Monday, October 27, 2008

Adjusting Menu Selection a Good Short Term Fix

This was done for Gerson Lehrman News and Published October 27

Original Article: Restaurants may change menus, hike prices


1) Customers are resisting higher prices
2) Food prices will come down, but not rapidly
3) Market the selections as new variety


The restaurant industry has a real dilemma on it's hands. Customers, given the current economic climate, are resisting price increases with fewer trips to dine out and lower per-ticket purchases.

At the same time, the core ingredient "proteins" have experienced a much greater than CPI increase in cost. Given the recent steep decline in energy costs, we can expect there to be a stop in the cost inflation, but any decrease in supply prices will come due to weak global demand, a bad sign for consumer spending in general and discretionary spending in particular. No one wants the downturn to be so great that actual "deflation" sets in. The farmers and food production industry are operating on very tight margins as it is.

So, what to do? Dress up new menu items with coatings, breading, sauces and lots of marketing. A hot ham and cheese sandwich can be made into an alternative to a cheeseburger, if presented correctly.

Certainly people are used to "Nontraditional" menu items at all the fast feeders and casual restaurants. If marketed right, both sales volumes and margins should be able to be maintained. Remember when fast-food breakfasts were a novelty? Now, they are a staple item in the product mix.

Layoff news at marquee firms across the board, the seeming end of the US automobile business as we all know it, and the unrelentingly bad economic news are going to cause people to review their personal expenditures much more carefully, but America loves to "Eat out".

The right mixture of cost containment and good menu planning, along with a great invitation to the consumer to check out the new items, will be able to allow restauranteurs to weather the storm

Wednesday, October 15, 2008

The Stratification of Gas Station Values in Florida

UST Compliance Status, Station Pricing and how it affects the Florida Market.

This is being posted to “The Service Station” blog on October 15th, and will be included in “The Meter” newsletter published on October 20th.

As we watch the clock wind and the calendar pages fly off the pad, it is increasingly clear that whats been predicted for the last 10 years has come home to roost. There would be a high percentage (currently figured at 40%+) of stations that would be in a jam when it comes to the Florida Double-wall tank deadline at the end of 2009. When tank insurance is coming up for renewal this time, if you haven’t converted to a DW distribution plant, it’s essentially going to be impossible to get insurance for a non-compliant tank set at any price.

The Jan 1, 2010 deadline for conversion to all systems needing secondary containment was mandated by Florida in 1984; so 24+ years to date is a long time to claim you are now surprised. But, at this point it’s water under the bridge. The FDEP continues to say there won’t be any extensions for compliance granted.

So, as an operator who owns their site, you have a few choices; operate without insurance, getting fined by the FDEP on a daily basis, and risking a complete financial wipe-out if there’s an incident. (We are not suggesting this as a course of action, just using it as a scenario!) Or, you can shut down until your tank set can be changed. Or, you can put your station up for sale, discounting the price of a tank swap in the asking price, and hoping someone will purchase the site knowing it needs to be closed down for 3-4 months and there’s no assurance that there won’t need to be remediation during the tank swap, lengthening the time out of operation and increasing the costs.

In order to accept that level of risk, it’s clear the savvy purchaser will expect a large discount to get you out of your jam. Then there’s whole issue of getting credit to pay for the job. It’s a rare purchaser who can pay cash for the $300-$400,000 needed to swap a tank set and account for the lost gross profits for the time they are closed down, right after completing a purchase for the site. The credit crunch is affecting purchaser’s decisions on looking at non-compliant sites.

Conversely, the sites that are compliant stand to gain in two categories. 1) Value of the actual asset, and 2) improved competitive position from the immediate wash-out of (let’s figure) 30% of the station count at the end of 2009. Increased volumes, increased scarcity of sites to fuel from, and increased profits should all be in the offing if there is no extension for compliance granted. You have to think FDEP is serious about holding everyone to the deadline, taking them at face value.

Should owners be lobbying for some kind of state program for sites that need tank swaps that are not in the LUST fund? A loan guarantee or low-cost assistance for tank swaps? The population of the State of Florida will be profoundly unhappy and inconvenienced if 25-30% of the current retail sites have to close down in January 2010.

On the other hand, if you took care of business, have a new dispensing plant in the ground, why not get ready to enjoy less competition and greater volumes, all because you followed the law? Why should the people that didn’t take the deadline seriously get help?

Which leads to our title subject; the Stratification of Gas Station values here in Florida. There are two tiers of pricing setting up in the market; tank-compliant stations and those who aren’t. In addition, within each tier, there are usual considerations of parcel size, Branding/Fuel Supply Agreements, competitive position, amenities (car wash, service bays etc.), foodservice and size of store.

What we’re seeing from multiple owners is that sites that fall into the non-compliant pricing tier, are .75 of an acre or under, and need significant updating are trying to keep some kind of floor value on the pricing of these sites, but the floor is preventing the sites from moving. With today’s lack of ready credit, I think a major look at these small sites asking prices needs to be addressed, or there is going to be a significant drop in station count once the deadline rolls around.

What do you think? Write me back at

Friday, October 10, 2008

Soft Serve Won't Fix Soft Sales at Krispy Kreme

This was done for Gerson Lehrman Group News and Posted on October 10th - Ron

Original Article: Krispy Kreme hopes ice cream heats up sales (article)

Soft Serve Won't Fix Soft Sales at Krispy Kreme

1) The namesake product is out of synch with consumer trends
2) Soft Serve Ice Cream adds a daypart, not a full profit center
3) Quality as criteria in site selecton and Distribution key to success

Krispy Kreme essentially imploded during 2004-05, as the reported sales volumes turned out to be inflated. Consulting for a Convenience Store chain in 2003, I watched first hand as locations who paid a delivery driver cash daily for Krispy Kreme product would receive an invoice for the same goods at the end of the month. It would always be called into the office and pointed out as an error, and the paperwork would disappear.

Krispy Kreme overestimated their sales potential in a given market; the C-Stores carrying the product were saddled with minimum purchases that resulted in a lot of product being wasted, at the retailers expense. We shopped, over a 6 week period, a full Krispy Kreme location w/Factory on a high-value corner for a competing client (location now closed)in 2006, and they added a frozen custard operation to punch up the lack of walk-in traffic in the afternoon/evening period. It did not seem to work at this site, and so I'm not sure if the product has been adjusted to a more saleable concept or not. The product is good, but is running against current consumer QSR trends. In theory, it adds a daypart, but you need to market it apart from the core doughnut business.

Krispy Kreme has shown very little discretion in siting locations and adding distribution partners, and overall, the brand suffered. At least in the area serviced by our master franchisee, they never seemed to get over the image, cleanliness, training and personnel issues that McDonalds(NYS:MCD) and BK solved, for the most part, years ago with a much, much greater restaurant count. To rely on adding a product line as a solution, unless (and I don't have firsthand knowledge) they've addressed the daily operational and quality control (product, service and customer experience) of the operation won't make a long term difference in the firms viability.
Posted: 10/10/2008 12:57 AM

Thursday, October 9, 2008

Sales Restrictions Won't Drop Tobacco Sales Volumes

This was done for Gerson Lehrman Group News and Posted on October 3rd - Ron

Original Article: PM USA v. Pharmacy Smokeout (article)

Sales Restrictions Won't Drop Tobacco Sales Volumes

1) Legislation Restricts Drug Stores Unfairly
2) Legislation Doesn't Make It Harder to find Cigarettes, just more Inconvenient
3) Smokers will easily adapt to Law; no consumption reduction

The law banning tobacco sales in drug stores unfairly singles out stores containing pharmacy operations as unsuitable venues to purchase tobacco. There is no inference that the drug stores haven't been following the current restrictions on underage sales, so this seems a measure aimed a simply making less convenient to purchase cigarettes, and a punitive measure against smokers with the drugstores overall sales volumes as an innocent casualty of the legislation.As a convenience store consultant to numerous operators, I see at an opportunity for more sales volume. Smokers have been adapting to increasingly restrictive rules on purchasing and using tobacco products, and will adapt in San Francisco again. If they can't purchase cigarettes at one location, they WILL stop at another. Ask any retailer who is "Out-of-Stock" on a popular brand!While I think the Phillip Morris(NYS:MO) position in this case is correct, the overall prevailing sentiment against smoking is driving this legislation.I do not believe there will be an overall drop in in the tobacco company's sales, just who is selling them to the end consumer.
Posted: 10/3/2008 1:06 AM

"The Meter" Newsletter Vol 1, Issue 1 Oct 6, 2008

Welcome to “The Meter”
Vol. 1, Issue 1, Oct 6 2008
Dear friends, associates and interested parties,

Welcome to the inaugural issue of “The Meter” which will be an e-mail newsletter put out by Condevco LLC on a semi-regular basis. We named it “The Meter” because that’s what keeps track of the fuel flow in the pumps, and we’re going to try to give you a sense of the “Flow” of the business. Hopefully, you will find this a valuable resource and sounding board for your own thoughts.

This newsletter will not be taking a point of view as it relates to anything but good customer service, convenience retailing and petroleum marketing, and anything that supports that. We will also delve into real estate related issues as it pertains to retail sites and development.

We seem to be in a time of unprecedented upheaval in our business. As it relates to retail, there is cost inflation in CPG with no inclination on the consumer’s part to absorb higher prices, volatility in fuel pricing that seems to be more about speculation than the actual value of the fuel, and regardless of which way consumer sentiment is flowing, the credit card companies making more money in processing fees than the entire industry profited at retail last year. As in all times of market turbulence, some will profit and grow, and some will whither and die.

On the Distribution and Real estate side, the big Oilcos are “shedding” their retail sites en masse, but that opens up an opportunity that wasn’t available before on the distribution side of the business. Good store operators have continued to grow store count and expand their offerings, but until the credit markets get straightened out, that continued growth is in jeopardy.

Here in Florida, the combination of no or tough credit and the Double-Walled tank deadline have a lot of site owners who haven’t “re-tanked” sweating it out. There is going to be a period of opportunity for picking up assets that are “Fixer Uppers” at excellent prices, and some of that is starting to hit the markets now. Tank Insurance on Single-wall installations is going to disappear by the end of the year in the state, it seems pretty clear.

“Consolidation” is a word being bandied about the industry right now, and while it looks like there is a consolidation of ownership occurring, remember that there is a large supply of Oilco sites coming into the market, and so far, being absorbed by distributors with decent store count already. There are still lots of properties and groups of properties that fit the “Smaller” range that will need to be moved and re-branded and freshened up.

Whenever there is disruption to the market equilibrium, which is occurring in 1) the consumer market, both with credit tightening and increased fuel prices, 2) the fuel retailing and distribution market, and 3) the credit markets, both for operating and real estate acquisition, opportunities present themselves to those who know where to look.

As we move forward through this time, in mostly uncharted waters, we need to remember that an automobile is still either the first or second most valuable asset most people own, and the lifestyle most consumers lead and the infrastructure they use were predicated on relatively inexpensive and plentiful motor fuels.

This is why the fuel volumes didn’t drop as much during the price spike as most people would think. But the consumer feels hostile and wary of the oil business right now, and no matter how much people rationally know the guy who owns the Exxon or Chevron at the corner didn’t make the $40-50 Billion last year, you’re the one they can be upset at.

So give them service, give them clean, give them a smile and remember you’re still the “Corner market”. We can help provide solutions to your most pressing needs, and everyone can use a set of “Fresh Eyes” to look at the issues we’re all concerned about.

Looking forward to a long and productive dialogue between all of us.

About Condevco LLC and Ron & Darcee Santicola

Ron SANTICOLA HAS been in the Convenience Store Business for 14+ years here in Florida and Internationally, as a “C” Level executive and Consultant. Award-winning and respected industry leader. Darcee Santicola is an award-winning store designer and space planner. We merchandise locations and lay out selection, mix and promotional calendars.

Ron is also a FL Licensed Real Estate Broker, Specializing in Petroleum Retailing properties and Petroleum Distribution.

We specialize in:

¨ Site and Chain Acquisition
¨ Branding and Fuel Supply
¨ Store Design—New & Refurbishment / Rebranding
¨ Merchandising & Promotions
¨ Financial Modeling—Acquisition and operating
¨ Customer Service training
¨ Mystery Shopping
¨ Management Consulting
¨ Company Benchmarking
¨ Fuel Pricing using the:©
Fuel Pricing System
Convenience Development Corp.
Condevco LLC

2909 S. Ocean Blvd, Suite 3-D
Highland Beach, FL 33487-1819
Tel.: (561) 274-4261
Fax: (561) 276-9996