Caseys Eyes Bigger Slice of NWA Pie

Since opening its first Arkansas store in Bella Vista two years ago, an Iowa-based retail convenience store chain has taken Northwest Arkansas by storm.

Industry leader Casey’s General Store, a $7 billion company headquartered in Ankeny (pop. 46,302) just north of Des Moines, has opened nine locations in six cities — Bella Vista, Springdale, Berryville, Elkins, Bentonville (3) and Rogers (2) — since entering the market.

And the impact could leave a lasting mark on the local restaurant industry.

That’s because in the last decade, convenience store chains across the country have started focusing more on the preparedfood segment of their business operations, competing directly with quick-service restaurants. They’ve done so because freshly prepared foods are boosting those stores’ bottom lines.

As a result, convenience stores have continued to evolve from gas stations that happen to sell food, to food retailers that happen to sell gas.

There are few companies that have taken advantage better than Casey’s, which was among the first companies to sell pizza in its stores when it was introduced in 1985.

Casey’s, an operator or franchisor of 1,731 stores in 13 states as of Jan. 31, has grown its menu from basic pizzas to a proprietary prepared-food program that includes dozens of items such as several varieties of specialty pizzas, sandwiches, appetizers, hamburgers and hot dogs, pastries, cake doughnuts and breakfast entrees.

According to the company’s most recent annual report released in June, Casey’s net sales for prepared foods and fountain items — prepared food, bakery, coffee and fountain — topped $500 million for the fiscal year that ended April 30, an increase of 36.6 percent from $366 million in fiscal 2010.

In terms of profit, prepared foods and fountain items totaled $303.2 million, accounting for 30 percent of the company’s profits for the year.

In fact, because of an increased store count and its performance in the prepared-food segment, Casey’s is among the nation’s fastest-growing restaurant chains — just behind Cheddar’s and just ahead of Buffalo Wild Wings — based on the most recent sales data compiled by the online publication Nation’s Restaurant News.

 

High Performance

Brian Johnson, Casey’s vice president of finance, said the company is hungry for a much larger presence in Northwest Arkansas and beyond. Construction of seven additional stores is presently under way, with development plans for even more, ranging from Mountain Home to Fort Smith.

Amy Mills, a commercial real estate broker with Steve Fineberg & Associates in Bentonville, has represented Casey’s in several of its land acquisitions in Northwest Arkansas. Including stores already open, she estimates there are 25 locations throughout the area in the company’s development pipeline.

“The sky is the limit, to be honest with you,” Johnson said. “I can’t sit here and tell you that we have a goal or a cap of [the number of stores] we’re trying to get to in Arkansas. But we’re very excited with how stores are performing there.”

Johnson declined to provide specific performance indicators for the Arkansas stores, citing the company’s status as a publicly traded entity.

“I can tell you that their sales volumes are greater than our chainwide average,” he conceded. “And that’s why we’re so excited about the area.”

Johnson said although the company has been fine-tuning its prepared-food menu for nearly three decades, its signature items remain cake doughnuts and pizza, which is sold by the slice or by the whole pie.

He also noted that Casey’s, in terms of retail outlets, is one of the top 10 pizza retailers in the United States. And unlike many of its would-be competitors in the c-store industry, Casey’s operates kitchens that are on site.

“It’s not a glorified frozen pizza by any stretch,” he said. “We’ve refined our processes and we are very selective. The difference between Casey’s and the rest is that we have a proprietary program. We’ve been doing it before it was popular, so to speak.”

 

Small-town Roots

Johnson explained that what makes Casey’s so popular in the Midwest is tied to its small-town beginnings, reflected in its business model of building primarily in smaller, rural communities.

Casey’s, according to its website, was founded in 1968, nine years after founder Don Lamberti leased an old country store from his father in Des Moines and remodeled it into a convenience store.

Lamberti’s gas supplier, Kurvin C. Fish, suggested Lamberti expand by purchasing a second service station and three-bay garage in nearby Boone. Lamberti converted that business into a c-store as well and the store was named Casey’s, using Fish’s first and middle initials.

Today, the bulk of the stores are in Iowa (477 as of April 2012), Illinois (405) and Missouri (309). Johnson said more than half of them are in towns with 3,500 people or less.

“I haven’t been to Arkansas, so I am not familiar with a lot of the areas,” Johnson said. “We’ve had success in larger areas, too, but we’re more comfortable in rural versus urban locations.”

The construction cost for each store is generally around $2.5 million for a 4,100-SF building, and stores are staffed with an average of 15 employees.

Given Casey’s current store presence and plans for future development, that’s a sizable investment.

“We expect further store growth throughout the state,” Casey’s CEO Robert Myers said. “We’re very pleased with the performance there so far.”

 

Power of Pizza           

Because pizza is the company’s flagship product, Casey’s is one of the first chains in the c-store industry to dabble in delivery.

The idea was hatched, of course, to help attract new customers. In a report to shareholders, Myers wrote, “We believe if we can get people to try our pizza, they will likely become long-term, repeat customers.”

The service started in a single store in 2011, and was offered at 26 stores by the end of the year.

During the company’s most recent earnings call on March 12, chief financial officer Bill Walljasper described how the chain added the service to 50 additional stores in the third quarter, which ended Jan. 31.

He said the company planned to add the service to 50 more stores in the fourth quarter, ending April 30, to increase the number of stores with pizza delivery to 225.

The strategy appears to be successful so far. Myers wrote that stores delivering pizza are seeing more than a 30 percent increase in pizza sales, and the service added about 1 percent to same-store sales in fiscal 2012.

“That’s quite remarkable, considering that only 76 of 1,699 stores were delivering pizza,” he wrote.