Kwik Trip Leads By Example

CSDOct_KT_SLOE_Horiz2Kwik Trip’s Steve Loehr has embraced the ideals of health and freshness, helping usher in a new era for the c-store industry.

By Anne Baye Ericksen, Contributing Editor

In the 25 years since Steve Loehr joined Kwik Trip Inc., the La Crosse, Wis.-based convenience retailer has experienced extraordinary growth, reaching numerous corporate milestones.

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Today, Loehr, vice president of operations support, and other company leaders have earned a clear reputation as industry innovators. From managing quality assurance programs via vertical integration distribution systems to raising the bar on fresh food offerings in its stores to establishing employee-centric benefit packages, Kwik Trip has forged a wide path for competitors to follow.

Perhaps Loehr’s most significant influence won’t truly be recognized until after he steps aside as chairman of the National Association of Convenience Stores (NACS) executive committee. As America embraces healthier eating habits, the c-store industry has undertaken the slow and methodical process of transforming the country’s perception of an industry that deals in unhealthy, mostly processed food products, to one dedicated to serving consumers healthier, more nutritious options.

To that end, Loehr has proven an affable and solid industry leader, shaped by a career at a company that’s credibility and reputation has been built brick by innovative brick.

Loehr sat down with Convenience Store Decisions in his La Crosse office to discuss Kwik Trip’s current standing and the future he sees for the c-store industry.

CULTIVATING GROWTH
When celebrating Kwik Trip’s Golden Anniversary this August, company founder and CEO Don Zietlow reminisced about his early vision for the new business when he opened the doors to the first store in 1965.

Not only did Zietlow attain his dream, but he surpassed it many times over. By 1985, the family-owned business counted 100 stores. By 2001, that number had tripled. Today, Kwik Trip operates 475 locations, which also include Kwik Star, Hearty Platter restaurants and Tobacco Outlet Plus, found in Wisconsin, Iowa and Minnesota. That rate of growth is slated to continue.

“Under the direction of Hans Zietlow in real estate and Brad Fry in store engineering, we opened 40 stores last year and plan to open 35-40 stores this year and next year,” said Loehr.

In expanding its ever-growing footprint, Kwik Trip’s 2014 sales grew to nearly $5 billion by serving an average of 6 million customers per week.

If there’s a U.S. c-store prepared to reveal a revolutionary piece of retail or distribution ingenuity in its service area, chances are that Kwik Trip has already implemented a similar concept and is making it work.

As the company has expanded, it has focused more on controlling the quality of products sold in its stores and the way that they arrive. That commitment served as the impetus behind the decision to implement vertical integration distribution systems for several of its foodservice lines.

Forgoing heavy dependence on outside vendors and distributors, Kwik Trip opted years ago to become a food manufacturer in addition to a retail channel modernizer. Its bakery produces 60 varieties of bread products and pastries, including Kwikery Bake Shoppe bread and Glazers donuts, which Kwik Trip bakes daily as an answer to competitor Krispy Kreme.

The company’s 176,000-square-foot dairy on its large La Crosse campus is where tanker trucks pull up to the door every day, bringing raw milk that will be pasteurized and packaged. The cream is turned into ice cream. The dairy also churns out Nature’s Touch brand milk. In addition, Kwik Trip bottles orange juice, water and teas, and even runs its own ice-making facility.

Of course, a production capability of this magnitude demands substantial investments in infrastructure, an endeavor that has taken years to build, including its own bakery. Also on the expansive campus, company kitchens are the sites where the signature Kitchen Cravings sandwiches and salads are assembled, a food safety lab, research and development facilities, ice and bottling plants as well as warehouses covering hundreds of thousands of square feet.

The 360,000-square-foot distribution center, with its 200-plus employees, is the hub that delivers more than 6,000 products regularly.

That type of seamless operation wouldn’t be able to compete without a distribution system to transport product to every single store in Wisconsin, Minnesota and Iowa. The company added a trucking fleet, which led to Convenience Transportation, Kwik Trip’s trucking division.

Not only is Convenience Transportation charged with vehicle maintenance, but it also supports all fuel operations, for both the fleet and retail pumps. In 2012, the company added certified natural gas (CNG) to its fuel line-up.

“We’re in our third year of selling CNG and we have 32 retail locations,” Loehr said. “Chad Hollett, director of transportation and distribution, and his team have become CNG experts.”

Although retail CNG sales account for a minority of fuel transactions, Kwik Trip continues growing its commercial clientele. For example, AllEnergy Corp. recently confirmed Kwik Trip’s transportation outfit will be its CNG supplier for the coming winter. However, the biggest CNG customer is the Kwik Trip trucking fleet.

“Two-thirds of our own fleet are CNG, and within a year, the entire fleet will be converted,” Loehr said. “We drive 25 million miles a year, and there’s less price volatility with CNG. In fact, we joke that we could paint the prices on our price sign for CNG because retail prices change so infrequently.”

Not every c-store business has the resources or inventory demand to utilize a vertical integration strategy, but for Kwik Trip, the effort has delivered an impressive return on investment.

“We’ve spent the past few years growing our infrastructure, and that supports our retail growth,” Loehr said. “These are profit centers. The bakery produces a profit. The dairy produces a profit. Plus, it allows us to make changes, like with the movement to take out trans fats. We can make that change now with our own production and be ahead of the curve.”

EMPLOYEE DRIVEN
While CNG plays a big part of Kwik Trip’s fuel strategy, it’s the employees that keep the multifaceted c-store chain moving forward. That’s what company leaders will tell you. And they put their money where their mouths are.

Kwik Trip gives back 40% of the company’s pretax profits to its more than 15,000 workers through a singular employee stock ownership plan (ESOP).

Annually, a percentage of eligible wages is given in the form of a bonus (cash) payment and eligible wages are contributed to the company’s 401(k) profit-sharing program.

Kwik Trip has long been committed to its co-workers, as employees are referred to within the company. Since 1989, the Zietlow family has distributed 40% of earnings back to its workforce.

“There’s a reason for that number,” Loehr said. “Thirty percent is allocated to taxes, another 30% goes to operations and our co-workers get the largest portion. And we have no cap.”

Basically, every four weeks, the company leadership informs all co-workers about where sales stand and how that equates to their employee profit sharing.

“It helps get our co-workers more involved in the business,” Loehr said. “After all, they are the ones who are making the sales.”

“I think other convenience stores can also implement profit sharing,” Loehr continued. “One business owner told me he couldn’t do 40%, so I said do 10%, but be sure to do it if you promise it. We see it as an investment. Don (Zietlow) always stresses that our co-workers are our greatest asset.”

CO-WORKER WELLNESS
Another service extended to Kwik Trip co-workers at its corporate campus is access to direct healthcare. Two years ago, the Kwik Trip Center for Health opened a short trip from its headquarters.

Kwik Trip’s clinic first offered basic services like acute care, preventative care services and wellness services when it opened at the end of 2013. Today, it’s staffed full-time by a doctor, nurse practitioner, medical assistant and physical therapist, who are all employees of Marathon Health for Life, a company specializing in worksite healthcare. Kwik Trip co-workers and their families who live in the La Crosse region can make appointments for preventive screenings, examinations, therapy sessions and wellness coaching, such as counseling on weight loss, smoking cessation or chronic disease management.

“Recently, we had a free cancer screening. Out of the 700-plus co-workers who participated, 70 showed up having some concerns,” Loehr said.

Employees who work at stores outside the area can log onto the center’s online resources.

“It was an investment for sure, but when we looked at the fact that we have 3,000 co-workers and their families in a 60-mile radius, our owner thought this was a way we could provide them with better service,” Loehr said.

And just as with the bakery and dairy, the Kwik Trip Center for Health plays a critical business function, too.

“It helps with less lost time and preventing injuries. It is good common sense and good business sense,” said Loehr.

It’s efforts such as these that have earned Kwik Trip numerous accolades, including recently being named No. 1 on the Milwaukee Journal Sentinel’s 2015 Top Workplaces rankings in southeastern Wisconsin and No. 5 on the 2015 Top 150 Workplaces in Minnesota. Last year, it was honored by the Wisconsin Department of Workforce Development in recognition of the company’s commitment to hiring people with disabilities.

Whether it’s because of its healthcare benefits or commitment to a quality company culture, Kwik Trip also attracts a lot of employee candidates. According to Loehr, the company’s recent expansion generated more than 115,000 applications for the approximately 2,400 positions created last year. And as more locations open, it undoubtedly will attract even more applicants.

However, replacing employees due to high turnover isn’t necessarily an issue for Kwik Trip. While the industry turnover rate averages somewhere between 45-90% depending on

industry data, Kwik Trip’s annual turnover rate hovers between 25-30%.

“Hiring and retaining employees is one of the biggest challenges in this industry. Our co-workers have to be knowledgeable and we are always looking for quality employees,” said Loehr. “But again, it comes down to caring for our co-workers.”

FRESHNESS FACTOR
On the surface, it appears that Kwik Trip wants to control every aspect of its operation, from the amount of flour that goes into each of the millions of pizzas it makes and sells annually, to the healthcare costs of its workforce. Another goal was bringing fresher products to its store shelves daily. It starts with sourcing raw materials from local communities whenever possible.

“We sell millions of gallons of milk and most of that comes from farms in southwest Wisconsin and southeast Minnesota,” Loehr said.

Additionally, since 2005, trucks have been delivering freshly baked, bottled and packaged goods to every Kwik Trip retail location seven days a week. As a result, customers are presented with a greater selection of foodservice items that are guaranteed to be fresh. That same year, open-air cases were installed to showcase the fresh products, including packaged salads—hot foods were introduced in 2003.

Today, many hot foodservice menu options are prepared on site to further ensure their freshness. Next was a broader array of bulk produce typically associated with grocery stores, such as loose potatoes. And of course, every store stocks a variety of fresh fruit, including cut and packaged varieties. The most recent addition has been refrigerated units to hold fresh cut steaks, pork chops and chicken.

“People use their local Kwik Trip as their regular grocery store because we provide fresh meat and produce. We think of ourselves as grocers that sell gas rather than gas retailers that sell a few bananas,” said Loehr.

However, he would never discount the value of banana sales—the gold standard at Kwik Trip.

“People come to Kwik Trip for their bananas, too. We sold 45-million pounds of bananas in 2014, and will sell 50 million in 2015,” Loehr said. “But because we’re selling foods like fresh meat and produce, we are not as reliant on gas and tobacco sales. Tobacco sales are still important, but the numbers are down. In our stores today, carton sales are 80% less than what they were seven or eight years ago. But our total in-store sales are up because we have added foodservices, fresh meat and produce.”

The process of adding fresh items—and persuading customers to view Kwik Trip as a fresh-food retailer—was a gradual one.

“It takes time for customers to be comfortable with buying more food from convenience stores. It took a while for people to see the salads visit after visit and seeing others eating them,” Loehr said.

And the experiment required adjustments.

“When we first started selling salads, we maybe shipped 20 to the stores and it seemed like we were spoiling out 25. People weren’t used to getting salads from convenience stores,” Loehr said. “Also, we thought people would pick them up later in the day and take them home, so we shipped them for later arrivals. But we learned that more people would pick up salads in the morning to take to work with them. So we started shipping them late at night to be fresh in the morning.”

Salad and bananas are staples at Kwik Trip, but in the big picture, who cares about bananas? Kwik Trip’s customers care about bananas. Every banana bought in a Kwik Trip c-store is one less purchased at a competing grocer. Having implemented these initiatives a decade ago, it was prepared for the current trend of customers demanding healthier eating options.

“Thanks to Paul Servais, foodservice zone leader, and our foodservice team, we have had double-digit growth in our foodservices for the past 10 years, and we expect that again this year,” said Loehr. “Our goal is to produce more gross profit from food sales than from gas sales.”

BIGGER PICTURE
Do you know who else cares about bananas? NACS decision makers who appointed Loehr last October to head its executive committee care. As he often is ahead of the curve, Loehr was already developing the message that c-stores could be the new purveyors of quality, fresh food and other offerings.

The fact that Kwik Trip has been at the leading edge of this movement has captured interest from outside the convenience store industry, too. Two years ago, Loehr was approached by a customer connected with the Partnership for a Healthier America (PHA). Derived from First Lady Michelle Obama’s Let’s Move campaign against childhood obesity. PHA is a collaborative effort between private, public and non-profit entities to promote nutritional choices.

“[This customer] told me Kwik Trip would be a natural fit for this program because we already were meeting nearly all the criteria,” recalled Loehr. “We didn’t have to change too much of what we were doing to join the Partnership.”

In 2014, Kwik Trip became the first convenience store to sign a PHA commitment, agreeing to offer consumers a greater variety of fruits, vegetables, healthy dairy items and nutritional snacks. It also committed to promote at least two EATSmart combination meals that adhere to specific nutrition and affordability goal posts. Plus, Kwik Trip is also joining Healthy Concession Programs fundraising events, where stores supply local school, charity or youth organizations with healthier concessions at a discount.

LEADING THE PACK
“Steve Loehr is a visionary leader who has been integral to the effort to expand access to healthier options,” said Lawrence Soler, PHA’s CEO. “His enthusiasm for this mission has led to PHA establishing its convenience store initiative, and has since inspired others in the industry to step up to the plate in what is a win for consumers as well as the industry seeking to attract more customers and sales.”

Kwik Trip’s leadership in this area has also attracted other c-stores to the PHA program.

Within the past year, both Altoona-Pa.-based Sheetz Inc. and Vintners Distributors Inc., operator of the Loop Neighborhood Markets in California, have signed PHA commitments, too. Additionally, NACS has launched a program under the guidance of Loehr, to educate c-stores about the business and public health benefits associated with fresher foodservice.

FRUITS AND VEGGIES
Indeed, many c-stores are going bananas. According to a NACS survey, nearly two-thirds of convenience stores offer healthier, more nutritious products. And dollar figures back up that sentiment. NACS reported 50% of convenience stores have registered expanded sales of fresh fruit over the past six months, and 30% stated cut fruit and vegetable sales have increased.

“With conveniences stores, you’re not limited to burgers, pizza or tacos. You can have it all. That’s led to an expectation of great salads, fresh produce and people getting what they need whether they’re feeling like a healthy option that day or not,” said Jeff Lenard, NACS vice president of strategic industry initiatives.

In the battle against that unhealthy perception, the industry does have some weapons to fight back.

“In a survey last year, 93% of consumers lived within 10 minutes of a convenience store. In rural areas, 83% of rural Americans live within 10 minutes of a convenience store. We are where people are. That gives us a tremendous opportunity to address the issue of food insecurity,” said Lenard.

This is especially true for areas designated as food deserts. The government defines a food desert as a geographic area in which residents have very limited or virtually no access to affordable and healthy food supplies because they lack easy access to a grocery store. Although a great number of food deserts are in rural regions, there are urban cases, too.

“Half the U.S. population visits a convenience store every single day for everything from snacks to dinners-on-the-go to weekly groceries. By putting healthier options in front of customers more often, convenience stores are making it that much easier for their customers to make a healthier choice,” said Soler. “And, since the healthy options are also profitable, this is a win/win for consumers and chains.”

When it comes to assistance programs, c-stores are also positioned to serve local areas.

“Additionally, over half (66%) of the convenience stores in the country are authorized Supplemental Nutrition Assistance Program (SNAP) retailers, making up a significant percentage (40%) of the total number of U.S. locations authorized to redeem SNAP benefits, so they are well positioned to serve communities with limited access by offering healthier foods,” Soler concluded.

Loehr acknowledged distribution logistics play a significant role in whether c-stores can manage fresh food inventories. For example, not every business can receive or arrange for daily deliveries; therefore, they cannot restock each morning with the freshest produce. But he’s made the issue a priority during his NACS chairmanship tenure.

“We have held meetings with suppliers to see if we can make it easier for smaller businesses or those located in rural areas. Just in general, though, we have to raise the bar for everybody because it reflects on all of us,” Loehr said.

NACS feels like the bar is higher, thanks in part to Loehr’s leadership.

“It holds great promise. It’s going to be one of these things that takes time, but Steve has planted the seeds, which are already bearing fruit and will continue to bear fruit for years to come,” commented Lenard. “We’re further along than we would have been if the industry didn’t get a big assist from Kwik Trip.”