Sheetz, Inc.

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Sheetz, Inc.

5700 6th Avenue
Altoona, Pennsylvania 16602-1111
U.S.A.
Telephone: (814) 946-3611
Toll Free: (800) 487-5444
Fax: (814) 946-4375
Web site: http://www.sheetz.com

Private Company
Founded: 1952
Employees: 10,650
Sales: $3.3 billion (2005)
NAIC: 447110 Gasoline Stations with Convenience Stores

Sheetz, Inc., is a private company based in Altoona, Pennsylvania, that owns and operates more than 325 Sheetz convenience stores in Pennsylvania, Maryland, North Carolina, Ohio, Virginia, and West Virginia. Like most convenience stores, Sheetz sells gasoline, cigarettes, beverages, and miscellaneous grocery items, but the chain's emphasis is on fresh food. The stores rely on a touchscreen computer ordering system to allow customers to build their own sandwiches as well as order other food items prepared in the store's open kitchen 24 hours a day. The chain is also known for its made-to-order coffee, offering its own specialty blend. Sheetz stores are larger than most convenience stores, averaging around 4,200 square feet, while newer units are around 4,700 square feet and include 16 to 20 gasoline-fueling stations. In addition, Sheetz, long known as an innovator in the convenience store trade, operates a pair of "convenience restaurants" more than 10,000 square feet in size, offering an expanded menu and seating. The company is owned by the Sheetz family, half a dozen members of whom fill top executive posts.

COMPANY FOUNDED: 1952

Sheetz traces its history to 1952 when founder G. Robert Sheetz bought one of his father's Sheetz Dairy Stores in Altoona after working for his father for several years. In addition to milk and ice cream the dairy stores featured a deli where Bob worked as a short-order cook. As a result, he was well aware of the high margins that could be achieved in prepared food sales, but in the early years he used 7-Eleven as a model for growing his store. It was not until 1962 that he opened a second unit, which he christened Sheetz Kwik Shopper. A third store was added and in 1969 his brother Steve joined the business.

The initial goal of the Sheetz brothers was to build the number of Sheetz Kwik Shoppers to ten, a mark surpassed by 1972. Bob Sheetz set a new goal: 100 stores. As the chain expanded it also began to make its mark as an industry innovator, although for a while it followed the lead of others. In 1973 Sheetz added gasoline pumps, a move that was becoming standard in the convenience store field. Self-service coffee was added in 1975. The chain began toying with staying open 24 hours a day, another growing concept. In 1976 the chain expanded beyond Pennsylvania and began building stores in Maryland. By the end of the decade, the chain numbered 62 units, all open 24 hours a day and renamed Kwik Shopper. During this period Sheetz also started to experiment with serving hot food. For years convenience stores had offered hot food, but what they had to offer were cellophane-wrapped sandwiches to be heated in toaster or microwave ovens, or perhaps canned soups and chili. Beyond speed and convenience there was little to distinguish this fare. However, as Bob Sheetz well knew, prepared food boasted an attractive profit margin, and the company moved to take advantage of the opportunity. The company experimented with a café look but scrapped this approach for the time being. Instead, the first significant step in building a foodservice segment came in 1981 with a two-for-99-cents hot dog promotion, supplemented by some prepared foods.

Also in 1981 Bob Sheetz's son, Stan, joined the company. After earning a business management degree from Bentley College followed by a master's degree in financial management from Pace University, he spent several years in New York City gaining experience with other companies before returning home. He entered the picture at a time of significant change at the family business. The Kwik Shopper name was dropped in 1983 in favor of Sheetz. In addition to hot dogs, the 85 stores in the chain added doughnuts, video games, and ATMs. A year later the chain reached the 100-unit goal, and in 1984 Bob Sheetz turned over the reins to his brother Steve and retired to Boca Raton, Florida.

INTRODUCTION OF MADE-TO-ORDER PROGRAM: 1986

Under Steve Sheetz's leadership the company moved into West Virginia in 1985, and the following year introduced its Made-To-Order (MTO) line of sandwiches, subs, salads, nachos, and breakfast sandwiches to some of the stores. At the time, orders were taken by hand, but the MTO approach set the stage for what was to become the trademark of the Sheetz chain. During this time Sheetz also began to lose some of its focus, drifting into fast-food franchising, opening Mister Donut shops and Häagen-Dazs ice cream stores. The company also opened new Sheetz units at a furious pace, more than 50 in just three years. For a time, the contribution of the additional stores to the balance sheet masked a disturbing trend: sales had leveled off, a fact that did not become apparent until 1987. Consultants were brought in to analyze the situation and it soon became clear to Steve Sheetz that he was at the root of the problem. He had been relying on the vision of his brother and simply lacked a clear idea of where he wanted to take the company. With outside help he was able at least to more clearly define his role in the organization, and from that flowed clearer job descriptions for his chief lieutenants and a general change in corporate culture. The company began to listen more closely to both its customers and employees and made changes. As a result, sales began to grow once again for the Sheetz chain.

The MTO program was clearly the growth engine for Sheetz as it entered the next decade. In 1990 the company invested $14 million in capital improvements in order to add MTO to all stores, which were built around a food station. The stores also added the technology needed to accept credit cards. The expansion pace picked up again, as Sheetz entered Virginia in 1991 and the chain reached 150 units. A dozen more stores were opened the following year. Further expansion was curtailed when the company underwent another round of introspection as profits began to decline, this despite the increase in business that came from a redesign of the stores that allowed more products to be stocked and the introduction of pay-at-the-pump technology. Stan Sheetz took over as chief executive while his uncle assumed the chairmanship in 1995. The 11 company-owned franchised restaurants were divested and Sheetz launched a reengineering project, first aimed at the store level and later, in 1997, aimed at the corporate level. The business was streamlined, savings achieved, and the bottom line of the balance sheet began to fatten.

COMPANY PERSPECTIVES

We really care about our customers. Our mission at Sheetz is to provide fast, friendly service and quality products in clean and convenient locations. We work hard to make sure we deliver on our Mission promise everyday.

We continue to reinvent ourselves and bring innovation to our industry. In fact, our Vision is to create the business that will put Sheetz, as we know it today, out of business. That's what keeps us on top and keeps us focused on ways to make our business even more successful in the future.

Better organized, Sheetz resumed growth in 1997, expanding into Ohio. It was also in 1997 that the company rolled out touchscreen ordering systems in all of the Sheetz stores, costing between $5,000 and $6,000 for three units for each store. Not only did the automated system eliminate errors that occurred under the old system, which required that the customer check off what they wanted on a paper slip that was handed to a counter person, but the pictures of available extras on the screens enticed customers to spend more money. Sales of bacon, for example, increased by 70 percent after the introduction of the touchscreens. Takeout sales in general also increased by as much as 10 percent, and the computerized system was tied into the cash register through an order number, speeding up the time it took to ring up a transaction.

Despite enjoying its best year ever in 1997, Sheetz still had plenty of bugs left to work out, however. According to National Petroleum News, "After extensive research, Sheetz found three problems with its customer base: only 30% of the gasoline customers bought food; the morning coffee sales were strong but the breakfast sales were weak; and younger customers did not have a relationship with Sheetz." To address these problems, the company redesigned the stores. The front atrium was opened up and large pictures of sandwiches were posted in the windows to market to people pumping gas. Inside, the kitchen was made more visible to demonstrate food safety as well as provide some entertainment value. To build up breakfast sales, the chain introduced ready-to-grab-and-go sandwiches. The first was an egg-and-cheese sandwich on an English muffin called a Smuffin, which was made fresh and could be supplemented with ham, steak, bacon, or sausage. The new sandwich was a major success, leading to the addition of the Shmiscuit, and other Hot'n' Ready breakfast sandwiches. In the morning premade sandwiches could be found in warmers by the cash register to be purchased as an impulse buy or for people in a hurry who stopped in for coffee. "The Fixin' Island" for coffee preparation was also added to the store layout, boosting coffee sales. Finally, the company made a concerted effort to study the nature of the younger clientele, destined to become Sheetz's future customers.

Sheetz had done well building a breakfast and lunch business, and began looking to take advantage of its 24-hour kitchen by growing prepared food sales after four o'clock, thus grabbing some of the dinnertime market. Not only was increasing food sales an opportunity, it was becoming very much a necessity, a way to offset the declining sale of cigarettes, one of the traditional core revenue streams of convenience stores. At the start of the new century Sheetz began to develop a concept that would take the marriage of freshly prepared food and the convenience store to its logical conclusion: the convenience restaurant. Research on the project commenced in September 2001, and in February 2002 some 20 Sheetz executives met at a Pittsburgh-area resort to brainstorm on the design of a prototype and the elements of the new store. A retail design firm, Ohio-based Chute Gerdeman, was then hired to flesh out the idea. The result was a 10,200-square-foot convenience store with gasoline pumps. It included 108 seats (60 inside and 46 outside), touchscreen order stations, digital menu boards, an espresso bar, wireless Internet access, large-screen televisions, and DVDs that could be rented through a vending machine. New made-to-order menu items included brick-oven pizza and subs, paninis, handcarved sandwiches, and a new line of salads. The first Sheetz convenience restaurant opened in the company's hometown, Altoona, in early 2004, also significant because it was the chain's 300th unit.

OPENING OF NEW DISTRIBUTION CENTER: 2001

By this time the chain was supported by a $22 million distribution center that opened in Claysburg, Pennsylvania, in September 2001. The 360,000-square-foot site replaced a pair of facilities owned and managed by third parties, which also bought the chain's groceries and other products in addition to acting as a distributor. By taking these functions in-house to a modern, efficient warehouse, the company saved money and boosted profits. Quality control was also improved. The new facility mirrored the chain's product offerings: 157,000 square feet to house and process dry goods, 41,000 square feet for refrigerated items, and 26,900 square feet for frozen foods. In addition, there was 10,500 square feet of space available for administrative functions.

KEY DATES

1952:: Bob Sheetz founds company.
1962:: Second stores open under Sheetz Kwik Shopper name.
1973:: Gasoline pumps are added.
1983:: Kwik Shopper name is dropped.
1990:: Made-To-Order program is added to all stores.
1995:: Stan Sheetz is named chief executive.
2004:: First "convenience restaurant" unit opens.

While it was working out its convenience restaurant concept, Sheetz also opened its first shopping mall food court entry, a coffee kiosk located in the Hanes Mall in the Winston-Salem, North Carolina area. Of further significance, the new store introduced a specialty coffee, Sheetz Bros. Coffee, which would then be introduced to the other stores in the chain. Moreover, the mall store was part of an effort to enter the North Carolina market. The state was considered important enough in the company's future plans that the second Sheetz convenience restaurant opened there in early 2005.

After a thorough overhaul of its operations Sheetz was a well run, well respected organization. Nevertheless, it was susceptible to problems that came with fresh food preparation. In July 2004 about 400 Sheetz customers became ill with salmonellosis, caused by a bacteria-infected shipment of Roma tomatoes. Within hours all tomatoes and lettuce were removed from the stores and warehouses, and all food-handling equipment in the stores was sanitized overnight. Although blame was eventually assigned to the supplier of the shipment, Sheetz had to deal with the affected customers and the media. It moved quickly to provide every bit of available information to the press and employees, and management quickly spread out to visit individual stores to thank employees and customers for their support despite the outbreak. Newspapers and television stations were also invited to take pictures of them eating sandwiches with lettuce and tomatoes to reassure the public that the problem had been contained. Moreover, the company began settling the lawsuits that were filed by affected customers. Almost all of them were settled by the fall of 2006.

With the salmonella incident behind it, Sheetz resumed growing the business. While management remained interested in moving more in the direction of the convenience restaurant, it was cautious about making a further commitment to the large prototype. The Altoona and Raleigh units essentially served as a place where the company could test out new menu items and other innovations. Stan Sheetz told the Richmond Times-Dispatch that the idea of large convenience restaurants was a "big leap," adding, "It is hard to go from evolution to revolution, and those were a revolution. Now we are headed back to evolution because it is a lot easier to manage than a revolution."

Ed Dinger