Monday, September 15, 2008

Small-Format Food Retailing Memo: Savannah, Georgia USA's Parker's Convenience Stores: Taking Hybrid Convenience-Grocery Retailing to Upscale Heights

Small-Format Food Retailing Special Report

From the Natural~Specialty Foods Memo Editor's Desk: On September 13, we wrote this piece, " Small-Format Food Retailing Memo: The 'Eco-Convenience' Hybrid Store Trend Continues to Emerge: 'Locali Conscious Convenience' to Open First Store," about what we've identified as an emerging trend in the convenience-oriented food and grocery retailing industry -- a retail format we call the eco-convenience or Econvenience store.

This format combines some of the traditional elements of convenience store retailing like limited assortments of basic grocery items, fueling stations and foodservice but takes things in a "green" direction, including taking on the format and merchandising elements of a mini natural foods store.

The eco-convenience format also features far more food and grocery products in general, especially healthy, natural and organic items, than the traditional convenience store does. It also doesn't generally offer tobacco products for sale, which are key sales generators in traditional convenience stores. Further, rather than selling basic beer and wine brands, the eco-convenience stores tend to go more upscale and specialty, offer some conventional products but putting an emphasis on craft beers and specialty wines.

The upscale hybrid convenience-grocery store

Long before the emergence of the eco-convenience store trend however -- as well as long before the emergence of hybrid small-format food and grocery stores like Tesco's Fresh & Easy Neighborhood Market, Giant Eagle Express, Safeway Stores' "The Market" format and Wal-Mart's Marketside, the first stores of which are set to open in a few weeks in four cities in the Phoenix, Arizona Metropolitan region -- their was, and continues to be, what we call the upscale hybrid convenience-grocery store.

This format is best typified by Pennsylvania-based Wawa, Inc., which operates about 400 upscale hybrid convenience-grocery stores in the eastern Unites States. Wawa stores offer fueling stations and tobacco products like traditional convenience stores do, along with offering a limited assortment of basic grocery items (Wawa's limited assortment is more extensive than the average C-store).

However, the retailer also sells fresh produce in its stores, including some organic produce, offers a limited selection of natural, organic and specialty food and grocery products, and puts a major emphasis on quality fresh, prepared foods (foodservice) rather than the typical "belly filler" fair the traditional convenience store sells. Premium coffees, quality fresh baked goods and other premium and specialty offerings are a part of the Wawa stores' merchandising mix.

Wawa also does all this in what is a far more upscale designed retail store than that of the traditional convenience store.

Wawa is a pioneer in this niche, having converted its stores to this more upscale hybrid convenience-grocery store format in the 1980's. It's continued to refine the approach, and in the case of many of its newest stores it's going even more upscale in design, look and merchandising.

Parkers Convenience Stores

Wawa isn't alone in pioneering this format. Another pioneer in upscale hybrid convenience-grocery store retailing is Savannah, Georgia-based Parker's Convenience Stores, which we've written about before in Natural~Specialty Foods Memo.

Parker's primary hybrid convenience-grocery store banner is Parker's Convenience Stores (interior pictured above), an upscale version of the traditional convenience store with elements of a specialty foods store tossed in the mix. Quality foodservice is a major emphasis in the stores.

Parker's takes an even more upscale specialty-gourmet retailing approach in one of its banners, Parker's Market Urban Gourmet store (pictured above), which if you've been to or seen interior pictures of Safeway's "the market by Vons" in Long Beach, California, looks similar in many ways.

Parker's opened its first Parker's Gourmet Market convenience-oriented grocery-convenience market in Savannah, Georgia long before Safeway created its "The Market" format. The first and currently only small-format Safeway-owned "The Market" format store opened in Long Beach in May of this year.

Today's edition of Convenience Store News has a well detailed and written piece about Parker's Convenience Stores. The article, written by Barbara Grondin Francella, discusses Parker's format philosophy, operations and future plans, among other things. The story fits into our current "Small-Format Food Retailing Special Report" theme. Therefore we are reprinting the piece about Parker's from today's Convenience Store News for our readers. Read it below:

Twice as Nice
By Barbara Grondin Francella
Convenience Store News
September 15, 2008

Greg Parker's philosophy about convenience marketing took root during his first retailing experience in 1975, when at age 21 he built a c-store in Midway, Ga. -- and installed expensive paneling on the walls and pricey carpet on the floors.

Customers, he said, would walk in and gasp, "Wow! What is this?"

"I knew nothing about retailing back then, but I knew people like to feel special," Parker related. "That has been the differentiating aspect of our company culture. In everything we do, we try to elevate the customer experience."

The flavor of that c-store with auto service bay, which Parker built as an offshoot of his father's small Amoco Oil distributorship, can be found in the upscale, foodservice-driven Parker's Convenience Stores today. Back then, the young entrepreneur equipped the store with a kitchen, where then-teenager Amy Lane, who is now Parker's chief operating officer, made hamburgers and fries, hot dogs, salads, sandwiches and full, made-to-order breakfasts.

"I didn't think it was so novel at the time," Parker recalled. "I just thought I'd need to create alternate profit centers."

After opening that first store in 1975, Parker didn't take a day off, including Christmas, for three and a half years. "I didn't have time to go see what others in the industry were doing. Now, if I hear of something great happening, I don't hesitate to hop on a plane and go visit."

Still, Parker knew instinctively that developing an outstanding experience for the customer was crucial. "When I was opening my fifth store, my brother said, 'You may be making this too nice for this town.' But I thought, 'You can never go wrong delivering more than people expect.'"

That strategy has worked very well for 33 years. Savannah, Ga.-based Parker Companies' 25 Parker's Convenience Stores; Parker's Market gourmet store; Parker Oil Co., a distributor of BP, Chevron and Parker's own Supron brand gasoline; three Spin City Laundromats; an Urban Attic self-storage facility and a real estate business, tallied more than $150 million in sales last year.

Parker's Convenience Stores, a mix of urban, suburban and rural sites each unique in look, offer standard convenience items and a not-so-standard menu of homemade Parker's Market-branded sweets, sandwiches and salads, some made in the store, others at a commissary store and delivered each day. Gourmet coffee, milk shakes, walk-in beer coolers, 79-cent Quench Zone fountain drinks with chewy ice and "the cheapest cigarette carton prices in town" are presented in an upscale environment."

We rationalize our portfolio of stores and spend when we think we need to," said Parker, who noted the company is very good about keeping its stores up to date.

"It's very important to reinvest in your best performers," he added. "You don't want to be just a harvester. There is a time to sow and a time to reap, and you need to be thoughtful when you are doing both. I have an intense desire to sharpen the saw."

Despite the tough economy, Parker has three new locations slated to open this year in Savannah and Blitchton, Ga., and Bluffton, S.C.

Parker appears to be one of the many c-store retailers looking to take advantage of business incentives included with the taxpayer rebates in the government's Economic Stimulus Act of 2008. A recent online poll found that 14 percent of retailers were already benefiting from the incentives and 36 percent were trying to find a way to take advantage of the incentives. Interestingly, despite a lot of publicity, 43 percent of retailers said they were not even aware of the business incentives in the rebate program.

"The Bush 'stimulus package' -- and I try not to laugh when I say that -- gives us a 50-percent bonus depreciation," Parker noted. Assets that would typically depreciate over five years, at 20 percent per year, may now, for example, be depreciated at a rate of 50 percent in the first year, with the other 50 percent spread evenly over the five years, giving retailers a 60-percent depreciation rate in the first year.

"If you build something now, you'll pay little if any taxes on it the first year. Because your tax estimates are based on the previous year," he noted. "The next year, your required tax estimates will also be lower. Plus, if you have a strong balance sheet, money is cheap now. Building costs are coming down, land costs are coming down and unemployment is up, so labor costs are coming down. It is a great time to build."

New Parker's Convenience Stores measure 4,400 square feet. Upscale in appearance, they feature tiled floors and walls, have an extensive foodservice lineup, "and outrageously nice restrooms," Parker said. Outside, eight multi-product dispensers offer Supron motor fuels.

"Our brand starts with the architecture, which I believe is our greatest art form," Parker explained. "We outspend our competition when it comes to building our stores in terms of materials, design, lighting and landscaping. We spend between $2 million and $2.5 million per location, not including the land cost."

Parker also typically outspends other retailers outside the store. Parker's Convenience Stores have won a number of landscaping awards, unusual in the convenience business. Parker, who studied botany in college, personally selects a new site's planting materials, sometimes opting for three times as much as called for by the landscape designer.

He recently prevailed in a very public, heated exchange with a local planning commission, which wanted him to remove a 300-year-old tree on a piece of property that will hold a new store soon. The community backed him in his efforts to save the tree.

Lush landscaping aside, each convenience store looks different, although Parker is giving them a few common elements now, with a specific look for all the urban stores, the suburban stores and the rural locations. For instance, all rural stores will have low-country architecture, wood siding and metal latticework over the entrance.

If Parker sees something he likes, he'll incorporate it into a store. One unit, for example, features cutouts of people hanging at angles from the ceiling rafters. They are the work of an actor/student, who was learning set design at the Savannah College of Art Design while working part time at one of the stores. One figure holds a hot dog; another is shooting ketchup across the room to go on the wiener.

Parker recently completed a $500,000 upgrade of Parker's Market. (For more on Parker's Market, see "Parker's Market: Convenience Meets Gourmet," at"

Before this, my wife and I did all the design work in that store," he said. "But we went to the opening of a new restaurant and loved the design and hired the designer [Joel Snayd, of Re:think Design Studio] that night. We do most ourselves, but solicit many opinions."

The new design opened up the floor plan by relocating a gourmet coffee center, which had split the store in two, and added a crowd-pleasing mix of materials and elements, including granite countertops, custom lighting fixtures, blackboards for signage and a wine display area using reclaimed wood and old iron piping.

"I can't build anything cost effective," Parker laughed. "I always overspend. I love being creative and artistic, and I'm as passionate about architecture as I am about c-stores. Everything we do, I want people to think, 'Wow.'"

Many Happy Returns

Whether he's overspending or not, Parker is getting a return on that investment. Parker's Convenience Stores rank consistently in the top quartile of all industry performance measures, and Parker's Market rings up millions in sales each year.

The retailer credits these results to a disciplined approach to controlling expenses and a keen focus on gross profit dollars.

"We have the lowest cents-per-gallon break-even point of anyone I know in the industry," he said. "We really pay attention to the details, and we train our people before they step into the store so we don't suffer as many mistakes. It helps to reduce turnover too."

The company pays higher-than-industry-average salaries, offering bonuses for catching honest mistakes ($10); catching and prosecuting shoplifters ($50); turning in a co-worker for stealing ($500); and recruiting another employee who stays one year ($500). Managers' bonuses equal up to 21 percent of their quarterly salaries. Additionally, a six-month bonus of $1 per hour worked is offered as an incentive to keep new employees.

Parker's benefit package includes health and dental insurance and a medical pre-tax spending plan, life insurance, 401K, paid vacation and a YMCA membership.

Parker relies on state-of-the-art retail technology, including Dresser Wayne's InSite and PDI's Enterprise, Focal Point, Applicant and Virtual University software, to keep firm tabs on inventory, each SKU's profitability and human resource functions. Products are scanned into inventory and at sale; Parker's team makes assortment and space allocations based on that data. "We analyze our baskets," he said. "We understand there are five traffic-generating areas of the store -- checkout, fountain and frozen carbonated beverages, cold vault, beer caves and coffee counter -- and we focus on having the right products in the path of the consumer to increase the opportunity for adjacency sales."

Brandon Hofmann, our marketing manager, is the best in the industry, and he has us focused on gross margin dollar contribution," said Parker.

He also said he is "constantly preaching" about gross dollar margin (GDM) contribution. "We can see what the top GDM contributors are by item and understand the importance of space-to-sales ratios for planograms," he noted. "But the real issue is space-to-GDM contribution."

For example, he regularly uses GDM contribution to rationalize products in the cooler. "We ask ourselves where high-dollar margin products are in the cooler door. Are they at eye level? In door 1? Door 2?"

You'll never find the words "loss leader" in any of Parker's marketing plans. "Why would anyone want to lose money on something? We position ourselves as a low-cost provider in fountain drinks, but it's still about growing the category and having the most pennies in the bottom line. We have the lowest cost on cigarette cartons. Our pack prices are not the lowest, but our three-pack special is."

Outside the box, all new stores sell Parker's Supron brand gasoline. If a c-store operator goes to market with beautiful stores at superior locations, customers don't care if he is selling a major gasoline brand, he said. "When you look at the top performers in the country, including Wawa, Sheetz, QuikTrip and others, very few are selling branded gasoline."

In 2001, when he created Supron, Parker wanted it to feel "like a major brand." Customers' initially reacted to it with curiosity. "We did radio and TV, billboard and bus advertising, and the consumer got familiar with the brand," Parker said.

No comments: