Living in Synergy

Tight competition, stifling margins and demanding consumers force many convenience store and petroleum marketers to build incremental sales beyond traditional growth venues such as car washes and quick-service restaurants.

No chain epitomizes this growth better than Drury Southwest Convenience Stores Inc. The Cape Girardeau, Mo.-based chain not only operates five D Mart convenience stores in southeast Missouri, but proprietors, brothers Bob and Chuck Drury also own a leading hotel chain. Drury Inns Inc. is a St. Louis-based family-owned and operated hotel chain with 100 hotels under brands such as Drury Inn & Suites and Pear Tree Inn, in 15 states across the country.

While a chain of hotels and a chain of convenience stores might make strange bedfellows, the company sees great synergies between the two retail segments. "The convenience store industry and the hotel industry are similar in that they both require a high level of customer service and a commitment to quality and affordable prices," said Norman Beck, supervisor for D Mart Convenience Stores. "Our company has benefited greatly from the knowledge and experience we have gained over the year in the hotel and restaurant services."

On "D" Mark

Another factor in common: Each channel of trade is watching mega-chains consume the market.

"We're different than the big franchise chains," said Chuck Drury, president and CEO of Drury Inns Inc. "Our focus is ensuring that our guests get more for their dollar than at our competitors. If we provide a consistent experience at convenience stores and hotels, we believe we can be the first choice for consumers at home and on the road."

Another key lesson learned is the value of presentation. Drury hotels feature progressive architecture and a neat, upscale image. That philosophy carries over to the convenience stores. Each of the stores, with the exception of Drury's latest model unveiled earlier this year, has been completely remodeled with an emphasis on image and security.

"The convenience store industry may have had a bad rap 10 years ago. But in today's retail environment, stores have to be brightly lit, clean and safe to attract any customers," said Brad Smith, operations manager for Drury Southwest Convenience Stores. "In a competitive market, there is no excuse for having an inferior product or offering any less quality than what your customers can get down the street. Customers don't expect it. Nor will they stand for it."

The latest D Mart, a 5,200-square-foot unit, features Shell gas and diesel with 16 fueling stations. The store features a vast walk-in cooler for beer that has accounted for approximately 28 percent of the store's sales — actually outperforming cigarette sales over the first nine months, which have totaled nearly 26 percent of the unit's sales.

Location helps drive beer sales, Smith said. The unit is on a main access road leading to a Proctor & Gamble manufacturing plant which employs 1,100 people. Two other industrial plants are also in the area.

As part of its four-store renovation project, Drury upgraded and added new security lighting, took out some walls, installed ceiling-to-floor windows and went with a new packaging scheme that includes earth tones and brighter colors. Four of the stores were designed to include D Mart's distinguishing clay-tile roofs.

Unlike chains that view foodservice as a magic bullet to compensate for lost tobacco sales and slumping fuel margins, Drury has not invested in co-branding at a frenetic pace. Instead, Smith said, D Mart is keeping close to its roots by using strong national fuel brands — Amoco, Shell and Citgo — and traditional convenience items to cultivate and maintain a loyal consumer base.

This decision again shows the synergies that exist between the convenience store and the hotel segment. Drury has extensive foodservice experience with full-service restaurants and room service in the hotel industry. It could easily transfer that experience over to the convenience industry. Instead, Smith surveyed the markets where D Mart operates and found that there was already an abundance of foodservice venues and little opportunity to introduce a brand that was new to the market.

"Competition drives foodservice sales, but we didn't feel we could find or develop a brand that could compete with all the fast-food and full-service restaurants that already exist in the market," Smith said. "Our focus, and what we can offer better than anyone else, is a fast, convenient shopping experience that addresses the daily needs of the consumer — coffee, milk, cigarettes, gas — not just breakfast, lunch and dinner."

Getting Technical

To address security issues, Smith said the company added digital 24-hour video cameras that are reviewed offsite for its new store. Older units still use 24-hour time-lapse cameras.

Drury's commitment to high-tech security equipment began about seven years ago as a means to prevent drive-offs. The upgrades, along with additional training, pushed drive-offs down some 60 percent.

But all the training in the world and the most up-to-date equipment still leave the chain somewhat frustrated when it comes to drive-offs, Smith laments. He said police tend to be apathetic toward drive-offs in Missouri, which, like most other states, forbids police officers to do anything unless they have tangible evidence. "The most the police can do is track down the offenders and put pressure on them to go pay," Smith said. "There has to be concrete proof from security cameras, positive identification, a viewable license-plate number and proven intent of the driver to steal gas. That's very difficult to do."

What the training and security equipment have done is help identify honest drive-offs, or those that were made in error by the driver or an employee mistake. "In those cases police are a big help because the honest customer is going to come back and pay for the gas," Smith said. "Without the equipment we wouldn't be able to track these people down."

The biggest benefit from the security cameras and video imaging equipment at the pumps has been deterrence, especially among employees. Without cameras, employees on the night shift could easily pull up their own cars, fill up, then claim to be the victim of a drive-off.

"The deterrence factor has played a major role in reducing the amount of dollars we've lost due to drive-offs and employee theft," Smith said, adding that when gas prices are up stores lose $200 to $500 a month. "We let customers and employees know that we are watching them and recording each transaction, and that makes an impression. Just from the deterrent factor alone the cost [of the equipment] has been worth it."

Another investment the company has found worthwhile has been a point-of-sale (POS) system. After two years of research, Drury decided to go with the Ruby Verifone system. The company based its decision on the system's ease of use and ability to support multiple fuel brands, Smith said.

"Scanning has not only helped us reduce shrink by more than 70 percent, it has helped us speed up transactions and service, generate accurate daily and monthly reports and reduce the number of out-of-stock merchandise," Smith said. "It also projects a strong image to consumers."

The Missouri market is somewhat of an anomaly when it comes to labor. Whereas much of the industry is suffering from high turnover and a lack of warm bodies to fill day and evening positions, D Mart has a full staff at each store. Smith credits a hiring strategy committed to part-time employees and flexible scheduling for the company's good fortune.

Rewarding Experience

Drury is also committed to rewards programs, which again is an example of the experience the company has gained as a hotel operator. D Mart stores often run promotions and specials aimed at rewarding loyal customers with a free coffee or newspaper. "Giveaways are a small gesture to loyal customers that reaps big rewards," Smith said.

Promotions include a free coffee with a fill-up at the pumps, two-for-one pastry promotions and free newspapers with fuel purchases. "What we have learned most from our promotional activity is that the deal becomes a destination for customers," Smith added. "The key to making any promotion successful is driving traffic to the store, then capitalizing on other selling opportunities, such as selling the milk, cigarettes and gas."

Drury's hotel chain also has a thriving rewards program. Frequent travelers can win free stays and discounts on airfare and rental cars. The company expanded its Drury Gold Key Club rewards program in September to celebrate the opening of its 100th hotel. Members of the club can earn rewards for free hotel rooms, gift certificates, airline mileage or a cruise.

In the future, the company may consider developing some crossover promotions that allow gas customers to earn rewards points for hotel stays.

"Customers tend to be loyal to companies that give something back to them as a sign of appreciation for their business," Smith said. "We have the synergies to offer programs our competitors can not. That's just one small we can stay ahead of the competition and distinguish ourselves as a leader in the market."



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PULL QUOTE:

"In a competitive market there is no excuse for having an inferior product or offering any less quality than what your customers can get down the street. Customers don't expect it. Nor will they stand for it."

Brad Smith, Drury Southwest Convenience Stores Inc.



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