Are you interested in a good origin story? Get ready to learn how the modern convenience ecosystem grew from a bunch of small general stores scattered across the United States into a massive industry with over 150,000 sites and the familiar brands we know and love today. In the inaugural episode of the “How Convenient” podcast, host Bethany Allee speaks with her special guest, PDI CEO Jimmy Frangis. To get the inside scoop on the evolution of the fuel and convenience industry, listen to the podcast here.
Read the transcript
PDI “How Convenient” Podcast Episode 1 Transcript: Bethany Allee and Jimmy Frangis
Bethany Allee (BA): Hello, Jimmy.
Jimmy Frangis (JF): Hey, Bethany. How are you?
BA: I’m good. So with me today is Jimmy Frangis and he is CEO of PDI Technologies. And I am your host, Bethany Allee, and I’m head of marketing and education for PDI. And this is a new podcast. So, Jimmy, welcome as my inaugural guest.
JF: Happy to be your guinea pig.
BA: That’s not what I would call my CEO. Wait. That’s what I said when he walked in the door today. That’s not great.
So, I’ve only been in the convenience industry about five or six years. You have been in the convenience industry for over 25 years. So, Jimmy, I want to talk about the convenience ecosystem. And part of what I acknowledge is that it’s really complex. And if we start to describe it, thinking about the convenience ecosystem, I want to start with a word what I think most people are familiar with. It’s what I was most familiar with coming into this industry, and that’s the convenience store itself.
And, so, if you look at the convenience store itself as the center, I’m most familiar with the convenience store because I know my convenience store has the good ice that I like, so I can get my iced tea with my good ice, and then I usually am fueling up my vehicle. Can you expand upon what the convenience store at the center looks like from you?
JF: Yeah, happy to. And I think like everybody’s got their own kind of reasons for stopping in. So yours is ice and fuel…good ice.
BA: That’s part of it. Also Miss Christy, my kids pre-K teacher, works at my local convenience store. She’s now the manager of it. And so I go in and I catch up with Miss Christy and she asks about my kids and it’s also my post office because I live in a rural area.
JF: So maybe I’ll take a minute to just kind of talk a little bit about the evolution of the store because really the store is kind of at the center of the convenience ecosystem. And when you look at it, the stores today offer a variety of convenience items or offers and what I mean by that is they offer snacks, they offer beverages, they offer fuel, they offer unlimited types of food.
So, there’s been an evolution of the industry to get to kind of what the convenience stores look like today. And really the evolution’s come from two directions. Historically, the one direction it’s been kind of retailers or, in some cases, dairies or small shops that started selling ice or whatever but small shops that were selling a convenient item to consumers that evolved over time, added more, and then ultimately started adding fuel as a product and kind of evolved into the way a convenience store looks like today.
The other side is kind of gas stations that were selling gas, but then sort of evolved over time and added things like snacks and drinks and food, et cetera, to become more like what a convenience store looks like today. So today the stores that you’re describing and going in and getting the items that you like and that kind of evolved from two different directions.
BA: You know, that’s a really good note, right? It helps you understand the fact that because they’re home-grown from different places, that’s part of why the ecosystem is so complex.
BA: So, as we as we look at the convenience ecosystem, we just talked about how the store is kind of the center of the hub of this convenience ecosystem. Can we go back and talk about the fuel side for me? And that once we leave the refinery, where does the first part of what you would consider the convenience ecosystem start and how does that kind of go from there?
JF: Yeah, we typically would draw the line at the rack and the bulk storage is really kind of a little bit downstream from the refinery. So the product is refined and then it goes into storage, and people will refer to that as the rack and, so what we typically would say is fuel is being picked up from the rack and delivered down to kind of a retail store or other commercial and industrial end point, but really we’re talking about convenience here.
So when it goes down to the retail store from the rack to the store, we would typically kind of call the ecosystem starting at that point. If you’re going to start it with the fuel component of the ecosystem, it would start at that point at the rack.
BA: Got it. So while I may not know all of the complexities of our industry, and I’m still learning, but I do understand a little bit about our solution set, which is good. And so we leave the rack and we go to the retailers from there. And so those are the logistics components that are moving the gas from one place to another, the fuel from one place to another.
JF: So typically a store would need a delivery of fuel. And so let’s say if that’s a store as part of a chain, that chain would have a buyer who’s buying the fuel, and so they would place the order, and that order would then get dispatched out to a truck to go and pick up the fuel at the terminal or the rack or the storage facility and they would pick up the fuel at that point and then deliver it down to the retail location.
And so that component kind of dispatching and then the picking up and the delivery of the fuel will be part of the downstream fuel supply chain, which is the logistics component that some of our solutions support.
BA: Got it and I understand that’s so important because my background is I come from the security component. And with that, just understanding where the fuel is seems like it’s really, really important and it’s great that we can give people visibility into that.
So how do wholesalers fit into this? Do they start touching the ecosystem at that point or are they a little bit more downstream?
JF: They would kind of be touching it if that was the wholesalers’ world, but again, there are different layers to the wholesale channel. But, in its most simplistic form, wholesalers are buying fuel from the major oil brands and then they will own and hold that inventory and then resell that fuel down to dealers or kind of retail locations.
And so that’s some of the major oils and particularly in the US market, most of the majors follow a kind of a branded wholesaler model so they will sell fuel to wholesalers. Wholesalers will then distribute that fuel down to either their own retail locations or dealer sites or other third-party locations.
BA: Okay, so now we’ve gotten the fuel and it’s come from the rack and it’s gone either to a wholesaler who will eventually get it to a reseller, or to the retailer itself.
JF: Or the wholesaler may make their own the fuel at the rack. So, again, the terms of the ownership of the inventory, the actual fuel, when the major oil kind of sells that kind of bulk fuel to a wholesaler, that wholesaler may own that fuel at the terminal to the rack. Even a retailer may end up with it. If it’s a large chain, they may own some of the inventory at the terminal as well. But think about it as at the storage facility at the terminal is when typically the wholesaler would pick up ownership of the inventory and then sell and distribute it.
BA: So we’ve mentioned major oils and so I’m assuming major oils are the major brands that most of us are familiar with.
JF: The Shells, Exxon Mobils and BP, Chevron, et cetera.
BA: Got it. And then when we talk about wholesalers, are they names that the general public would be familiar with there?
JF: I would say the general public probably not, unless the wholesaler also retails or has retail locations as well as puts their brand on the retail site. But I would say typically, it would not be household names. Those wholesalers would not be household names.
BA: Can you give me an example of some wholesalers who are also retailers?
JF: Parkland, in Canada. They’ve got a big wholesale business and they’re also retailers. There’s also you know, there’s a lot of smaller regional chains. I mean, like Spinx in Greenville, South Carolina. They run retail locations, but they also have a wholesale business. 7-11 has a wholesale fuel business along with their retail locations.
Pilot, kind of the big Pilot Flying J travel centers, has a big wholesale business as well as, you know, their retail location. But again, most people would identify those companies with their retail site because that’s where they see the brand at the retail location. But many of those companies also have a wholesale operation, which again is part of the complexity of the of the ecosystem. If you’re a company and you own and operate stores, you’re a retailer. But you may also have a wholesale fuel operation. So you’ve got a whole separate operation within your company, but they’re very different. The retail operation is very different from kind of the wholesale fuel operation.
BA: Okay, so we made it from the refinery, we got to the rack, and we’ve entered what we would consider the convenience ecosystem. We got from the rack to the wholesaler or the retailer. So now we’re at the retailer. The retailer is what most people think of as a gas station, right?
JF: It is. It can be a gas station. Yes, I would think we would say that, really today. It’s really a convenience store and a convenience store has multiple offerings, which one of which is gasoline. So, yes, it would be a gas station or convenience store. But there are also many retail locations that are convenience stores that don’t sell gas as well.
BA: Is there anything else that you would consider those retailers within our ecosystem that we haven’t already talked about?
JF: I think we’ve defined kind of the convenience store industry, particularly in the US market. There are about 150,000 stores. My numbers maybe off a little bit here since I’m just going from memory, but about 120,000 of those sell fuel. About 30,000 would be convenience without fuel. But I think that’s really what we would consider to be the core convenience store market in the US.
BA: Do you see more convenience without fuel in urban areas or what is the trend around how we see that?
JF: A lot of it depends on kind of the origin of that particular business. But, yes, you’re gonna see for example, there are convenience stores without fuel up in the Northeast and a lot of those businesses may have started like a great retailer in the in the US, this company called Wawa was in Philadelphia and Wawa started more as a dairy and they had their locations kind of way back for selling milk and then added convenience and then eventually started adding fuel. So a lot of their locations are convenience stores kind of historically without fuel. They’ve embraced fuel now and all their new locations are convenience stores but also with a fuel offering.
7-11 is another great example that started, you know, kind of again way back selling ice I believe, but then added some more convenience items and then became the largest Canadian store company in the world. But in the US, again, a large number of their locations don’t sell fuel.
BA: You know, one of the things is I tried to get to know our customers a little bit better. You mentioned Wawa had started as a dairy. And I didn’t know that.
JF: And they have a really big dairy operation as well.
BA: That’s so fascinating and then we’ve got the United Dairy Farmers, which obviously has a huge dairy operation, but they’re also players in the retail market as well, right?
JF: Yep. Again, a lot of these companies started as you know, whether it was a dairy or there was ice on the settlement side, whether it’s just a sandwich shop, you know, some of these started kind of as a smaller footprint, convenient location serving consumers in that particular geography.
And then, over time, they would expand or modify their business to include other convenient items that consumers demanded or wanted in their particular geography. And over time that became in this case, fuel. It was just an item they felt like their consumers would come for on the lot. They would bother buying convenience items but then also wanted to fill up their car, so they would add fuel.
BA: You brought up a good point when we get to this part of the ecosystem. Not everybody is a fuel player. Some of the people are not involved in the fuel side. And I actually think that kind of takes us through the rest of the ecosystem too. So you’ve got retailers, a lot of them have fuel. Those are fuel retailers. Then you have retailers who don’t have any fuel. It’s a standalone sale, but it’s all of them are in that convenience store in the convenience ecosystem. Where do you go from there? What are the next players that you would touch within the convenience ecosystem?
JF: Well, some of the other kind of players or constituents, you’ve got a few. There are the retail operations, which that’s what we’re talking about and whether that’s with fuel or without fuel, kind of the retail store is kind of the center of the convenience ecosystem. But then there’s the wholesaler, so we talked about the wholesalers supplying fuel.
There are the consumer packaged goods companies which view the convenience channel or the convenience retail operation as a critical channel to distribute their product through. So they reach their consumers through the convenience channel to tobacco companies, in particular, adult beverage companies. A lot of the products sold in convenience stores today might be age-restricted products like tobacco and adult beverages, but a lot of other salty snack kind of fresh food, and a lot of other products are sold through the convenience channel. But the CPGs who are selling their products through the convenience channel would be another major constituent in the ecosystem.
BA: Got it. So consumer packaged goods are CPGs and essentially those are the brands that use the convenience channel to sell their goods. Got it. Are there any other components that extend business-wise, past CPGs that are within our ecosystem?
JF: Well, certainly we talked about it, the consumer. I mean the consumer is in the ecosystem. And they’re coming into the stores every day and shopping in the stores and buying the consumer packaged goods products and buying fuel and buying food and everything else. So obviously the consumers are a big part of it. And then there’s, you know, other third parties that are maybe related, whether it’s brand advertisers, and there are certain loyalty programs out there where there may be coalition partners in a loyalty program that touch the ecosystem.
BA: That’s interesting. So loyalty partners that are potentially a coalition that touch our ecosystem, but I find the deeper I dive into the convenience ecosystem, most things tend to be convenience ecosystem-specific. And a lot of the reason I think is because the complexity of the legislation and the complexity of the security and the other parameters around that. How do you feel about that?
JF: Expand on the question a little bit more.
BA: So a lot of times I’ll hear within the convenience industry that oh, well, the origin of this is focused on convenience, we really understand the convenience business. And I think that mostly comes from the complexity of the ecosystem. And so, the reason I brought the question up is because when you mentioned people who are from outside the ecosystem, that have potentially programs that touch our ecosystem, that’s interesting because it seems like it would be really difficult for them to break in.
JF: Again, it is difficult and there are some, you know, if you think about the convenience store operation, it’s a retail store, so they’re selling goods. It’s a gas station, because they’re selling fuel. In many cases, it’s a restaurant because they’re selling fresh food or made-to-order food. Sometimes it’s a carwash because they’ve got a ton of space out on the parking lot.
So, again, it’s a very complex operation to run if you really want to be in the convenience business. And so there are third parties and what we saw a lot, you know, over the past, especially kind of 20 years ago, up to 10 years ago, and that certainly continues now is that there were other retailers. Take grocery as an example, they wanted to be able to offer their loyalty customers a benefit and so they would partner with convenience store operators, especially the convenience store operators that sold fuel.
And they would form a coalition partnership and so they say, if you shop at my grocery store and earn certain benefits, then you could redeem those benefits or that currency at a participating convenience store with gas and get, for example, a discount on fuel. And so there’s been a lot of partnerships formed in the industry over the years. In order to give a guy going to a grocery store, they may not want to get into selling gas directly, even though it’s something consumers would need and demand.
But they don’t want to be in the business directly. So then they would partner with a convenience store operator and be able to offer a gas discount program at the grocery store that would be fulfilled at the gas station. So that would just be kind of another party that’s kind of participating in the ecosystem through this partnership, even though it may not be exactly considered a convenience store themselves.
BA: Yeah, well, that’s a really great segue to talking about the adjacent markets, because when I think about adjacent markets, I immediately go to QSR, which is quick-serve restaurants or fast-casual restaurants. And so that would be a fast food restaurant. That’s what most people would call it inside of or adjacent to a convenience store, right?
JF: Correct. Yeah. I mean, QSR would definitely be a very near adjacency to convenience stores, and especially even more so, you know, in the last 10 years, it has become the case primarily because convenience store operators have gotten deeper and deeper into foodservice. And so they’re becoming more and more restaurant-like.
And so, as a result of that kind of blend between a convenience store and a QSR fast-casual restaurant, I mean the lines are getting blurred between those two. So very, very much a near adjacency.
BA: And why do you think that’s changed in the past 10 years?
JF: I think it’s convenience for operators, understanding their customers. And again, I like to say that convenience store operators are some of the most nimble operators and retail operators out there. They do just a really good job of understanding what consumers want.
They’re sitting on some of the best real estate in, you know, in the states or cities where they operate. They’re sitting on some of the best corners and the best real estate and so they do a really good job of saying, you know, I can leverage this footprint that I have to sell more to the consumers that are coming on their lot, primarily to come on the lot to buy gas. But now they can provide them another convenient offering. And food is just such a very logical kind of extension to their offer. And so there are many, many retailers who are just doing a really good job and are competing with some of the best QSRs out there.
BA: Well, you mentioned that it’s changed and evolved over the past 10 years, but I’m really interested in the next 10 years going forward, because our industry is going to be the shepherds. They’re the people who are going to shepherd in the energy transition and really this idea of e-mobility and EVs and so how do you think that that is going to impact the ecosystem?
JF: You mean because of the energy transition? Yeah. Well, certainly, it’ll impact the industry based on kind of the driving behavior of consumers. The thing that I think though, you will see that convenience store operators do through this transition, is continue to evolve their offer to meet the demand or need of consumers as they start to adopt more EVs.
And so again, the simple thing is you’ll see convenience store operators put some EV charging stations on their lots. Yeah, you may see them evolve the offer even further, to make it more attractive for consumers to come on their lot to charge. And so they may evolve the food offer a little bit more. They may evolve other aspects of their offer.
So I think there will be a change in consumer behavior as the adoption of EVs happens over the next five, 10, 15, 20, or 25 years. This is going to be a long transition. And, again, I think you’re gonna see the convenience operators take advantage of their great retail locations, a great footprint, and their ability to modify their offer to meet the demand of the consumer at that time.
BA: So we talked about the fuel leaving the refinery, it gets to the racks, we’ve got wholesalers and retailers in play. There are brands that sell their products into the convenience stores. We’ve got adjacent markets like quick-serve restaurants that, you know, team up with these convenience stores as well. And then we’ve got the consumers, obviously, who are driving a lot of the way that the industry reacts to it and the ecosystem modifies itself.
Well, Jimmy, thank you very much for your time today. I know that these were rudimentary questions, but it’s really great just to get the foundation and get the confirmation of what the convenience ecosystem is—how the parts and pieces play together, because over the next several weeks and potentially months, what you’re going to see is this podcast is going to talk about exploring the challenges opportunities, and the things that are really impacting the convenience ecosystem. So, now you’ve got a base of what that ecosystem is and now we can start to talk about those impacts in the future of industry. So thank you for taking the time to join us today.
JF: You are very welcome. Happy to do it. I look forward to future podcasts.
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