By David Bennett, Senior Editor
Arguably, it’s taken the convenience store industry two decades to catch up to the illustrious White Hen Pantry chain that sprang from Chicagoland.
At its peak, White Hen was comprised of 300 stores; part of those came from its push into greater Boston from the Chicago market. The road the c-store traveled during that time appeared paved with loyal customers and a solid corporate culture that included a string of franchise-owned locations.
It was in 2006 that White Hen planners chose Wicker Park—known as a “suburb within the city” because of its easy access to downtown—to launch a prototype store. The store offered a diverse line-up of natural and organic foods, fresh Pantry Select green salads and a toasted-to-order sandwich program accompanied by a state-of-the-art touchscreen ordering system.
The innovative approach generated a loyal following among area residents and some attention from other chains in the industry—aside from a few c-stores like Sheetz Inc., which was honing its own foodservice program.
One of the c-store chains that flew high for a period of time and then disappeared from the landscape forever—the retail equivalent of the Dodo bird—White Hen appeared to vanish before its time. The c-store, however, did leave a forwarding address: Dallas—home to convenience chain 7-Eleven Inc., which acquired White Hen that same year of the new store launch.
Like other c-store brands that were constant fixtures in U.S. regions and then melted away, White Hen’s legacy is hard to pin down, unless you knew the operation from the inside. Just ask John Matthews, president and CEO of Gray Cat Enterprises, a planning and marketing services firm. Matthews was vice president of marketing for White Hen and remembers that the Chicago c-store was breaking new ground at a time when much of the industry was treading heavily to make a profit.
“White Hen was well ahead of the curve in the convenience store channel since it was founded on fresh food and deli operations as opposed to typical convenience store offerings,” Matthews said. “This focus on foodservice operations and bulk deli, propelled its gross profit percentage significantly higher than industry averages. In addition, due to its strength in food, it mitigated the reliance of chasing the negative trends in cigarettes. In my opinion, White Hen—even 15 years ago—was further along in the development of its foodservice operations than most of the industry today.”
Once 7-Eleven had made the decision, almost all of the 300 White Hen sites were rebranded by 2010.
THE 7-ELEVEN EFFECT
Fast forward five years, to this past May when 7-Eleven announced it had entered into an agreement to acquire Rockland, Mass.-based Tedeschi Food Shops Inc.’s 182 convenience stores around the Boston area and New Hampshire. The news set off speculation in the industry of what the acquisition would mean for Tedeschi, which established its reputation with progressive foodservice programs.
Currently, nearly two dozen stores feature full delis that make sandwiches and salads to order. Other stores are serviced by the chain’s own commissary. Grab-and-go offerings range from different kinds of sushi to heat-and-eat Indian entrees.
Whether 7-Eleven, which declined to comment for this story, rebrands Tedeschi or lets the chain continue to operate under the banner it has waved since 1923, it raises some questions about what makes a brand durable, as well as why some c-store brands prevail in an industry that’s highly fragmented. In addition, how important is corporate culture to a brand’s staying power?
Often when a convenience retailer is acquired, the buyer keeps the best practices and platforms and discards the rest. Unfortunately, that’s not always the case. Sometimes, a merger or acquisition is a geographic grab or a push by the controlling company to expand its store count and an empowered brand that thrived in its marketplace dissolves. Look at Amoco, when British Petroleum (BP) P.L.C. acquired the iconic brand in 1998. Amoco was rebranded and the moniker is now one for the history books.
For every merger, as the purchasing company integrates the acquired company into its operation, rebranding is always a key consideration. However, the result isn’t known to the public until the signage remains or is replaced—depending on the perceived value of the brand being bought.
“There are real synergies created by such acquisitions—shared overhead, economies of scale, purchasing power, etc.,” said Richard George, professor emeritus of food marketing at Saint Joseph’s University’s Haub School of Business. “However, if the regional brand is a strong one there is no compelling reason to change the name on the door.”
That message might not be more applicable than in the case of the Tedeschi convenience chain, which, similar to White Hen, established a portfolio of creating stores in urban and suburban areas and building its brand on pioneering foodservice programs.
For 7-Eleven, it’s almost a do-over—if that’s what the mega-chain opts for.
“If I was a decision maker that purchased Tedeschi, I would rethink that a long time before I’d forfeit the value of such a strong and trusted brand,” said Dick Meyer, an industry veteran of 38 years and president of Meyer & Associates, a consulting firm specializing in the convenience store industry.
As brands are accessed, poked and prodded to determine their value in mergers and acquisitions, lineage is a considerable component in the process. As it turned out, White Hen’s short corporate history with Clark Retail Enterprises spelled its end.
MARRIAGE OF CONVENIENCE
At one time, Clark Retail Group Inc. was the c-store industry’s 14th-largest operation, gliding high in the stratosphere of mergers and acquisitions. Then, the chain boasted $1.8 billion including sales at franchise locations.
In 2000, Clark and White Hen merged in an $80 million deal, which called for Clark to operate existing White Hen stores while developing new locations. The premise, executives explained at the time, was to conjoin and grow both the Clark gasoline and White Hen food formats.
Clark’s operation was too large and cumbersome to operate profitably. On Oct. 15, 2002, Clark filed for Chapter 11 bankruptcy protection and began liquidating its assets. White Hen would be one of a short list of corporate causalities.
“Growth for growth’s sake is never a good idea,” said Steven Montgomery, president of b2b Solutions LLC of Lake Forest, Ill.
Caught in the fallout of the cratering Clark topography were Clark’s portfolio of c-store bolt-ons, including Bowling Green, Ky.-based Minit Mart Foods Inc. Just four years before, the Minit Mart banner was flying high with 87 stores in Kentucky and Tennessee. The annual volume of the operation was in excess of $250 million dollars and the company employing about 1,200.
It was in April 2001 that Minit Mart had entered into an agreement whereby Minit Mart Foods retained ownership of the assets while leasing them to Clark. On July 1, 2003, 600 Clark properties were sold as part of its Chapter 11. The sale included 58 Clark-owned stores in Kentucky, including 17 Minit Marts.
Taylor, Mich.-based Atlas Oil Co. purchased 52 Clark gas stations at the time—helping to build its portfolio in the following years more than 225 retail locations under the Marathon, Clark, Fast Track and WoW brand names.
Calling it one of its largest takeovers in two decades, 7-Eleven bought up most of the White Hen stores, increasing its presence in greater Boston (55 stores) and metropolitan Chicago (206 stores).
MULTIPLES AND MLPS
No doubt, Clark’s experience is an example of a business model gone astray. Conversely, another business model that has taken center stage of some bigger mergers and acquisitions in the last few years is the master limited partnerships, or MLPs.
Because MLPs are classified as partnerships, they avoid corporate income tax at both state and federal levels. Unlike a corporation, which pays taxes on its own income, the income earned by an MLP is passed through to its owners—the public investors. These public investors, in turn, pay the income tax at their individual rates.
That allowance has encouraged significant deals in the industry including:
• Energy Transfer Partners (ETP), which turned heads in the spring of 2014 with its $1.8 billion purchase of Susser Holdings, less than two years after it bought the Sunoco supply and station network. Susser Holdings is majority owner and owns the general partner of Susser Petroleum Partners LP, a master limited partnership created in 2012—the largest independent wholesale fuel distributor in Texas.
• The acquisition of Hess Retail Holdings LLC by Marathon Petroleum Corp.’s (MPC) subsidiary Speedway LLC, with its 2013 pro forma revenues of more than $27 billion. The new entity scored big when it reached the deal last year to acquire the iconic brand. While this was an outright acquisition by Speedway, the extensive real estate holdings of more than 2,700 stores in 23 states—as well as transport operations and shipper history on various pipelines—are a source of long-term value to MPC.
Industry experts generalize that such deals—spurred by MLPs—are earning multiples of six-to-eight times EBITDA (earnings before interest, taxes, depreciation and amortization).
“One of the factors that has driven the multiples is the emergence of the MLP as a business model,” Montgomery said. “The financial structure of the MLPs allows them to offer higher multiples than most traditional c-store businesses. This has resulted in many potential sellers raising what they expect as a price for their companies.”
One notable result of the Speedway merger with Hess was the rebranding of all Hess locations.
Perhaps no convenience retailer in the U.S. is wielding more clout through its MLP arrangement than CST Brands Inc. of San Antonio. That arrangement comes in the form of the CST’s general partner, CrossAmerica GP LLC, a wholly-owned subsidiary of CST. CrossAmerica Partners—formerly Leheigh Gas LP—distributes fuel to over 1,100 locations and owns or leases more than 750 sites in 21 states.
CST, which owns Corner Store convenience stores, operates about 2,000 locations throughout the U.S. and eastern Canada.
Since spinning off from Valero Energy Corp. in 2013, CST Brands, has acquired 77 Nice N Easy Grocery Shoppes in upstate New York and 22 Timewise-branded stores in Austin, Texas and San Antonio, which are likely being rebranded as Corner Store.
The company also is evaluating 64 Freedom Valu locations—a proprietary store brand of Erickson Oil, which was purchased by CrossAmerica Partners late last year. That’s not to mention CrossAmerica’s newest venture—a dropdown transaction that will bring the One Stop convenience store chain, based in Charleston, W. Va., into the CST fold.
Kim Lubel, chair, president and CEO of CST, said every component part of each deal must be evaluated in terms of value to CST, its shareholders and especially the customers the retailer serves.
Lubel explained that while each brand’s value is evaluated, some brands are best left to stand on their own. She pointed to Nice N Easy as a chain that’s brand resonates so strongly with its customer base, it only makes sense for it to remain.
“When we’re buying Nice N Easy, we’re buying its revenue stream and its revenue stream comes from the magic that is inside those stores,” Lubel said. “And, in the rush to integrate quickly, it’s important that we don’t lose track of really what’s special about Nice N Easy in the process.”
Perhaps Lubel’s appreciation for individual brands comes from former, long-time head of Valero, Bill Greehey, who is now chairman of NuStar Energy.
Greehey was on the ground floor of Valero, from its spin off in 1980, through the turbulent early 1980s, to making it an industry power today. In his career, he has learned a lesson or two about creating and maintaining a viable corporate brand, including creating a culture that the whole organization buys into.
Greehey remembered a time Valero was the successor to a subsidiary of Coastal States Gas Corp., known as LoVaca Gathering Co., which was embroiled in litigation for six years—and one of the biggest political controversies in Texas history.
“So after the settlement that led to the creation of Valero, my first priority was to create a positive corporate culture, improve employee morale and build the Valero brand. We met with the employees and customers, improved communications, granted media interviews, visited TV stations, held open houses at our facilities and a lot more,” Greehey told Convenience Store Decisions. “Most importantly, we operated under the belief that if you take care of the employees, they’ll take care of the shareholders, customers and communities. We also instilled pride in our employees so they worked hard to help us build and maintain our reputation. Without a doubt, those principles have been the key to Valero’s great reputation over the past 35 years and they’re the key to our success at NuStar Energy today.”
THE RIGHT STUFF
Though White Hen and Hess have joined other notable c-store brands that had their day, many more convenience brands, such as Family Express, Wawa and Maverik Inc., have risen on the landscape, and will remain fixtures for the foreseeable future. As Greehey alluded to, their strong corporate cultures and work ethics help make them successful.
In fact, a similar thread seems to run through many of the top performing c-store brands of today.
“The common denominator of truly successful c-store retailers remains the same, and their formulas probably won’t change a lot going forward,” Meyer said. “Casey’s, Couche Tard, KwikTrip, Love’s, Maverik, Pilot Oil, Quick Chek, QuikTrip, Sheetz, Wawa and maybe the names of about 20 regional chains have earned their growth and their customers’ trust via strong leadership at the top. They have demonstrated a disciplined focus on serving customers while investing in their employee culture. They have a passion for service and it shows.”
COMING FULL CIRCLE
Then there are c-store brands that may not run with today’s new breed but continue to thrive because of the reputation they’ve earned with their respective customers. Minit Mart falls into this category.
“Minit Mart was a very solid chain with larger than average stores (for that time period) of 4,000 to 5,000 square feet,” Matthews said. “Ironically, when Clark purchased Minit Mart, we instantly became the largest Godfather’s Pizza franchisee in the chain. The thing that made Minit Mart unique is that it had its own foodservice deli and most had a full-service Godfather’s Pizza in the box, complete with seating for 16-20. Minit Mart was positioned for convenience and a destination on a Friday night to take the kids to a pizza place. Its geography enabled itself to that strategy.”
The chain survived its bout with Clark Enterprises. Founder Fred Higgins bought back Minit Mart, keeping the brand front and center with its loyal customer base.
The value is there, as reflected in 2013, when TravelCenters of America LLC (TA), acquired 31 Minit Mart stores from Higgins for the price of $67 million.
To expand its c-store platform, TA also purchased 19 Best Oil Little Stores mostly in Minnesota. Additionally, during second-quarter 2015, it has acquired 19 convenience stores principally in Kansas and Missouri, from Overland Park, Kansas-based GasMart USA. Afterward, TA executives figured the Minit Mart name was too valuable to replace; TA is putting its corporate faith in the Minit Mart brand.
“Since acquiring Minit Mart in December of 2013, we have continued to see strength in the Minit Mart brand,” said Tom Liutkus, vice president of marketing and public relations for TA. “We have extensive experience with merging successful programs across our c-store and travel store platforms with Minit Mart.”