As costs grow and competition ramps up across the c-store industry, more chains of all sizes are considering how various levels of vertical integration can help improve efficiency, strengthen supply chains and create a competitive advantage.
The benefits to vertical integration are many. It can result in lower product costs. It can give a chain better control over its product supply and reduce the risk of product shortages. It can offer more control over the quality and consistency of products or services. Bringing various businesses inside the company can also make things happen more quickly, whether it’s servicing a piece of equipment that has gone down or getting a new foodservice innovation onto the menu.
One known for its strong vertical integration is La Crosse, Wis.,-based Kwik Trip, which operates more than 900 stores across seven Midwest states. Kwik Trip operates its own bakery, dairy, kitchens, food-safety lab, distribution center and transportation company, just to name a few of the business segments it has brought in-house. Inside the chain’s stores, 80% of the products are Kwik Trip-branded items that have been made, shipped and sold by the c-store company.
“Vertical integration allows us to reduce costs of production and transportation, provide the highest quality and freshest product, and maintain a food safety chain unmatched in the industry,” said Dave Niemi, public relations, Kwik Trip Inc.
Kwik Trip’s website boasts that the chain bakes 10 different varieties of fresh bread daily, and more than 225 loaves per minute. It also makes muffins, cookies and cinnamon rolls fresh daily, and bottles more than 80,000 gallons of milk per day while its kitchens serve up 40,000 pizza a day.
When deciding which parts of the supply chain to bring in-house vs. which are better left to third-party partners, Niemi noted that Kwik Trip considers “the investment cost compared to potential savings considering the volumes we produce.” The chain considers key questions, such as, “Do we have the in-house expertise and talent to implement the project? Does it fit our business model?” Niemi explained.
As customer expectations continue to shift toward fresh food, quality and value, it’s not always easy to balance the advantages of owning more of the supply chain with the need to stay agile and innovate quickly. Kwik Trip relies on the expertise of its food research and development team that constantly tests limited time offerings. “This team meets regularly with our production team to discuss scalability,” Niemi said.
In today’s environment, with inflation soaring more c-stores are finding that vertical integration is an increasingly valuable strategy that can help them manage costs.
“With rising costs and stiff competition from grocery stores, ready to eat chains, and other c-stores, we need to eliminate as much third-party expense as possible,” Niemi said.
For c-store chains considering taking more control over their supply chain, Niemi advised them to ask themselves, “Will our current or predicted sales volumes generate actual savings considering the investment cost.”
“Innovation is one of our core values,” Niemi said. “We are blessed with ownership that supports that innovation in concept and in reality.”
