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Building on convenience


It was 1959 when Don Lamberti began operating a country store and gas station that he leased from his father on the corner of East 14th Street and Broadway in Des Moines. At the suggestion of his gas supplier, Kurvin C. Fish, Lamberti bought the Square Deal Oil Co. in 1968 and converted its three-bay garage in Boone into a convenience store, modeled on changes he had made to his original store. Using the initials of his friend’s name, Lamberti called it “Casey’s General Store.”

From this modest beginning, Casey’s General Stores Inc. has grown into a regional convenience store chain that operates 1,370 stores in nine states. It supplies 90 percent of the items its stores carry from its distribution center at its 36-acre corporate headquarters in Ankeny. Led by sales of convenience foods, cigarettes and gas, the company’s stores generated $2.36 billion in revenues last year.

“We’re a destination for our customers,” said Ronald Lamb, Casey’s chairman and chief executive officer, who is leading the company in a continuing upgrading of its technology, from point-of-sale registers to satellite systems that monitor its stores’ gasoline supplies and the locations of its trucks.

Casey’s, whose fourth-quarter 2004 earnings slipped to 73 cents a share from a record 80 cents in the fourth quarter of 2003, is betting that increased efficiencies from its technology upgrades will help hold costs down while generating higher operating income from its stores’ sales. The company, which will release its first quarter 2005 earnings early next month, attributed its fourth-quarter earnings dip to decreased margins on gasoline and cigarettes, higher cheese prices that bit into pizza margins, and a $3.4 million increase in insurance reserves to cover higher workers compensation losses.

Preferring to control its own destiny, there’s little the publicly traded company hires out if it can be done in-house, from its own truck fleet and drivers, to the employee-staffed daycare center it operates at its Ankeny campus. It staffs its own printing department to generate store promotion banners, and it has four attorneys to draw up deals for new stores. The company even has its own construction staff that’s trained in plumbing, electrical and other repairs that might be needed at the stores.

Growth through acquisition has been the mantra for Casey’s, which last year bought up 26 stores from competitors and built 15 more. It plans to again build 15 new stores this fiscal year and acquire between 35 and 45 existing stores, Lamb said.

“Five years ago we said, ‘you know, it costs so much to build new stores, what we’d like to do is acquire existing stores,’” he said. “And believe me, there’s a lot of them for sale.”

Additionally, the company replaces about 20 stores a year to update them with additional gas pumps or a larger store, in most cases on the same site. It also remodels between 70 and 80 of its stores annually to add more amenities such as additional bathrooms. “We’ve done that for years; we put the money back into the stores,” Lamb said.

Though its early growth came through franchise arrangements, Casey’s has aggressively bought back hundreds of its stores in the past decade. It now has just 36 franchise stores remaining.

“It was a good venture for us,” said Bob German, a retired bank president who bought his first Casey’s store as an absentee franchise owner in 1977 with fellow banker Bruce Seymour. The partners have since sold or leased each of the stores back to the corporation.

“We had been in several franchise deals and this was by far the best deal for us,” said German, who said the franchise owners were treated “like family” by the company.

“They had offered (to buy us out) earlier,” he said. “The offer (last year) got pretty good.”

Shaking off a three-year slump last year, the convenience store industry enjoyed a 16 percent uptick in sales in 2003. According to the National Association of Convenience Stores, the nation’s 130,659 convenience stores posted a record $337 billion in revenues last year. Pre-tax profits for the industry increased by 55 percent in 2003, to more than $4 billion.

The average U.S. convenience store location posted $3 million in sales last year, with more than two-thirds of the dollar volume in fuel sales. Convenience stores sell about three-fourths of all the gas sold in the United States, according to industry estimates.

As supermarkets and national discount chains bid for a piece of that action by building their own gas stations and convenience stores, Lamb said he’s not scared by the big competitors.

“Wal-Marts (that are nearby) actually add traffic by your store,” he said. “We do not fear the Wal-Marts or the Super Targets or anybody else that has gasoline, because we compete in price and always have.”

Casey’s managers set their gas prices based on nearby competitors’ prices, and the stores have consistently been able to average a 10.5 cent per gallon margin on gas sales over the years, Lamb said.

The company now has pay-at-the-pump systems at nearly all of its stores, an amenity Lamb said has actually increased total sales without hurting in-store sales.

“We’ve given our customers a choice,” he said. “If they just want gas, they don’t have to go inside the store. What a lot of people do is start pumping the gas, then they go in the store to get their coffee, sandwich or their pack of cigarettes.”

Point-of-sale systems, which Casey’s rejected in the mid-1980s because they slowed down clerks too much in ringing up sales, advanced to the point where the company began incorporating them about four years ago. Nearly 600 of its stores now have a full POS system.

“And we have a satellite system for our fleet of trucks, so we know where all our trucks are at any time of the day,” Lamb said. “So if we want to change the destination of a gas truck and a store needs gas, we can direct it to that store. The same can be done for supplying stores with groceries.”

Ready-to-eat food items such as Casey’s pizzas, which it prepares from fresh ingredients on-site, are the No. 1 type of item people are looking for when they enter the stores, he said.

“First of all, it has to be a quality product, at a fair price,” he said. “We’re competitive in price, but the first thing we look at is a quality product.”

Casey’s has been approached by numerous national restaurant chains about co-branding, but the arrangement doesn’t make sense for what is already a small-town destination, he said.

“Why would we want to split the profits with a Burger King or anyone else? We like to control our destiny. I would guess that (co-branding) would probably never happen with us.”

Within the next few years, customers will probably continue to see Casey’s expand its line of prepared foods, Lamb said. “Anything new that comes down the pike, if we like it, we’ll test it,” he said.

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