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Convenience stores differed from grocery and drug stores in that they were smaller, carried fewer products, and stayed open longer. Stores averaged about 2,700 square feet of selling space6 and offered a range of items including hot and prepackaged foods, fountain and bottled drinks, grocery items, coffee, snacks, beer, tobacco products, and lottery tickets; some of the larger chains also offered private-label foods and drinks. Convenience stores offered customers a quick shopping experience; the average customer spent only three to four minutes from arrival to departure.7
There was a great variety in the scope of operations and range of products. U.S.-based 7-Eleven operated 32,000 stores in North America, Asia, Europe, Australia, and Mexico8 while Sheetz operated 365 stores across six states in the eastern U.S. and specialized in made-to-order fresh food items.9 Some convenience stores offered dining areas; some shared retail space with fast-food restaurants, banks, and other retailers.10
QT was founded in 1958 in Tulsa, Oklahoma by childhood friends Chester Cadieux—Chet’s father—and Burt Holmes. After graduating college and serving three years in the U.S Air Force, Cadieux wanted to start his own retail business and found a partner in Burt Holmes. The two decided to open a convenience store. Their first location was in their hometown of Tulsa and sold only groceries. In the early years, Cadieux worked the night shift alone, which, he later joked, earned him the right to be president and CEO. He held both positions for over 40 years until succeeded by his son Chet in 2002. (See Exhibit 1 for QuikTrip’s major milestones.)
Under Cadieux’s leadership, QT expanded into large Midwestern metropolitan areas in the late 1960s and then into other large U.S. cities. Initially, QT’s growth strategy was to open stores piecemeal in small towns around its major Midwestern markets.11 Cadieux observed that, while this offered employees rapid promotions, it placed inexperienced employees in critical jobs.12 Cadieux scrapped this strategy when he realized that small markets would not generate enough profit for future large-scale growth.13 QT ultimately closed stores in 37 small markets to focus on what Cadieux called the “3Ms—Million Metropolitan Markets—those markets that have populations exceeding a million.”14
In 1971, QT started selling gasoline and closed stores that could not support pumping stations. It required a large upfront investment to enter this highly competitive business and it was more than two decades before QT had established a reputation for selling high-quality gas at low prices. In the mid-1990s, the company invested millions of dollars in improving the quality of its gas and began a new advertising campaign which involved handing out coupons for free gas, giving away floor mats through car dealers and mechanics, and offering to fix any car problems caused by QT’s gasoline.15 Chet explained:
My father worked mercilessly to get better supply-chain advantage, quality, branding, and prices to become the best at selling gasoline. Our branded gasoline is now recognized as top- tier by companies like BMW and Audi. Our customers perceive us having both great quality and the lowest price. And we’re confident about the future of our business because our breakeven on gas is lower than any of our competitors. That means that, if, someday, people quit buying gasoline, all of our competitors will go out of business before we do.
In the 2000s, food industry experts stated that close to one-fifth of all meals in the U.S. were eaten in the car16. QT, observing this trend and hearing from its own customers that they wanted to buy fresh food on the go, decided in 2007 to sell fresh food. Ron Jeffers, vice president of operating systems, explained: “Our customers used to take our products home to cook. But now they are very active, constantly going from activity to activity. And they want food they can eat while driving to the next activity. Mealtime is not a time they want to spend.”
Instead of preparing fresh food in the stores, QT decided to invest in developing centralized QuikTrip Kitchens (QTKs), which prepared and delivered fresh foods—never-frozen baked goods, sandwiches, salads, and fruit—to each store daily. On entering the fresh-food market, QT set out to become the best gasoline, convenience, and food retailer in the eyes of its customers, competitors, and employees. Chet knew, however, that it would be a while before customers could equate convenience stores with good food.
“Our challenge is to be recognized as a gasoline retailer that also sells good food. Our QTKs were intentionally built for much higher volume than we run today. That means that we are operating well below capacity and, as a result, right now they lose millions of dollars a year. I know that and I don’t mind because I am confident that it will pay off in the long term. Like my father did with gasoline, we are going to work on food until we perfect it and reach that high volume. “
QuikTrip in 2011
By January 2011, QT had over 10,000 employees, owned and operated 549 stores in 11 U.S. metropolitan areas (see Exhibit 2 for QT’s markets and dates of entry), and generated more than $8 billion in yearly revenues. Gasoline accounted for two-thirds of revenues but only one-third of profits; two-thirds of profits came from store merchandise.
Store merchandise included fresh prepared foods, snacks, tobacco products, beer, grocery items, and bottled, fountain, frozen, and hot beverages. QT also sold private-label food and drink items, including its QT-branded coffee, energy drinks, sports drink, and frozen shakes as well as its Hotzi brand breakfast items and the fresh-food items sent daily from its QT Kitchens. QT kept prices competitive by only offering the core products its customers wanted and selling them in high volumes. “In all categories we sell, we are a price leader in the convenience channel,” Chet explained. “In high-volume categories like soda, beer, and gasoline, our prices are as cheap as Wal-Mart’s.”
QT stores were highly productive. In 2010, merchandise sales per labor hour was $94.67 for the top quartile of convenience and gas stores, $85.50 for the average convenience and gas stores, and $142.30 for QT. QT stores had much higher sales volume than competitor stores. Merchandise sales per square foot for the top quartile of the industry was $13.83 per week, with an average store size of 2454 square feet. Merchandise sales per square foot for the average in the industry was $10.04, with an average store size of 2000 square feet. For QT, merchandise sales per square foot was $15.48 per week, with an average store size of 4343 square feet. Motor fuel sales for the top quartile of the industry was 43,889 gallons per store-week and for the average 29,044 gallons per store-week. The same metric for QT was 91,995.
Many in the company attributed QT’s success to the systematic practice of five core values by all employees, from part-time store clerks to the CEO. These were: (1) Be the best, (2) never be satisfied, (3) focus long-term, (4) do what’s right for QT, and (5) do the right thing. Focusing on the long term, even when it came at the expense of short-term financial losses, drove big investment decisions as well as small operational decisions. For example, recognizing that clean bathrooms would bring more traffic into the stores, QT invested $12 million over three years to renovate its bathrooms. Determined
to maintain a “family environment,” QT did not sell drug paraphernalia, rolling papers, or pornographic magazines, although some of these were popular and profitable items. Chet provided an example of QT’s willingness to take on even a long-term loss for the long-term good of its employees:
When I became the CEO, I realized that there were hundreds of employees who had been working for us for many years and who were working until midnight many days of the week. That made it very difficult to have a normal life with a family. The only way to change that was to add a full-time person in every store. It cost us $10 million a year for the rest of the company’s history. I believe that it reduced turnover. It probably would have been difficult to do this if we were a public company.
QuikTrip remained privately held and ranked 37th on the 2010 Forbes list of America’s largest private companies.17 The Cadieux family owned 65% of QT, upper management owned 13%, outside investors owned 10% and the remaining 12% of stock was owned by employees through QT’s stock- ownership and profit-sharing/401K plans.
QuikTrip’s purpose is to provide an opportunity for employees to grow and succeed. — QuikTrip’s Purpose Statement
Since its beginnings, QT had focused on finding the best people, paying them well, and promoting from within. However, company culture had changed significantly over time. During its first decades, QT was highly results-oriented and store operations were militaristic. As Jeffers explained, “Until the draft ended in 1973, most employees had served in the military and were used to an autocratic system. In the years after, new employees without military experience clashed with our ‘Yes sir, no sir’ type of mentality. We had two cultures clashing.”
By the mid-1980s, Cadieux appreciated that QT’s culture needed to change when he saw that some store managers and supervisors focused more on results than on how they achieved those results. After some employees complained to Cadieux that they felt disrespected and mistreated by their managers, he sent a memo to all managers expressing his anger at how some employees were treated. (See Exhibit 3 for Cadieux’s memo.) At this point, Cadieux determined that QT needed to standardize store policies and procedures. As he put it, the company “had become large enough to act more responsibly.”18 QT began recording and standardizing policies regarding disciplinary procedures, sales, performance evaluations, and much else.19
QuikTrip’s 1995 Reengineering Initiative
But in 1995, QT’s senior management still sensed that the chain was not delivering consistent levels of operational excellence across all its regions. (See Exhibit 4 for QT’s purpose and core values statements.) Jeffers elaborated: “Before the mid-1990s, our standards were vague. Basically, who you worked for was the rule book and managers had a lot of subjective judgment. For example, one standard was to look professional—such as no facial hair or visible tattoos—but we never specified what that meant and each store manager interpreted it differently. So in 1995, we launched a major reengineering effort.”
Jeffers, QT’s director of operations at the time, worked with 13 store managers from across the company for a year and a half to analyze and reevaluate QT’s processes and policies.20 They mapped
store operations, then timed and standardized them. They each spoke with thousands of customers to understand what QT’s clientele valued or wanted changed in their QT experiences. They also created standards for how employees and stores should appear in an effort to create a consistent shopping experience. “It was important to involve store managers in this process because that generated huge buy-in,” Jeffers explained. “The managers were the ones mapping the processes, timing them, and talking to customers. And once we were finished, it was the managers who explained what we did and why to everyone.” From this effort, QT established new policies and procedures regarding customer service, store appearance and layout, training, employee dress and appearance, the daily activities worksheet (DAW), and the first standardized mystery shopper questionnaire.
As part of this reengineering effort, QT also created processes to involve employees in process improvement. The company created resource groups for every position in the store, from part-time clerk to store manager. Members of a resource group within a divisiona got together and discussed problems and improvement opportunities related to store processes or products. Based on these meetings, managers from each division recommended process or product improvement opportunities to corporate. Store managers in the resource group were chosen by division managers and the other group members were voted on by store managers once a year.
QuikTrip Store Network
QT stores were open 24 hours a day, 365 days a year. All stores had a standard layout and merchandise selection determined by the corporate office to provide a consistent shopping experience across all regions. All stores had unlocked multi-person restrooms. In 2010, QT began experimenting with a new Generation 3 (Gen3) store format. (See Exhibit 5 for store images.) Gen3 stores were 20% larger than standard QT stores and featured coffee bars with premium beverages as well as a broader range of fresh products. Both customers and employees were enthusiastic. On average, these stores sold twice as much as a regular QT store and the coffee, ice cream, and smoothie sales actually exceeded cigarette sales. It was expected that most new stores would be Gen3.
Because most customers drove to QT, the stores were in stand-alone locations with ample parking and enough fueling terminals to ensure quick service. Chet explained: “There are many things we are great at, but there are two things we are the best at—choosing the best people and choosing the best locations.” Store locations were chosen using an internally designed statistical model that took into account the demographics, crime rates, and vehicle traffic of any given location and estimated total market sales volume and how much revenue the new store could expect to draw from nearby competitors.
About 70% of store merchandise came directly from QT distribution centers (in Atlanta, Kansas City, and Phoenix) or QT Kitchens (in Atlanta, Kansas City, Phoenix, and Tulsa), while 30% came directly from vendors such as Coca-Cola and Frito-Lay. QT Kitchens delivered to each store daily, while QT distribution centers delivered three times a week. Typically, a truck from a QT distribution center served 12 stores and one from QT Kitchens served nine stores. Stores did their own ordering from QT distribution centers, but ordering from QTKs was decided centrally by each division.
a QT stores were divided into nine divisions based on geography.
Customer Service at QuikTrip
QT found it hard to describe its typical customer. Many customers shopped daily for their morning coffee, paper, or doughnut. Others visited several times a day. About half of transactions came from customers who shopped at QT at least once a day. For some, QT was the neighborhood convenience and gasoline retailer, while others stopped in on the way to work—or during work—for lunch or coffee. Many customers shopped at multiple QuikTrip stores—close to work, close to home, on the way to the gym—and would drive past other retailers to find a QT (see Exhibit 6 for customer loyalty in gasoline and QT’s market share in gasoline in different markets).
QT differed from other convenience stores by offering fast and friendly customer service and meticulously clean stores and facilities. Kevin Thornton, QT’s Atlanta division manager, explained the QT difference: “Every convenience store sells Coke and Pepsi. But we serve the customer faster, in a friendly and clean environment, and have the best prices. We take a lot of pride in this; it’s ingrained in our culture.”
Fast service was essential to QT’s success and differentiation in the convenience store market. Customers came to QT to get in and out as quickly as possible and would not come in if the parking lot or store were full. Store layout was designed to help customers find products as quickly as possible. All stores had the same layout and the same merchandise, so no matter what QT store customers visited, they could find the same products in the same places.
Employees shared cash registers; any employee could use any cash register at any time. Rather than scan high-volume items, employees used speed keys to speed up the checkout. Chet elaborated: “If a customer buys a fountain drink, it is faster to use speed keys and mentally calculate change than to go through the trouble of taking the drink, scanning it, and having the register calculate how much change to give back.” Speed of service increased with experience. Patty Donovan, a store manager with over 15 years of experience, found that she had memorized some of her customers’ shopping patterns and would begin ringing up their purchases before they finished shopping. The company had strict customer-service policies, such as the “Three to One Standard”: There should never be more than three customers per employee waiting at a cash register and customers should never have to stand in line for more than one minute. Available employees were expected to drop everything and help at the registers if more than three customers were in line.
Consistency in speed, friendliness, product offerings, and cleanliness was another source of differentiation. “You can go in to any QT and get the same service,” said Atlanta-area store manager Corey Alverson. “Competitors try. They can copy our layouts and products but they can’t copy our consistency.” QT had developed a number of protocols and safeguards to ensure consistency; two of the most effective were its daily activities worksheet (DAW) and its mystery shopper program.
Daily Activity Worksheet
The DAW was a tool that helped managers in each shift ensure that everything got done. The DAW was divided into three sections: register time, tasks (such as stocking merchandise), and upkeeps (such as cleaning bathrooms and emptying trash). For each shift, the manager would print and post the DAW, which told all employees what needed to be done and when. When an employee completed a task or upkeep, he or she initialed the worksheet, allowing everyone to see which tasks had been completed. Managers could assign jobs to specific employees or simply post the DAW and trust that employees would complete all jobs at their own pace. “We are very careful about what we put in the DAW,” Jeffers explained. “Our belief is that, if you are not going to have a way to inspect
what you want people to do, then don’t bother asking them to do it. If something shows up in the DAW, it’s either on a supervisor’s checklist or part of a customer-service evaluation.”
The DAW also helped with staffing. QT tracked how long each type of register transaction (cash, credit card, or check), upkeep, and task took and combined these data with forecasted traffic and sales data to determine staffing requirements in hourly increments. For example, QT knew that each cup of coffee sold took five seconds of labor to ring up when paid for with cash and ten seconds of labor to keep the coffee area stocked and clean. Based on these estimates, store managers knew how much labor was needed on each shift and constructed schedules for part-time and full-time clerks accordingly.
Mystery Shopper Visits
QT invested in developing its own mystery shopper program to evaluate each store’s customer service. The mystery shoppers were hired by QT’s corporate office, with their identities kept secret from all store employees; they visited each QT store once a week. QT mystery shoppers were paid twice the industry average and could be terminated if discovered. Periodically, a second mystery shopper would visit a store to make sure the first mystery shopper had evaluated it accurately. Mystery shoppers evaluated every element of customer service—employee appearance, store cleanliness, and merchandise—based on standards developed from customer feedback. An employee’s bonus—amounting to approximately 10% of his or her pay—was based on the store team’s performance for the mystery shop. If a store received a 100% score, the employee at the register when the mystery shopper visited was awarded an additional $50 above and beyond his or her regular mystery shop bonus. Every week, about 20% of the stores received a full score.
Jeffers explained how important it was that the mystery-shopper questionnaire had been based on customer feedback: “Up to 1995, the customer-service standards were really set in the boardroom by a board of directors. But now, the standards are based on what thousands of our customers tell us. I think this is still one of the things our competitors miss out on. They want to tell people how to do it from up here. But nobody goes and talks to the real consumer. They want to set a standard based on their beliefs from their day and time and, in many cases, I think they miss the boat because they’re not listening to the people who really bring the money in.”
The questionnaire changed every two to five years or when the stores went through a major change, such as altering the layout. (See Exhibit 7 for criteria used in the questionnaire.) The questionnaire update process was intensive; two store managers from each division interviewed 1,000 customers (500 from urban and 500 from suburban settings) in their division. Interviews lasted 15 to 20 minutes and the customers received five-dollar gas cards for their help. QT also conducted Web surveys that netted an average of 50,000 customer responses each time the questionnaire was updated.
In 2010, the average mystery shopper score for QT stores was 94%, with a very small standard deviation. If the score for a store fell below 85%--a rare occurrence—disciplinary action was taken. QT’s mystery shoppers routinely “shopped” a competitive set across many channels. The competitive set included Chick-fil-A and MacDonald’s fast-food restaurants, HyVee and Kroger grocery stores, Walgreens and CVS pharmacies, Wal-Mart, and several convenience and gas stores including Shell, Chevron, Exxon, RaceTrac, Casey’s, Kum and Go, and 7-Eleven. In 2010, the composite average score for the competitive set was 76.1%. The best score in the competitive set was 85% (Exxon) and the worst was 61% (7-Eleven). Wal-Mart and MacDonald’s scored close to average.
Managing the Store Network
Each store was led by a store manager who was assisted by four other managers: first assistant, second assistant, night assistant, and relief assistant. Each of the three shifts was covered by at least one manager. (See Exhibit 8 for QT’s management and shift schedule.) A single manager often covered much of the night shift, when traffic was low. Managers were assisted by both part- and full- time clerks, the number of which varied from store to store and within each store according to customer traffic. An average store employed 7.2 full-time employees and 8 part-time clerks. The security systems at QuikTrip stores were state-of-the-art and generally considered on par with those of most banks.
Store managers reported to area supervisors, each responsible for 13 to 16 stores. Area supervisors visited stores weekly to walk the sales floor and to meet with the manager to review financials, inventory, employee management, and sales information such as gallons of gas sold and cash imbalances. Area supervisors in turn reported to their division manager, the highest regional executive. In evaluating store performance, QT paid close attention to customer service and controllable expenses—wages, inventory shrink, and spoilage. Sales were certainly measured but were considered less important in employee evaluations because corporate decided what products to sell and how to promote, arrange, and sell them and therefore did not want to hold store employees accountable on these points.
QT measured inventory shrink and cash imbalance frequently. Auditors took a full inventory at each store every 90 days and an inventory of major items every 45 days. In 2010, inventory shrink in convenience stores and natural and specialty food stores in the U.S. was 1.52%,21 while at QT it was 0.6%. A manager beginning a shift performed a cash audit before taking over. If there was an unexplained difference of more than 0.3% of sales or more than $100—whichever was smaller—the previous shift’s manager was documented. For discrepancies greater than $100, the manager would be reprimanded; for $300, he or she would receive a written warning; $500 would trigger automatic termination. Three cameras were trained on the registers; store and division managers could compare the video with register transactions.
However, even inventory took a secondary role to customer service. …