In an effort to grow its foodservice business, Casey’s is expanding its menu to include pizza delivery.

By Joe Bush, Contributing Editor.

Casey’s General Stores has sold pizza for more than a quarter century making it one of the earliest convenience store chains to do so. Now, in an effort to expand its customer base, the Iowa retailer becomes one of the first chains in the industry to introduce pizza delivery.

Adopted from one of Casey’s franchisees in 1985, the sale of slices and whole pies of made-from-scratch pizza is synonymous with the public company that operates 1,677 stores across the Midwest.

“It is our flagship product and has been for quite some time,” said Brian Johnson, Casey’s vice president of finance.
The food portion of Casey’s prepared food and fountain category (prepared food, bakery, coffee and fountain) accounts for 68% of the category’s dollar sales. That prepared food includes bakery items (doughnuts, Danishes, etc.), subs, wraps, breakfast sandwiches, hot dogs, burgers and pizza. Johnson said pizza dollar sales account for the majority of the category.

Only about 100 stores do not sell pizza. Slices are $1.99 while a large cheese with a single topping is $11.99. Large specialty pizzas, like taco, bacon cheeseburger and buffalo chicken, are $15.99.

Competing on Cost
One challenge Casey’s has been dealing with lately is the rise in commodity costs, but foodservice sales continue to be strong, Johnson said. Casey’s raised the price on slices in 2010, but the last whole pie hike was three years ago.

“You’ve seen a lot of $10 pizzas hit the market,” said Casey’s Vice President of Foodservice Darryl Bacon. “We elected not to go that way. We’re not fighting the $10 offering.”

But the as the price of cheese went up, margins were adversely impacted.

“Our sales, however, have been so good that gross profit dollars are up 15% through the first six months of the fiscal year,” Bacon said.

The delivery trial began in one store in 2010 and grew to 26 by late 2011. More stores will deliver in 2012. The purpose of the program is to grow pizza sales incrementally, by picking up customers the chain may not currently have.

“We’re trying to place (delivery) in different areas, like college towns, metro areas, we’re even trying some towns that don’t sell very many pizzas, just to see if we can get their pizza business up,” said Bacon. “The results are encouraging, but also very preliminary.”
As it seeks out new markets, Casey’s is closely examining everything from need, projected growth and income levels. “We’re trying to identify demographics that have the best chance for success,” Bacon said. “We do not believe this will be a service for all locations. So now the next task at hand is determining at which locations will it work?”

Growing Strong
According to Johnson, the chain had not tried delivery before because of a conservative philosophy. The tweak coincides with some breathing room—Casey’s second quarter net income increased 73% in 2011, thanks in part to the addition of 128 stores since the second quarter of 2010. The chain will complete 30 new store construction projects by the end of fiscal year 2012 and is optimistic about acquisitions.

“What has gotten us to where we are has been a very disciplined approach to running an efficient business model,” said Johnson. “Up to 10 years ago we weren’t even doing third-party acquisitions. That continuity, keeping everything the same store to store was a great way to grow the business. (There’s) more variance now, with acquisitions. Delivery is along those lines—an additional service we want to explore a little bit.”

Additionally, Casey’s has put new technology in place to evaluate those services as a way to make its existing store base better.
“Our business model used to be to keep every store the same as much as possible. That continuity makes us efficient,” said Johnson. “We now believe we can stay efficient and still be able to customize a little more on a store by store basis. If there is a new customer out there that we weren’t accessing because we didn’t have this service, that’s who we’re targeting.”

One of the concerns as delivery progresses is whether it will harm the store’s chance to cross merchandise items inside the store. The limited delivery menu includes made-to-order subs, breadsticks, wraps and two-liter bottles of soda. Also, the chain will be careful not to cross into the area of neighboring Casey’s. Bacon said the range of delivery is a 10-minutes drive or less.

Dealing with Liability
The hiring of drivers has been the key change in operations, Bacon said. Drivers use their own cars, and since car and driver are mobile representatives of the Casey’s brand, both have to pass Casey’s muster. The drivers endure a background check and are well rewarded if hired. Bacon said they get a wage, their tips and the delivery fee the chain charges. The car gets equipped with a roof sign bearing the Casey’s logo and the local store phone number.

“The reason why we decided to give them the delivery fee is because we wanted the good drivers and we wanted to keep them there,” Bacon said.

When a store begins delivery, extra drivers are hired to be sure the new concept isn’t marred by poor service.

“We’re still trying to figure out how many drivers to hire,” Bacon said. “We’re paying attention to what the hourly wages are in each store and how much pizza we’re selling. Store by store we’re adjusting. Each store knows exactly what their profit is on each delivery.” He added, “As we look at this program, we’re excited about the lift in sales, but since there are some additional expenses layered in we want to be certain that at the end of the day we’re driving cash flow in a positive manner so we can add shareholder value. That’s going to determine how far we roll it out. It’s no different than evaluating a new store design or an acquisition opportunity.”