Akhtar Hussain:
Thank you. It’s great to be here.

Jeff Lenard:
And for those who are new to the podcast, let’s start out with telling us a little bit about what Cenex is and some of what you’re working on.

Akhtar Hussain:
I’ve worked at CHS for about 16 years, all of which have been in the retail refined fuels space. I’ve had the opportunity to see some of the ebbs and flows and some of the changes in consumer expectations as it relates to convenience stores and how they represent in their communities. Cenex is in the middle of a four-year initiative named LIFT that is a lighting, image and facility transformation project that’s designed to revamp Cenex stores through both exterior and interior improvements. What’s unique about the LIFT initiative and how our Cenex marketers can engage with it is really the freedom and the flexibility for them to make improvements to their stores based on what they see as the most valuable or the most impactful improvements that would best serve their community.

Akhtar Hussain:
There are two components to LIFT, which is the introduction of the halo image, which is our forecourt image that includes adding LED lighting elements to the canopy and to the forecourt, putting up new Cenex price signage, all new dispenser graphics. So really making the exterior of our locations stand out with consumers and deliver that safe, bright, modern appealing look that we know consumers are looking for. But we also realize that being a good steward in the community and providing the type of stores that consumers are really going to respond to goes deeper than having bright, appealing branding on the outside of the store. The inside of the store also has to meet these evolving consumer demands.

Akhtar Hussain:
Those changes may be things like the condition of the store itself, having modern and new foodservice programs and the quality and fresh foods that consumers want, as well as modernizing the interior with digital menu boards and the ability to have cashierless checkout, and some of the technological advancements that we’ve seen. So, lots of things to contemplate here as we looked at what we were going to include in LIFT, but I think that is very indicative of the nuance and the type of expectations that the consumers have grown to have from their neighborhood convenience store.

Jeff Lenard:
We held our NACS State of the Industry Summit where we looked at industry numbers, industry trends, and it was kicked off by our chairman. One of the things he said is he is confident that over the last three years, there has been more change in the industry than the previous decade. Change has happened rapidly and the way it’s been defined is that’s what customers want. They expect something not just new, but new and almost immediately comfortable. There’s self-checkout, there’s things like that. Those are all new, but if you can bring it in a way of comfort, it seems like you might have a better chance of having the customer embrace it. I assume that it’s a big part of how LIFT takes it to the street.

Akhtar Hussain:
I think that’s absolutely correct. As much as we like to look at the pandemic and COVID-related things in the rearview mirror, which I personally am one of those people, they spurred a lot of change in the minds of consumers. Consumers had to really decide where they were going to do their shopping, what stores they were going to rely on in a safe and convenient manner. I think that even beyond or before the pandemic, these consumer changes were already on the precipice. They were already beginning to evolve, but I think that this time of working from home, of not being in school of social distancing, all these things that we’ve been talking so much about over the past two years, I think they acted as a catalyst for the change that was probably underway beforehand.

Akhtar Hussain:
What we’ve seen in our research coming out of the pandemic is that consumers see their local convenience store as a place that they depend on, and I think that dependence has grown in scope in terms of what the consumers expect or should expect from their local stores. And so we certainly see this as an opportunity to bring additional relevance to the Cenex brand of convenience stores and make sure that we’re using this opportunity of evolving consumer preference to include those things in the remodels and the updating that we’re doing to our stores. We’ve mentioned a few of those, but there has been an immense amount of interest in addressing certain segments of the stores from the interior perspective, like adding self-checkouts, making sure we have modern food choices that are tasty and also are healthy.

Akhtar Hussain:
We’ve seen an increase in not just digital menu boards, but the ability to order through an app, have curbside. So all of these things are being melded together into a common consumer expectation, and that consumer expectation exists, whether they’re visiting a fast-food restaurant, a pharmacy, a convenience store, a grocery store. We need to make sure that we are evolving to meet that changing need, or we may see what life is like if we don’t change, and that’s something we didn’t want to do. And in thinking about all the fantastic stores that I’ve been able to see as part of this project, there is a project we did in Wahpeton, North Dakota. They had had a long standing store there, and it served the community well.

Akhtar Hussain:
When we launched the LIFT initiative, the timing of that, as well as the owners of this store knowing that they had to make some changes, that timing really worked out well. This Wahpeton store that used to just be your traditional I’ve got some pop, I’ve got some sandwiches in the cooler store really morphed itself into this fantastic community resource. There’s a Caribou Coffee with super attractive signage that lets everybody know they can stop for a high quality cup of coffee. They included a gathering space and an interior eating space so that folks who go in and order from the quick-serve retail have a comfortable, brightly lit, clean place to sit and eat their food and visit with others.

Akhtar Hussain:
In addition to the bright exterior with the new halo image and the new LED canopy lighting, we’re seeing that same impact being taken forward inside the store with brightly lit category signage, brand new bathrooms, all the amenities that consumers have come to expect. We don’t have scientific measurements at this point in terms of what this improvement in the store has done to sales, but we do know at least from a foot traffic perspective that it has increased three to four times what this store was doing prior to this remodel.

Jeff Lenard:
What you just talked about is reflected in the April NACS Magazine, where the cover story went through consumer insights. We asked things largely related gas prices but one of the questions was about things popularized by technology or by the pandemic like home delivery, curbside, app checkout and self-checkout. The two things that you mentioned, app ordering and self-checkout, were No. 1 and No. 2 in what consumers wanted. I think that’s great news because it’s a little easier to execute those cost wise than what was further down the list, which is delivery. We’ve talked about delivery as something that people want, but I think in a lot of communities delivery may be nice but it’s very expensive and labor intensive.

Jeff Lenard:
Of course there’s issues with getting labor, but you talked about a community gathering place and coming in, hanging out, still feeling like it’s convenient but it’s at your speed. So hitting on things like app order and then hanging out, that feels fast if you want it to be fast. The good news is people want to go to the store and when they do, it’s a place to hang out. Finding ways to differentiate yourself from the moment they see your store on the side of the road till they come back to your store, hopefully the next day, I think that’s a big deal. Enhancements through LIFT are speaking to the direction that we’re hearing customers want to go.

Akhtar Hussain:
I would agree. And I think that the other portion of this is, again, going back to that flexibility, the fact that not one project, as we look at all the LIFT projects that we’ve done at Cenex locations, hundreds at this point, they are all different. Cenex is a brand well known for its prominence in rural communities and the dynamic of rural communities is a little different than the dynamic of suburbs or inner city convenience stores. We still have some of those, so I think that as our store operators, as Cenex marketers are looking at how they best serve their communities, some of them are looking at how do I integrate delivery? How do I have speedy curbside checkout?

Akhtar Hussain:
Because they are in more of an urban environment and home delivery is more important. However, when you think about a place like Wahpeton, North Dakota, or some of the other more rural areas that the Cenex brand serves, they want that community hangout. They want this safe place to be able to eat their food and have a cup of coffee. And so I think that it speaks to the uniqueness of the Cenex network, it also speaks to the flexibility that we’re giving our marketers in how they go about rebuilding their stores.

Jeff Lenard:
And of course marketers know their market the best. Having that flexibility where maybe you’re near company headquarters, or maybe it’s in a rural or more urban setting, that gets to the heart of another survey point I’d like to touch upon. When we ask people if they would drive five minutes out of their way to save 5 cents a gallon, 64% said yes, and 74% said they would drive five minutes out of their way to go to the store they like. It’s a very nebulous term, but it means how do you serve their needs? Are you fast? Do you provide those healthy options? Do you provide that tasty, fresh food? That’s the opportunity that any brand has to talk to customers and say, we get you, we get this market, and we have something that is very innovative and we can bring it to small towns and big towns. That strikes me as one of the core benefits of the LIFT initiative.

Akhtar Hussain:
Obviously we’ve seen a lot of volatility in the price of fuel as well as many other common household needs of food and travel, and I think t especially in the convenience store industry and selling fuel, that volatility is something that we’ve had to learn to deal with. It’s never happy when the price goes high; however, we need to continue to be delivering on those consumer expectations, even when they may not be thrilled about the price they’re paying at the pump. And so what does that mean? It means that it’s incumbent upon convenience store retailers, specifically ones that care about longstanding relevance to be the place of choice, if people are coming to Cenex locations because they’re convinced they can get the cheapest price on gas, then as soon as they’re not the cheapest, that means we lose that customer.

Akhtar Hussain:
We need to make sure that the experience consumers are having at Cenex locations is a positive one. Your statistic shows that even amid price volatility and high fuel prices that the Cenex brand is going to continue to be the brand of choice, and I think the LIFT initiative sits underneath that perfectly. It’s all about making the stores a place of choice, a destination of choice, whether that be some of these exterior remodels that we’re doing that’s adding all the lighting elements and modernizing that brand from an image perspective. Also all of the in-store improvements that we’re seeing in everything from remodeled bathrooms and countertops to the addition of reach-in coolers and quick serve restaurants.

Akhtar Hussain:
Now, I will say that the way that CHS and the Cenex brand has approached the LIFT initiative is differentiating in the market. The Cenex brand is much like other major oils in the sense that it’s a franchise type of relationship with the store owner, where the Cenex brand has control over the fuel and the presentation of that fuel, but the store owner operates the store. It was a differentiating idea to offer this financing, to get these in-store projects completed because CHS and the Cenex brand doesn’t own those assets. Those are assets that are locally owned by business owners in the community, and so we’re giving those business owners the opportunity to leverage the strength of the Cenex brand on the forecourt and on the price sign,

Akhtar Hussain:
but by also giving them the resources to make sure the interiors of their stores and the improvement in their interiors are requisite with the improvements we’re making on the outside of the store. So clearly from the Cenex brand perspective, we hope that that translates into more fuel sales. But I think on top of that, we know that it’s not just high quality fuel and an attractive forecourt that is going to keep the consumers loyal in the long term. That may have worked 20 to 30 years ago but now we understand that it’s as much about, if not more about, that interior inside experience consumers are having that’s going to keep them local and supporters of the Cenex brand.

Jeff Lenard:
Also in our survey we looked at the difference between frequent and infrequent customers and we categorize people by how many times a week or month they say they went to a convenience store. What we found is the most price sensitive ones were the ones least likely to come inside the store. Those who were repeat customers were less concerned about price. They were more concerned about all those other amenities. As you look at the issue of gas prices, it’s a drain on people’s pocketbooks but they will still find the place that they believe best meets their needs. I want to transition another thing that’s top of mind with everyone. We’re looking at doing a small remodel of our deck got a bid and then my jaw dropped when it went to the cost of materials. With the supply chain shortage and higher cost of goods, doing something on your own might be cost prohibitive, but I would imagine that when you’re buying in bulk, you’re looking at hundreds or thousands of conversions, it’s a lot more economical for anybody to get into a remodel or a refresh.

Akhtar Hussain:
Obviously with the size of ours and remodeling 1,450 stores over four years, supply chain concerns have, as with everybody and almost every segment of the market, we have seen issues with that But I think our scale has certainly helped us negotiate through that in a way that’s allowed us to keep our project on time and our marketers happy with the timelines that it’s taking these projects to complete. We also have wonderful longstanding vendor relationships that we’ve been able to leverage, and so it’s been much more constant communication than I would’ve expected, but because we have those relationships and the scale of this project, we’ve had the ability to buy large amounts of inventory, which helps us stave off those supply chain concerns that also helps us mitigate against kind of knee jerk price increases in certain segments of raw materials.

Akhtar Hussain:
We have seen some price adjustment, but by and large we’ve been able to keep the things we need, keep the raw materials we need, in stock and on hand. We haven’t had great disruption due to some of these supply chain constraints. The other thing that I think has helped us in this project has been the fact that both the exterior remodel and forecourt portion of the LIFT initiative, as well as the facilitation of the financing that we’re providing to get the interior portion of these projects completed, is all happening at CHS, It’s all internal. When you can or have the ability to rely on internal businesses and internal resources, I think in times like this you find that they can be more dependable, and at the very least the communication is there so that you don’t have any last-minute surprises.

Akhtar Hussain:
So the issuance of all the loans that have gone towards these interior projects, they’re all issued by CHS capital, so that’s all done in-house. One thing that we are so excited about is after a year and a half into the project, it was really hard for us to determine some good goals as to how much interior improvement projects are happening. The exterior ones are a little easier for us to predict. We have 1,400 sites, if we have four years, you can do some easy math and figure out I need 250 to 300 sites per year done on the outside, but we didn’t know what to expect for these interior remodels. We’re happy to announce that we’ve issued over $80 million worth of loans in the first year and a half.

Akhtar Hussain:
That is 80 million of improvements going directly into the communities that Cenex serves. So not only is this something that’s good for the Cenex brand and the relevance of the Cenex brand with consumers, we’re putting people, local folks that live in these communities to work with all of these interior remodel projects. Many times these are local subcontractors, local construction companies, that are performing this work. We’re really proud of the way this program has taken shape, not just from the standpoint of improving the Cenex brand, but really about bringing quality and value into the communities that we serve.

Jeff Lenard:
Everything feels like it’s been a pivot for the past two years with retailers, but I think it’s important to find a partner that can help you adjust to the next thing and look long term for how macro or micro trends play out. How can a retailer who’s interested in learning more find out about LIFT and Cenex?

Akhtar Hussain:
We have a number of resources available for either folks currently within the Cenex family or prospective retailers who are not part of the Cenex family today to learn more about the LIFT initiative. One way is to visit our website, cenex.com/lift, that will give a highlight of the program and an overview of what it’s all about as well as examples of projects that have that have happened. If there are folks out there listening that do have Cenex stores and are interested in learning more, they can reach out to their CHS sales representative.

Jeff Lenard:
Thank you for joining us and talking about some of the big trends and how you are looking at them in terms of not only addressing today’s consumer demands, but demands in the next few years.

Akhtar Hussain:
Thank you, Jeff.

Outro:
Convenience Matters is brought to you by NACS and produced in partnership with Human Factor. For more information, visit convenience.org.

show less