U.S. Convenience Store Brands: Stripes, Town & Country, Village Market Fuel Brands: Distributes Valero, Chevron, ExxonMobil, Texaco, Shell and ConocoPhillips fuels. Estimated Sales: $3.9 Billion Foodservice: Proprietary restaurants in 55% of stores primarily under the Laredo Taco Company brand. Other proprietary concepts include Country Cookin’ and Café de la Casa coffee. It also has 22 Subway franchises and four Godfather’s Pizzas. Company Highlights: 20 consecutive years of same-store sales growth.

Outstanding leadership, great locations and a top-notch brand experience are the trifecta of convenience retailing excellence. Few chains have mastered these three key areas, and you know their names as a conditioned response when describing superior service: Sheetz, Wawa, QuikTrip, Nice N Easy and Rutter’s, are among these select few. The club is getting a little more crowded as Susser Holdings Corp. is earning its stripes as an elite industry operator.

Susser Holdings is the umbrella company for two primary divisions: Stripes LLC and Susser Petroleum. Stripes operates 517 convenience stores in Texas, Oklahoma and New Mexico under the Stripes and Town & Country brands. The wholesale segment supplies Valero, Chevron and Exxon fuels to more than 370 dealer-operated stores, in addition to its own units.

The sheer size of Susser, while impressive, is not what makes this company standout. The Corpus Christi, Texas marketer is turning heads with its smart, steady growth and its commitment to innovation in convenience retailing.

“This is a wonderful market, and we are firmly committed to exceeding the customers’ expectations for an outstanding shopping experience,” said Steve DeSutter, the president and CEO of Stripes, who joined the Susser family last year with an impressive resume of management at notable companies, such as BP, Quiznos and Burger King. “What impresses me the most is the foundation this company has built. It’s been around for more than 70 years and it attracts great employees that are carrying on a tradition of outstanding service, and that’s one of the building blocks of our growth strategy.”

Consistent growth and innovation are indeed the hallmarks of Susser Holdings. The company has executed nearly a dozen acquisitions through the years culminating with the 2007 deal for Town & Country Food Stores. The $361-million acquisition included 168 stores and 14 undeveloped properties to expand its footprint into west Texas and eastern New Mexico.

Circles Out, Stripes In
Following the Town & Country acquisition, Susser took its boldest step to date when it decided to transition from the Circle K banner and introduce the Stripes convenience store brand. The company successfully converted its legacy stores by early 2007 and is furthering brand expansion this year by converting all of the Town & Country stores. Plus, it plans to build up to a dozen new-to-industry stores by year’s end.

“We are taking bold steps, but it’s because we believe in this market and see a great opportunity to serve a need for convenience store customers,” DeSutter said.

Ironically, Stripes’ growth is coming at a good time. While the recession has impacted discretionary spending, the company has been somewhat insulated. “Our core markets in southern Texas have had enormous population explosions,” DeSutter said. “With NAFTA and the increased cross-border commercial traffic, these markets have been a huge growth areas for us.”

The Stripes brand is part of that growth strategy. The company has focused heavily on opening stores in clusters to boost its brand awareness, a tactic that is already paying dividends. “In just two years the Stripes brand has become the most recognized convenience store brand in south Texas,” DeSutter said.

The popularity of the brand shouldn’t come as a big surprise. There are many facets to Stripes that are attracting customers across all demographic groups around the clock. For starters, it offers an attractive red, white and blue color scheme with brand standards that include state-of-the-art lighting, clean, spacious lots and front-door parking, which are effective hooks for attracting more female customers. New stores average about 4,800 square feet and feature 8-12 fueling dispensers.

Inside the stores, foodservice reigns supreme led by Stripes’ proprietary Laredo Taco Company, a Mexican concept currently available in nearly 200 stores, and Country Cookin’, a food brand it acquired from Town & Country. While DeSutter plans to phase out Country Cookin’ in favor of Laredo Taco, it will continue to operate the 22 Subway franchises and four Godfather’s Pizzas it also received in the deal.

Throughout the store, Stripes has been keen on developing brand awareness and a proprietary offering, which it has done at key profit centers like the soda fountain and the frozen beverage bar, both of which feature a ubiquitous and colorful “Stripes” cup. It has also been able to cultivate a younger audience with a playful Slush Monkey frozen offering that features fun flavors like Monkey Brains and Dilly Chilly Pickle.

On the private label side, Stripes owns the Royal cigarette brand, the 22nd largest selling cigarette brand in Texas; Quake energy drink, a packaged beverage brand marketed in the cold vault; Smokin’ Barrel beef jerky; and Café de la Casa coffee to name a few.

Food for Thought
Offering amenities to consumers is paramount to Stripes, and foodservice sets the tone for the entire offering. Laredo Taco sells more than 140,000 items every day. As a byproduct of this strong food business, Stripes has to factor in lot size to accommodate the high volume of customers it serves. Sites feature ample parking with front and rear entrances in many locations and an emphasis on fast service and a highly-trained staff to prepare the food.

“We are very much a foodservice operator that has spent many years refining the offering so it satisfies a wide variety of palates,” DeSutter said. “As our markets have grown, we have enjoyed some synergies with the Hispanic population and Laredo Taco. It’s become an authentic Mexican menu whose appeal has extended beyond our growing markets to appeal to all customer demographics.”

The results can be found in the balance sheet. While flat earnings may be the new up in today’s global recession, sales at Stripes are surging. In early July it announced same-store merchandise sales jumped 4.6% for the quarter. In fact, Susser stores hold the amazing distinction of 20 consecutive years of same-store sales growth. The company has also been able to generate a gross margin on in-store sales of 34.3%, well above the NACS industry average of about 30%.

“That’s better than the new flat,” DeSutter said. “And our average retail fuel volume was also up 6.5% in the quarter, so where a lot of the nation has seen a decline in gasoline and diesel consumption, overall, our fuel volumes are up.”

Smoking Sales
More importantly, recognizing that the turmoil surrounding tobacco wasn’t going away, Stripes built its business with less of a dependency on cigarettes. As a result, interestingly, it has been able to maintain a lucrative tobacco business.

“The growing foodservice business has allowed us to be very aggressive on cigarette pricing,” DeSutter said. “We’re a high volume cigarette seller, but we can afford to sell those cigarettes very competitively because we have other places that we lean on to create revenues to operate our stores.”

The gross margins on foodservice and other product sales is a crucial part of Stripes’ retail strategy, so converting foodservice customers into convenience store customers is something the chain puts quite a bit of emphasis on. DeSutter estimated that 70% of customers that go in for food are also buying one or two more items. “The market basket surrounding foodservice is very attractive to us,” he said. “The other items (customers) buy are typically higher margin items like packaged drinks and coffee, so that creates a higher ticket ring and enhances profitability, frankly, more so than cigarettes.”

The opportunity to convert foodservice customers is significant. To foster continued growth, Laredo Taco is aggressive on pricing, offering many items across all three dayparts for as little as 99 cents.

Future Plans
Running such an extensive retail network and financing growth at a 517-store chain requires a great deal of expertise and even more long-term planning. Like other notable industry chains that have built significant equity in real estate holdings, Stripes owns the land on about half its portfolio and plans to stay in that range going forward. DeSutter, who referred to these real estate holdings as “the bank” said the company will buy the lots, build them, finance the buildings and engage in sale-leasebacks as necessary to raise capital to support its growth strategy.

“When you think about the success major brands have had, they have all followed a similar strategy, and it’s really the core of what Ray Kroc did with McDonald’s,” said DeSutter, who saw this strategy work firsthand in the QSR industry during his time at Burger King. “To this day they’re a property manager with hamburger stores. It gives them great control and has been a brilliant strategy.”

Susser is continually scanning the market for new opportunities. Like other ExxonMobil distributors, DeSutter said the company is interested in the retail assets the Big Oil company is divesting as it continues with its plan to exit direct-store operations. “We would obviously love to end up with part of what we think is a wonderful convenience store network with great stores and great locations.”

Susser expressed its interest in the ExxonMobil stores shortly after the company made its plans public. “We haven’t heard any updates and that’s not much of a surprise as they said in the early days they would move one market at a time, and that’s what they’re doing,” he said. “We are waiting patiently until they get to our market.”

In the meantime, Stripes will push forward with its rebranding effort and honing its skills as an industry leader. “I’m sure, in time, we’ll all take a look back and be very proud of what we accomplished, but we have big plans and have to keep our eye on the bigger picture of being an outstanding retailer with a great offering that our customers love,” DeSutter said. “In the end, that’s all anybody will really remember.” CSD