Convenience store stalwart Village Pantry has launched a $15 million plan to renovate 146 stores and is eyeing acquisitions
that could double the chain's size in three years.
The moves come as Village Pantry separates from parent Marsh Supermarkets Inc., a company that for years treated the convenience-store division as a redheaded stepchild.
Industry observers had expected Florida-based Sun Capital Partners Inc. would quickly unload Village Pantry after it acquired Fishers-based Marsh last year for $88 million plus the assumption of $237 million in debt.
But Sun has taken the opposite approach. The private-equity firm is giving Village Pantry complete autonomy, spending millions on renovations and has approved the hiring of more than a dozen executives. One of Sun's boldest moves was the hiring of Mick Parker, a 20-year veteran of Circle K and a respected convenience-store expert, to serve as CEO.
In Parker's first five months on the job, he led the acquisition of 33 Next Door Store locations in Michigan and northern Indiana from Michigan-based Imperial Co. Inc., bringing VP's total store count to 179. And Parker says "several more" acquisitions are in the works.
Parker, 51, also has launched a round of lightning-quick, seven-day renovations that are giving VP stores new high-end finishes, wider aisles, and gourmet food and drink selections. The changes are aimed at luring back young people and women, who now are doing more convenience shopping at Walgreens and CVS.
The stores are carrying Charlie & Barney's chili, Johnsonville brats and Ballpark franks, along with fresh-made doughnuts and sandwiches. Stores also are getting milkshake and iced-coffee machines and adding new customer choices, including plastic or foam cups, cubed or crushed ice, and condiment bars.
The innovations are a conspicuous departure for a chain that for years seemed to embody a famous line from Clark Griswold, the Chevy Chase character in "National Lampoon's Vacation": "I'm so hungry I could eat a sandwich from a gas station."
Part of the problem: Marsh didn't reinvest much of VP's roughly $325 million in annual revenue. Many of the stores were in dire need of updates.
"With Marsh, Village Pantry never had the capital they needed to succeed," said Steve Holtz, news director for CSP (Convenience Store/Petroleum), an Illinois-based magazine that covers the convenience store industry. "VP was the moneymaking unit of Marsh Supermarkets, but because Marsh was the parent, they were putting their income into Marsh to stay above water."
That's no longer the case. Village Pantry will be independent of Marsh by March, after Marsh hands over accounting and finance functions, Parker said.
And now, for the first time, most of Village Pantry's executives are seasoned in the convenience-store, not the grocery, business. New hires include a former real estate executive with Starbucks, a merchandising expert from Circle K, and a cigarette guy from Speedway.
"The reality is, Marsh's core competency is the grocery business, not the c-store business," Parker said. "The c-stores were an afterthought."
Parker hopes to grow Village Pantry to 300 to 400 stores in three years, including five new stores in central Indiana in the next 18 months. Private-equity owners typically hold assets for only a few years before selling them or taking them public, but Parker said Sun Capital doesn't yet have an exit strategy. His marching orders are to build value.
About 70 percent of Village Pantry's stores offer fuel and all the new stores will have fuel. As with most c-store chains, gasoline and cigarettes account for about 80 percent of the chain's revenue but only about half the profits.
Of non-fuel sales, about 40 percent is cigarettes; 20 percent food-service; 20 percent beverages; 10 percent snacks; and 10 percent grocery, ice and novelties.
Convenience store chains all over the United States are making moves to protect their non-fuel revenue from a growing crowd of competitors.
Just about every retailer now sells candy and drinks at the counter, making it more difficult for convenience stores to stand out, said Jeff Lenard, public affairs director for the National Association of Convenience Stores, a Virginia-based trade association.
"The convenient location or extended hours is not a differentiator anymore," Lenard said. "People expect to have the Disney experience with the Wal-Mart price and the Amazon.com inventory. They really expect to be wowed, and if you don't do it they'll find someone else who can."
Huge dollars are at stake. The nation's 145,000 convenience stores posted sales of $569 billion in 2006, according to the association's data. On an average day, more than 135 million people--about half the mobile population--stop at a convenience store/gas station.
Village Pantry also faces stiff c-store competitors. Among them: Circle K, which entered the market last year when its parent, Canada-based Alimentation Couche-Tard Inc., purchased 40 local Shell stations; Speedway SuperAmerica LLC, an Ohio-based affiliate of Marathon with some of the best real estate in the business; and London-based British Petroleum, which plans to convert its local c-stores to the ampm brand.
Village Pantry considered a name change to go with its image makeover, but in the end decided to keep the name in a bid to retain loyal customers.
The first stores to get renovations are at 96th Street and Lantern Road in Fishers, Emerson and Main streets in Greenwood, and Thompson Road and Arlington Avenue in Indianapolis. A challenge will be making VP's stores, many of which are cramped compared to competitors', feel more open and welcoming. The chain hopes to do more with less space.
Every store in the chain will be remodeled in the next two years, at a cost ranging from $75,000 to $150,000 per store, Parker said.