Corner Store Candy — Valero Style

by Mary Ellen Kuhn
Candy gets careful consideration in the consumer-friendly Corner Store format unveiled by this leading Texas-based energy corporation.
Standing in front of an endcap in a San Antonio, Texas, Corner Store, candy category manager Judy Gleason responds articulately to questions about how candy is merchandised within the 1,100-plus stores Valero Energy Corp. owns and operates. As she speaks, Gleason efficiently tweaks and refreshes the assortment of products on the shelves.
You get the impression that multi-tasking is not all that tough for Gleason. Which is a good thing, because she handles not only candy, but also snacks and grocery products for the chain. In addition, Gleason has been working hard for the past several years to position candy and snacks to their full advantage within the Corner Store format Valero debuted following its late 2001 acquisition of Ultramar Diamond Shamrock Corp.  
Valero is among the nation’s leading energy companies. It’s a $50-billion organization forged as the result of a series of acquisitions and mergers, of which the Ultramar Diamond Shamrock purchase was the largest.  
“When Valero bought us,” says Hal Adams, vice president of merchandising and store development, who came on board via Ultramar Diamond Shamrock, “they made the correct decision to take a deep breath and say, ‘Let’s figure out what we’ve got here.’”
The company opted to sell off retail sites that were not strong performers and has focused on revamping high-potential existing stores and introducing new stores under the Corner Store banner.
 “Now that we’ve got that plan in place, and we’re two years down that road, and we feel good about the direction we’re going…we’re beginning a process to build new-to-industry stores,” says Adams. Eight new stores are slated for completion this year, followed by about 15 in 2005, and then 20 per year in subsequent years.
In addition to a vibrant, easily accessible candy aisle, the Corner Store Confectioner toured was consumer-friendly in numerous ways. It features a Subway sandwich shop franchise located at the front of the store, as well as an appetizing assortment of commissary-supplied fresh food offerings. The store also boasts an upscale Café Continental coffee service, complete with an assortment of flavored syrups and toppings in shakers a la Starbucks. At the soda fountain, consumers may customize their cold beverage choices with the addition of shots of vanilla, lemon or cherry flavorings.
The chain has introduced refrigerated, self-service “beer caves” supplied with six-, 12- and 24-packs of leading beer brands. It’s easy to keep stocked and helps the chain avoid running short on busy Friday nights. It also frees up space in the coolers along the back walls of the store for higher-margin microbrews and imports.
“Any time you can tell a customer that you’re always going to have what they want, it’s a competitive advantage,” says Adams.
Late this summer, Judy Gleason, category manager, candy, snacks and grocery, for Valero Energy Corp.’s convenience store operation, and Hal Adams, vice president of merchandising and store development, took a morning out to provide a close-up look at where Valero is headed with its network of company-owned stores and how candy fits into the plan.
All categories of merchandise and services have come under close scrutiny as part of the company’s “re-imaging” initiative, and that will continue, both executives made clear. Fortunately, candy has been a strong performer within the Valero-owned stores, and Gleason is hard at work attempting to ensure that it stays that way. Here’s what Gleason and Adams had to say on topics ranging from taking a tough stance in vendor negotiations to getting strategic within the candy aisle. 
Confectioner : The store—which is an example of Valero’s new Corner Store format—looks great! Can you share some of the philosophy behind its design?
Adams: “One of our challenges is that we have stores that go anywhere from 1,000 square feet to 5,000 square feet. So our strategy [as to] the best way to utilize our assets is to first concentrate on solving our customers’ immediately consumable needs, because those are the needs that:
1) We’re best at solving.
2) Have the highest margin.
3) Move inventory more quickly.
“After we solve the consumer’s immediately consumable needs, we begin to branch out [depending on] store size, to other categories—more grocery, more general merchandise etc.”
Confectioner : Ho much space do you allocate to candy in the stores?
Gleason: “In new-to-industry stores, typically there’s a 6-foot chocolate section, a 3-foot non-chocolate section, a 3-foot kids’ candy section, and a 3-foot peg bag section. There’s also a 3-foot gum section or, in some cases, we have what we call an arrow endcap. It’s a little bigger than 3 feet, and we use it to merchandise chocolate and gum at the front of the store.”

Confectioner :
How do you foster impulse candy sales?
Gleason: “We have impulse merchandisers (where in and outs frequently are housed). They are right at the front of the stores. We typically have some sort of candy promotion going on every period. We also have a rack that we put in…so we have an assortment of candy and gum on top of the impulse merchandisers.”  
Confectioner : How has the Valero re-imaging program—which has included a focus on SKU rationalization—affected your approach to candy and snack category management?
Gleason: “I think it requires a lot more depth in terms of thinking about what I put in the stores and what really adds to variety. Variety is very important to me, but so is being first-to-shelf. So between those two things, it’s difficult to manage all the products that come across your desk that are really cool and look like they could be a lot of fun, but probably have very short staying power. So it causes me to look closely. If a SKU doesn’t sell quite as well, and there’s a king and a standard, then perhaps I only carry one.”
Confectioner : How long do you give products to prove themselves?
Gleason: “I used to give it a year, but now it’s more like six months. You just can’t afford to have something sitting on the shelf that isn’t turning for much longer than that.”
Confectioner : Please discuss the rationale for your emphasis on being among the first to market with new candy products.
Adams: “We learned a couple of years ago at the NACS State-of-the-Industry Meeting that our channel of trade was really getting bad marks on being first-to-market with new brands. We really took that to heart. So when there are new brands, particularly big brands, Judy puts a lot of effort into working with the manufacturers and making sure that we get it first; that the deal is there. [She also works at] making sure that we’re promoting it when it first comes on the market so that we can take any front-end monies that are available in the introductory period when the product has the best opportunity [to succeed] and put it in front of the consumer as much as possible.”
Confectioner : Can you describe some promotional strategies that are particularly effective in the candy category?
Gleason: “We do a buy two/get one free. That helps me to focus on a brand. It allows me to do a display up front of something that’s strong. And it allows me to get a lower cost of goods because I’m promoting a particular item. It’s something that our consumers have come to look for. It’s been good for our business overall.”
Confectioner : Why do you think this works so well?
Gleason: “We’ve been doing it since the price increase in 2003 so that while we increased our everyday price, we offered a lower price on multiple purchases. It kind of helped to stave off any ill effects of the price increase.”
Confectioner : How often do you revise the candy plan-o-gram?
Gleason: “We have a regular re-fresh process [in January and September]. However, in between, I can do new item cut-ins…In that case, we update the plan-o-gram and we send information out to the stores that explain that this item is going away; it’s being replaced by this item; you’ll receive it on this date. We try to make the update of the plan-o-grams very easy for the stores to implement.”
Confectioner : How would you characterize your relationships with candy vendors?
Gleason: “I really strive to have a very open and honest relationship with my vendors and to tell them right out of the gate that neither of us really have time to play games. So I want to know what your best cost is right away. If I tell you that I’m not doing it because your cost is too high, then don’t come back to me with a better cost because that means you weren’t honest with me to begin with.”
Confectioner : You have been working with vendors to negotiate alternatives to their traditional candy shipper promotions. How is that going?
Gleason: “Manufacturers have gotten better about providing us with shippers that are appropriately sized for our channel. However, sometimes the mix is not appropriate for us. It may be over-SKUed on slower-selling items, but under-SKUed on the item we really want to promote.
So we say, ‘You’re spending additional money to build a full-color shipper, to put additional signage on it, to pack it by hand if its gravity-fed, why not just sell me the open stock of the same quantity but let me mix it the way it will sell best within my stores and give me the same price that you’re giving me on the shipper?”
Confectioner : What kind of reception does this proposition get from vendors?  
Gleason: “Some are interested in doing it. Some see the benefit both to them and to us doing it that way. And I would have to say that there’s still some resistance. I believe it’s just because the shipper guarantees you another spot in the store, so they want us to put in the shipper. But we empty our shippers and put the product on our impulse merchandisers, so it’s really a waste of their money to do it that way.”
Confectioner : So are you an advocate of a clean-floor policy?
Gleason: “We try to have a very clean store, so we’ve designed these impulse merchandisers at the front of the store to allow us to do in-and-out promotions without cluttering the store.”
Confectioner : What assurances would you give candy vendors that selling open stock vs. selling from shippers will pay off for them? 
Adams: “We’re big on forecasting here. Each week the category managers have to forecast what their business is going to be for the current month…So when Judy goes to buy a shipment of product, she can be very accurate… She is able keep her end of the bargain, which makes it easy for the supplier to come to her with deals…because they can depend upon her doing what she says she is going to do.  
“A retailer can ask, ask, ask and ask,” says Adams, “and if they don’t deliver their end of the bargain time and time again, then they’re going to stop getting. So our folks are really, really dedicated to making sure that we do what we say we’re going to do.”
Confectioner : Moving forward, what do you see as your biggest challenge?  
Gleason: “I think that SKU rationalization will be a reality for me in the future—much more than it is today. As we make better use of all our space, I have to be a good steward of the space that I’m responsible for. So inventory turns and those kinds of things will be more important for me as we move forward.”
Confectioner : What is driving the SKU rationalization?
Adams: “In the past two years, we have been developing a more advanced prepaid services business—prepaid music online, prepaid Internet, prepaid cellular. We are getting ready to come out with prepaid gift cards. The business that has traditionally been merchandised at our front counter needs to move in-line in our stores. Which means that we’re looking at remixing space in our core businesses. We’re taking that whole core store and we’re looking this year—as soon as the summer season is over—at remixing the space allocation that we’re giving the categories.
“I would say that in the future you will see us experimenting with how to utilize every inch of space that we have in our stores to serve our customers’ needs.” n
Courting Consumers in the Candy Aisle
Valero’s Hal Adams, vice president of merchandising and store development, describes the Corner Store’s central candy and snack aisle, which leads back to the cooler vaults, as a "drive aisle."
It’s definitely high-traffic because, according to Adams, about 55 percent of customers make a purchase from the cooler vaults.
The consumer’s eye is drawn by the way in which the candy aisle gondola curves into the endcap at the front of the store. It’s a unique feature, and one that is visually appealing.  
Within the candy aisle, brands are grouped together in a bid to keep the shopping process simple. As Adams explains it, "We do brand blocking because a consumer wants to be able to home in on a Reese’s [or whatever brand they’re seeking]. The average c-store shopper wants to be in the store for three minutes," Adams adds.
Valero Facts
The Overview: A Fortune 500 company based in San Antonio, Valero Energy Corp. is one of the leading U.S. refining companies with annual revenues of about $50 billion. Valero supplies gasoline to about 4,500 retail sites. Gasoline is sold under the brand names Valero, Diamond Shamrock, Ultramar, Total and Beacon.
Convenience Operation: Valero’s retail division operates 1,143 company-owned c-stores under the Corner Store banner.
Re-Imaging Program: Valero is into the third year of its re-imaging program, under which it has been consolidating its retail operation, selling off under-performing stores and investing in those with more potential. The initiative is slated for completion in 2006.
A Conversation with Judy Gleason
Job Title:  Category Manager       
Family: Married for 27 years to Jim; two sons, Ricky, 21, and Robbie, 18; brand new grandson, Kaiden Ray.  
Pets: Five dogs and two cats.
Career Track: Started working for the Jewel supermarket chain in Chicago; worked for White Hen Pantry convenience stores in merchandising and training, also in the Chicago area. She and her husband eventually franchised their own store. Moved to Texas, worked for a food distributor and then joined H-E-B Grocery Co., where she was employed in marketing and on the private-label program. Joined Valero organization three and one-half years ago.
Favorite Part of the Job: Sharing new candy products with her family. "I love the look on my kids’ faces when they see the new-to-market candy items. Even at 18 and 21, they still enjoy it."
What She’d Be Doing If Not This: "My dad was a buyer [for Jewel Supermarkets], so I think I wanted to be a buyer since I was a kid. If I wasn’t doing this, I’d probably be doing something else in retail, possibly in the marketing area."
Words to Live By: "Act with integrity, even when no one is watching."