Pantry tries to tempt tummies

Shoppers tend to stop at convenience stores for two primary needs: gas and cigarettes.

But executives at The Pantry want customers to associate their 1,600 stores with something new: fresh food.

In a major overhaul, The Pantry is remodeling stores by getting rid of clutter, adding a better coffee selection and offering more fresh-food options.

It's a risky gamble for the Cary-based parent company of the Kangaroo gas station chain.

It will cost millions of dollars. The competition is fierce - from other gas station chains and small "quick serve" restaurants.

The Pantry is simply following a national trend that may someday result in convenience stores being more like restaurants that happen to sell gas.

The shift is natural considering that gas margins are small and volatile, and profit on food is much more substantial. As budget-crunched consumers cut back on travel, gas station owners looked elsewhere to make up the lost gas sales.

"It is a profitable venture if you do it right," said Jeff Lenard, spokesman for the National Association of Convenience Stores. "If you do it wrong, you can literally get handed your lunch."

Luring buyers inside

According to Pantry CEO Terrance Marks, the mission is simply this: "Eighty-five percent of gas purchasers leave without going in the store. You've got to give them a reason to come in."

For Marks, who joined the company nearly a year ago after a career at a Coca-Cola bottler, it's a chance to reinvent and improve a company with solid roots. For The Pantry, it's a chance to reach customers in ways it hasn't been able to before.

The Pantry is focusing on its home turf first. About two-thirds of the 46 Triangle stores have been converted to the new model at a cost of about $35,000 apiece.

Among the highlights of the new look:

An expanded selection of the company's new Bean Street coffee.

A case just inside the door with ready-made sandwiches, sliced fruit and other healthy options.

Bright signs that tell shoppers what is available and what each item costs.

A designated "hospitality associate" responsible for helping customers, tidying the coffee bar and making sure there's always a fresh pot on.

As the conversions in the Triangle are finished, about 80 stores in Charlotte will begin the process. From there, the renovation will roll to Fayetteville and beyond.

The Pantry plans to finish converting all of the stores in the chain by 2012.

"We are uniquely positioned," said John Fisher, senior vice president of marketing. "Here you can get a fill-up, grab some lunch and pick up a two liter of Coke or a bag of chips for tonight. To me, it's an evolution of this channel, and the winners are going to understand that."

What rivals are doing

There are convenience chains that have been offering more food for years.

The Pantry's executives make no secret that they visited rivals while developing their strategy.

"There are definitely others who have sort of blazed the path here," Marks said. "We just want to do it better than anyone else."

But even established players are having trouble getting customers to associate their stores with fresh food.

"We're doing well, but we're always trying to get that food awareness out there in people's minds," said Travis Sheetz, vice president of operations for Pennsylvania-based Sheetz, which began opening local stores five years ago.

Sheetz said the Pantry's entry into the fresh-food arena will raise consumer awareness that convenience stores sell higher-quality offerings.

"It's difficult because [customers] are carrying baggage with them of gas station food not being of the best quality," he said.

Since opening in the Triangle, Sheetz has aggressively run TV ads and offered coupons and giveaways to get people to try its food.

"You've got to get in their face," he said. "You've got to give them a reason to try it, and if it's a free reason, then it's a free reason. However, it's not a long-term strategy. There's not a lot of companies around today that have done free as a long-term strategy."

This fall, once The Pantry is a bit further along in its conversion, it is planning advertising and promotional giveaways as well, Fisher said.

"Everyone in Raleigh will know Kangaroo has a great new Bean Street coffee," he said.

The bottom line

The Pantry's changes have been looked upon favorably.

Last week, the company's stock was upgraded by analysts at Morgan Keegan. Analysts visited stores in the Triangle and concluded that the potential revenue from the improved coffee selection alone could be $15,000 to $20,000 per year in higher-volume stores.

"We believe expanded foodservice offerings are being well received by consumers while generating a positive tone across the company," they wrote.

As The Pantry moves forward with its new look and operating model, there may be further changes.

Marks said that while the company is using some ideas that other chains found successful, The Pantry chose not to have touch-screen ordering systems that Sheetz and other chains use "because we like the fast, friendly and clean model, and it's hard for a computer to be friendly."