Applegreen charts a positive course in the UK, US and Ireland: interview with COO Joe Barrett

Initially in this crisis, Global Convenience Store Focus covered the tactical response of convenience retailers. As businesses stabilize, retailers are increasing focusing energies on considering future opportunities.

In the first of a new series of interviews, GCSF talked to Joe Barrett, Chief Operating Officer of Applegreen, the €3Billion global convenience and energy retailer. Barrett is a NACS International Board Member and two times NACS International convenience retailer of the year.

Applegreen’s experience in the UK and Ireland

Applegreen spans the US, the UK and Ireland and has a real global perspective on the challenges of operating in the new normal. Food and fuel sales have been very hard hit by lockdown in the UK and Ireland, but there have been significant positives in shop sales.

“The three countries we operate in came into this crisis at different times; the first lockdown started in the UK.  About a week later Ireland was impacted and then a week after that America. The biggest impact is on food and fuel. Welcome Break in the UK is half our business and, in order to comply with Government legislation, the food offers on these motorway sites had to be closed. Fuel sales are also impacted by drivers staying at home; figures from Highways England show a 65% average reduction in motorway traffic during the week and an 80% reduction at the weekend.”

On average in the UK we’re finding that both food and fuel are considerably down. In Ireland, although it happened a week later, we’re experiencing similar numbers. The strong positive is that shop sales in both markets are performing very well. We’re seeing significant growth in everyday essential top-up grocery categories and particularly in alcohol, cigarettes and OTC medicines like paracetamol.”

The US is less impacted by comparison

Applegreen has so far had a somewhat different experience in its US operations and this chimes with real-time US transaction and basket level data showing shopper patterns.

“As far as the US is concerned, we’re finding it somewhat different. We are down in fuel and also in our store sales. But, overall, the US is still performing better than Europe for fuel and our food isn’t as impacted. Food is only slightly down and that’s also because our food operations often feature drive- thru offers which are performing well. There are also regional differences in the US; the North East is much more impacted than the South East where the majority of our food businesses is located”.

According to PDI, a global provider of enterprise management software to the convenience retail and petroleum wholesale industries, Applegreen’s experience is a common one in the US market.

“Applegreen’s story really aligns with the transaction and basket-level data from many of our customers in the United States,” according to Jamie Hudson, SVP and GM of Offers and Insights at PDI: “According to the latest data we’ve gathered, basket-level spend is up nearly 14% year-over-year because people are stocking up and purchasing more and larger pack sizes per trip. However, it’s not enough to offset the downward trend, which includes a nearly 30% decline in the number of trips year-over-year and decreases in fuel volumes of more than 35% year-over-year.”

Cashflow is king and tight financial controls are required

When a crisis like this one hits, the key requirement is to manage cashflow, reduce costs and develop what works in the new market environment.

The most important immediate strategic imperative for retailers in the new environment is to create new, tighter financial cashflow controls. Barrett sees this as Applegreen’s first priority:

“The absolute key thing in a crisis like this is cashflow; making sure you pay your suppliers, managing to do all the other bits and pieces. There’s a huge amount of monitoring. What happens is that the business is all about liquidity. Because your sales are down, you need to manage that. For example, as average fuel fills declined, our wet stock days holding grew and needed to be managed down. In the store we evaluated which product lines we didn’t need to re-order and you have to make management inputs to ensure that happens. That’s kept our finance team very busy.”

During times of crisis like this, businesses typically need to restrict capital expenditure with a view to maximising working capital and it seems clear that this will have an impact upon the convenience and energy retail industry for at least the next year or more, particularly when we consider the time lag in getting big construction projects going again.

Looking after your people is more important than ever

While businesses are managing cashflow, much attention has to be simultaneously given to keeping pace with government guidelines and protecting staff and customers. From a product and store operations perspective, Applegreen has introduced all the necessary essential measures to protect staff and customers.

“We’ve put in the Perspex safety screens, the COVID-19 floor signs, the COVID-19 queuing systems, we’ve made hand sanitiser gel available outside stores”.

Managing people is always a strategic imperative in the convenience industry, but retailers are finding that it is requiring particular time and attention right now and into the future. Barrett sees good human resource management as a key strategic focus:

“There’s a significant HR element to this. Our HR team are carefully monitoring the health of colleagues on a daily basis. In a small number of sites with multiple family members working long hours, quite a lot of HR management is required if any of those staff need to self-isolate. There’s a big HR side of managing that, monitoring who’s self-isolating and who’s not, keeping track of who has got the virus in the organisation (thankfully very, very few) and what you do when it happens so, HR plays a hugely important role”.

Reduce costs to match operational requirements

Once cashflow is under tight control, the next big strategic requirement for retailers is to reduce your costs to match lower operational requirements.

“The next big priority is reducing your costs to match your operation levels, so in some cases, using Welcome Break as an example, we’ve had to furlough every person in food because it’s just completely shut down by Government legislation regarding restaurant closure. One thing that has been beneficial for us in this respect in the UK and Ireland is the degree of Government support for business. In the UK the ‘Furlough’ scheme and in Ireland both the ‘Temporary Layoff’ scheme and the ‘Wage Subsidy’ scheme have both proven effective.”

Re-enforcing success

Applegreen has seen some significant shifts in demand within its business. In these circumstances, it is important to re-enforce success. Under pressure, new capabilities are being delivered almost overnight. Drive-thru is growing like never before.

“During a time of crisis, you need to adapt quickly and just get things done. We’re driving more growth from areas which are still doing well like shop sales; we’re increasing the space allocation to what we call the take home area, increasing detergents, cleaning products, toilet paper and crucially, we’re providing a service to customers in local communities through offering click + collect and order + delivery.

Drive-thru and kiosk are two other areas working well for us. Drive-thru is now up to about 70% of volume in the US for our food, we’re also seeing significant growth in drive-thru in all our Irish businesses.

The Click + Collect service is working very well, especially for brands like Subway or Burger King. A number of our smaller local stores have done very well taking orders and delivering for our local customers. We have about 10 sites in Ireland where some of the Managers and some of the re-deployed area managers are each supporting two or three stores. They’re bringing bread, milk, papers, necessities like that and doing home deliveries for elderly and vulnerable people who can’t get out.”

Foodservice has been hard hit in many retailers

Retailers with a robust foodservice offer do need to come up with alternative offers just as Applegreen has according to Hudson:

“Foodservice has been one of the hardest hit profit centers for c-stores, especially those that have a robust foodservice model. According to the latest data, foodservice dollars and trips are down by 44.2% and 42.5% respectively. In particular the morning rush is feeling the most pressure, which is why you also see things like coffee and energy drinks being impacted. But like Applegreen, we’re seeing retailers find ways to adapt their businesses models to mitigate the losses and survive through mobile ordering, curb-side pickup and delivery.”

In one of the weekly consumer behaviour reports from PDI, one of the World’s largest processor and marketers of chicken, beef and pork sums up the change in customer behavior as far as foodservice goes very well. According to Rylee Leonard, Manager of Customer Leadership at Tyson:

“Foodservice trips are down 40-50% as consumers work from home and when they do visit a store, they stay away from self-serve food stations like the roller grill. They are learning to go about their daily routine without us in their lives.”

Future prospects; new behaviours for the next two years

Looking to the future, PDI’s Hudson emphasizes the importance of quickly moving beyond existing baseline trend data as typical seasonality based upon historical experience has completely changed. Real time data can show the new picture:

“It’s important for retailers to pivot and adjust their strategies to the new normal, using real time data and insights to deliver what their customers need now.”

Applegreen’s Barrett outlined his own predictions for the changes afoot. He remains highly optimistic.

“I strongly think that we’re going to see a combination of things. For the remainder of 2020, we’re going to see staycations, people staying within countries, whether you’re Irish, English or American. That will be a boost for our retail businesses. I think it could be two years or more before you’ve got full customer confidence in air travel returning. Personally, I spent 50% of my time out of country on the road, but now everyone has got so used to video conferencing that may change to one week a month. There’s going to be a big paradigm shift in terms of people working from home.

Specific opportunities for the convenience sector

As ever, when significant change happens, there are opportunities coming out of this for businesses. There are opportunities where people like to shop local, we’re in a sector that’s providing an essential service which is what we do, that’s really important and I think we’re going to see more and more of that. UK operators have an opportunity of achieving what we would call an improved  industry retail fuel margin, the UK historically has one of the lowest fuel margins in Europe.

If you go back a year ago, commentators were talking about the end of petrol filling stations and asking what they were going to do when electric cars come. What has happened is that you’ve gone from $65 a barrel down to $28, so the price of your barrel has halved which will inevitably delay the adoption of electric. It’ll take it bit longer. You’re also going to find that people will travel less, It’ll take a number of years to get back to the full run rate. Now, we would be strong advocates that electric is definitely going to happen. My point is that it’s going to impact the speed of adoption.

There are also going to be changes in our industry. This has forced us to do things quickly. If I take the example of Click and Collect, we come to a crisis and it gets delivered in two or three days. During a crisis you adapt and you just get things implemented which is great to see.

I would be very positive about the future. There’s definitely going to be changes in customer shopping habits, but we will be in a good position to get the lift out of it. I think you will see further rationalisation in the sector, some of the smaller, less capitalised businesses will struggle to survive.

Lastly, it’s going to interesting to see what’s going to happen regarding eating and drinking out, those out of home consumer behaviours. The restaurants and bars are all closed, but young people are still having parties online. The final thing I would emphasise is the importance of brand partnerships going forward. We partner with Starbuck’s, KFC, Burger King, Costa Coffee amongst others and having those types of brands in your network is going to be even more important for the future.”