The Pantry, Inc.

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The Pantry, Inc.

1801 Douglas Drive
Sanford, North Carolina 27331-1410
U.S.A.
Telephone: (919) 774-6700
Fax: (919) 775-5428
Web site: http://www.thepantry.com

Public Company
Incorporated: 1967
Employees: 9,025
Sales: $1.68 billion (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: PTRY
NAIC: 44512 Convenience Stores

With 1,215 convenience stores, The Pantry, Inc. is the second largest convenience store operator in the United States, behind 7-Eleven. Based in Sanford, North Carolina, the company’s stores are located in the Southeast near tourist attractions such as Disney Land and Myrtle Beach. Whereas most stores are located in the Carolinas and Florida, others are located in Kentucky, Tennessee, Virginia, Indiana, and Georgia. The company’s stores operate under the names The Pantry, LiF Champ, Quick Stop, Depot, Food Chief, Express Stop, Dash N, Smokers Express, ETNA, and Sprint. Some stores have fast-food outlets such as Subway and Taco Bell. Stores are generally stocked with tobacco products, beer, soft drinks, self-service fast foods, candy, snack foods, newspapers, magazines, dairy products, canned goods, and health and beauty aids. About one-half of the stores’ sales stem from fuel, and about one-third of nonfuel sales stem from tobacco products. Investment firm Freeman Spogli & Co. and Chase Manhattan Capital Corporation acquired a controlling interest in the company in 1995. In 1999 The Pantry launched an initial public offering to pay off debt accrued from its many acquisitions.

A Quiet Beginning in 1967

The Pantry was founded in 1967 in North Carolina by businessmen Sam Wornom and Truby Proctor, Jr. The company expanded slowly at first and was described as being “steady and stable,” and “a quiet organization niched in the Carolinas, Kentucky, Tennessee, and Indiana.” Wornom and Proctor acquired new stores by borrowing against existing stores and paying off debt with new sales. The Pantry was profitable during the 1960s and 1970s and faced few obstacles. Its situation changed in the 1980s, however. Like many other companies, The Pantry was affected by the savings-and-loan bailouts and leveraged buyouts. Its sales dropped. Without cash for renovations, its stores deteriorated. The Pantry had no direction and little hope for the future.

Founder Wornom sold his stake in The Pantry to Montrose Capital in 1987. Montrose was renowned for its famous share-holders, including Dave Thomas, the founder of Wendy’s, and Wayne Rogers, the former Trapper John on the TV series M*A*S*H. The company was founded by former Duke University professor Clay Hamner. Montrose gained control of The Pantry in 1990 when it purchased half of cofounder Proctor’s shares; Proctor remained CEO.

The Pantry was still struggling in the 1990s. In an effort to get back on track, the company restructured. It closed unprofitable stores and remodeled others. These efforts were futile, however. The Pantry posted losses in 1991 and 1992. It posted a small income in 1993 but another loss in 1994. To make matters worse, The Pantry had too much debt to acquire new stores, which would have helped increase its sales.

Freeman Spogli & Co. in 1995

Tension between cofounder Proctor and Montrose’s Hamner led Proctor to sell his remaining shares in The Pantry in 1995 to Freeman Spogli & Co., a Los Angeles-based investment firm specializing in management-led buyouts. Chase Manhattan Capital acquired the rest of the company from Montrose. Freeman Spogli & Co. had tremendous financial resources and the buyout presented great opportunities for The Pantry. Gene Home, the company’s president and CEO, concluded that with Freeman Spogli & Co. The Pantry had “the infrastructure to go to 1,000 to 2,000 stores.” Home was right, but was not destined to be a part of it.

The following year, Peter J. Sodini took Home’s place as president and CEO. Prior to his appointment, Sodini was the CEO of Purity Supreme, Inc., a grocery store chain in New England. Industry analysts credited Sodini with attacking The Pantry’s problems head-on and turning the company around.

At the time of his appointment, Sodini described The Pantry as being “in flux.” Using resources from Freeman, Spogli & Co. he gave the company direction. Unlike some competitors, Sodini decided against turning its convenience stores into elaborate food stores and decided instead to concentrate on the sale of gas and tobacco. “We like to focus on what we think we do well, which is to run a basic convenience store selling gasoline and the usual amenities you find in the store,” he explained.

Sodini was displeased with The Pantry’s management, so he replaced many executives with allies from his former employer, the Purity Supreme Grocery Store chain. “Although they didn’t have gasoline experience, what they brought in terms of being able to further enhance the merchandise side of their business was significant,” Sodini said in Convenience Store News.

When it came to gasoline, Sodini himself had no experience. Ironically, this worked to his advantage. According to Investor’s Business Daily, Sodini quickly realized that most convenience stores selling a lot of gas were not making as much money as they could be, since merchandise brings in higher profits than gasoline. Sodini thought this was also true of The Pantry’s stores. “Not much thought was going into the adjoining stores and merchandise,” he said. Using his supermarket expertise, he struck deals with suppliers and stocked the company’s stores with 25 percent more merchandise than other convenience stores.

Sodini realized, however, that while merchandise helped boost sales, the sale of gasoline was still critical to the company’s success. What made him different from competitors was the way he viewed gasoline. Said one analyst in Investor’s Business Daily, “Most of the top convenience store operators are owned by oil companies, whose focus is to sell more gas. But to Sodini, pumping gas is like selling milk. It’s a commodity that has to be competitively priced.” The Pantry lowered the price of gas and cigarettes, which helped it compete better with other convenience stores.

Like many other convenience stores in the Southeast, The Pantry was plagued with a high employee turnover and a shortage of employees. To entice employees to sign on and stay, The Pantry paid higher-than-average wages. It also offered many opportunities for advancement and remodeled its stores. “People would rather work in a nice store versus a dump,” Sodini commented in Petrogram.

Some of the renovations Sodini initiated included increased lighting in its stores, a new logo, and fresh paint. The Pantry painted many of its stores in local college colors. Its efforts proved worthwhile. The company’s sales went up, and it further implemented its strategy of cutting prices to increase sales.

Lil’ Champ in 1997

In late 1997 The Pantry got word that the 479-store Lil’ Champ convenience store chain was for sale. (The Lil’ Champ chain was named after founder Julian Jackson, a bantamweight boxing champion in the 1930s.) Analysts believed the Tosco Corporation, the leading independent oil refiner and oil maker in the United States, would buy the chain. Tosco had purchased Circle K, the second largest convenience store operator in the country, two years earlier. The Pantry emerged victorious, however, and acquired the chain for $132.7 million and outstanding debt. Lil’ Champ Food Stores, Inc. had 430 stores in northern Florida and 49 in southeastern Georgia.

Although The Pantry was delighted with its new acquisition, Sodini was quick to point out that the situation was not perfect. “Many of the Lil’ Champ stores were outdated. Many featured only single-hose product dispensers instead of the more popular multi-product dispensers. About 125 facilities didn’t meet federal underground storage tank standards,” Sodini said in Convenience Store News. “You could say that it was the ugliest mass of stores, but it was still a critical mass,” he explained. The Pantry decided to immediately remodel most of the Lil’ Champ stores and update them to meet federal standards.

Quick Expansion in the 1990s

The Lil’ Champ acquisition was the beginning of a buying spree for The Pantry. It acquired a string of small and mid-sized convenience store chains that it described as “tuck-ins.” It also opened some stores in carefully selected markets. “Right now we’re like the Statue of Liberty,” Sodini told Convenience Store News. “Send me your weak and suffering and we’ll buy you.” In most cases, The Pantry did not change the name of the convenience stores it purchased. Sodini believed that high-quality stores with good sales should be left alone. An exception to this was the Lil’ Champ stores, which were run-down and had a poor image. Sodini renamed some of these stores Sprint, suggesting “fast, quick service.”

Key Dates

1967:: Businessmen Sam Wornom and Truby Proctor, Jr., found The Pantry.
1987:: Wornom sells his stake in the company to Montrose Capital.
1990:: Montrose purchases half of Proctor’s share in The Pantry.
1995:: Proctor sells his remaining stake in The Pantry to Freeman, Spogli & Co; Chase Manhattan Capital acquires the rest of the company.
1996:: Peter J. Sodini is hired as CEO and president of The Pantry.
1997:: The Pantry purchases the Lil’ Champ convenience store chain from Docks U.S.A.
1999:: The company launches its initial public offering and acquires Handy Way convenience store chain.

In 1998 The Pantry acquired almost 155 stores through the acquisition of smaller chains. Included in these purchases was the acquisition of Quick Stop, a 75-store chain in the Carolinas, and 41 Zip Mart stores in North Carolina and eastern Virginia.

The following year The Pantry acquired 126 Handy Way stores in central Florida from Miller Enterprises. Many of the Handy Way stores had fast-food outlets such as Hardee’s and Subway. The Pantry also purchased 28 stores operating under the Food Chief name from Dilmar Oil Company in South Carolina. The stores were located in high-traffic tourist markets such as Myrtle Beach. Sodini believed the Food Chief acquisitions would significantly enhance the company’s already strong presence in South Carolina.

During the same year, The Pantry acquired 49 convenience stores operating under the trade name Kangaroo from Kangaroo, Inc. The purchase helped establish the company’s presence in Georgia.

In 1999 The Pantry rose from being ranked the 33rd largest chain in Convenience Store News Top 50 Companies to the tenth. Under the direction of Sodini and his new management team, the company had grown from about 400 stores to more than 1,200. Revenues had risen from $427 million to $985 million.

An IPO in 1999

To pay off debt from its many acquisitions, The Pantry went public in June 1999. The company sold 6.25 million shares of common stock to raise $75.6 million in net proceeds. With its debt under control, the company was positioned for further expansion. Some of its many acquisitions included 12 On-theWay Foods stores from the Me Knight Oil Company; ten of the stores were in southwest Virginia and two were in North Carolina. The Pantry also purchased 14 MiniMart stores from Oates Oil Company, located in South Carolina. The MiniMart purchase made The Pantry the largest convenience store operator in South Carolina.

Also in 1999 The Pantry purchased 19 stores from Tip Top Convenience Stores, Inc., operating under the name Big K. Big K stores were located mostly in Mississippi and Alabama. The Pantry also acquired the five-store Market Express convenient store chain in Sumter, South Carolina, and an Amoco station in Hilton Head, South Carolina.

The Pantry’s many new stores caused a surge in sales and profits—in 1999 The Pantry posted a net income of $10.4 million on revenues of $160 million. For the second quarter ending in June 2000, The Pantry posted a net income of $6.2 million on revenues of $643 million.

Future Expansions

While The Pantry’s aggressive acquisition strategy made it profitable, the convenience store business was highly competitive and vulnerable to rising fuel prices. The Pantry posted a net loss of $2.5 million in the first quarter of 2000; the company attributed the loss to a surge in the price of gasoline. Although the Pantry continued to acquire new stores in 2000, Sodini stressed that he did not have a specific goal in mind. He said the company might or might not continue to expand, depending on whether the right opportunities presented themselves. In 2000 the company’s top priority was to remain profitable. “We’re not into collecting trophies and we’re not in this as a philanthropic venture,” said Sodini.