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A convenient change Featured

9:44am EDT July 22, 2002

When Robert Stein assumed the top spot at Dairy Mart five years ago, he looked at the path the 61-year-old convenience store chain had taken and realized it was the wrong one.

An explosive acquisition phase during the mid-1980s left the organization with many older stores that could not compete with petroleum giants like BP and Shell, which had entered the convenience game in a well-funded fury and threatened the company’s long-term survival.

Simply put, Dairy Mart had overextended its resources and was in dire need of a makeover from the 1970s convenience box concept to which executives had strictly adhered.

“We just weren’t managing our existing network of stores as well as we should have,” says Stein, CEO of the convenience store chain. “If you combine that with the oil companies getting into convenience when they weren’t before ... That was a loud wake up call. We said, ‘Wait a minute, that’s our business.’”

Stein decided to move Dairy Mart’s corporate headquarters from Connecticut to Ohio, so executives could be closer to the Midwest stores at the heart of their operations. In 1998, those corporate offices were relocated to a new building in Hudson.

Meanwhile, Stein sold off and closed older stores at an incredible rate to raise the capital needed to secure prime corners of real estate for new, larger stores that offered gasoline and food, like the oil companies with which they were doing battle.

Dairy Mart posted a $1.5 million loss at the end of fiscal year 1998, but during the following 12 months, Stein’s new strategies started to catch the eyes — and wallets — of consumers. A new marketing focus and strategic partnerships helped the chain reach profitability by the end of fiscal year 1999.

The impressive turnaround was not lost on Convenience Store Decisions, an industry trade magazine that named Dairy Mart the year’s top store chain from a field of 2,900 companies. To hear Stein tell the story, the rebound was simply a matter of pruning the company’s weak links and giving customers a reason to walk in the door.

“We just had a lot of internal things we had to fix,” Stein says of Dairy Mart’s past, delivering the words with the stony cadence of a football coach “We used to be a deal company. We were making deals and getting bigger, but we weren’t saying, ‘Wait a minute. What do we have here? And how do we make what we have better?’”

When Dairy Mart executives purchased the popular Northeast Ohio Lawson Milk Co. stores from Consolidated Foods in the mid-1980s, they also swallowed stores from five other independent companies.

Along the way, Stop-N-Go, Dutchland Farms and Sunnyland Farms stores ended up under the Dairy Mart banner. By 1987, after three years of steady acquisitions, the chain reached a total of more than 1,200 stores in 11 states.

Such explosive growth did not come without its own set of challenges, namely keeping a fresh face on an aging network of stores. Another stumbling block was the fact that the integration of gasoline into the convenience store concept was a trend that could not be ignored. That posed a problem, because many Dairy Mart stores were tucked into neighborhoods, which made such an investment physically impossible.

To raise money for capital improvements, Stein sold off the former Lawson Milk Co. ice cream plant in Cuyahoga Falls and dairies the company owned in Ohio and Connecticut. He gradually closed smaller and older stores that did not fit his vision for the chain and sold the original Connecticut Dairy Mart Chain so management could focus on stores in the Midwest.

Those moves whittled the chain to half the size it was during its peak period of acquisitions. Today, about 30 older Dairy Mart stores are closed every year and 20 new ones are built, depending on where the company can find land.

“(Closing stores) doesn’t matter to me because it’s not how many we have, it’s how good we are,” explains Stein. “We went into a whole quality vs. quantity mode. We’re in a position now where we’re going to grow the quantity, but in a quality fashion.”

Early in the revitalization period, Stein decided to replace the dated blue and white Dairy Mart logo in favor of something friendlier and more contemporary.

“We wanted one that gave the feeling of friendly and homey,” explains Stein, who ended up with today’s much stronger red and blue uppercase “DM” logo.

This reimaging campaign included the remodeling of stores, installation of new pumps for locations that already offered gas and setting aside bigger marketing budgets for the next three years to make sure consumers were aware of the changes. Stein focused mostly on billboards and radio, media that were sure to catch the person on the road, Dairy Mart’s prime customer.

One of the most successful marketing strategies, however, started out as an experiment. After initially offering ATMs inside his stores, Stein pulled them out because they were not making enough money for Dairy Mart or the bank. But with the proliferation of ATMs elsewhere, it soon became apparent he would have to find some way to bring the machines back.

He wanted to test the idea of a no-fee ATM. Customers would still get hit with a small surcharge from their bank, but would escape the extra $1.50 to $2 charge for using Dairy Mart’s machines. Stein found a bank willing to go along with the plan, as long as Dairy Mart paid a fee to subsidize the service.

He budgeted extra marketing dollars to make up for the cost of the machines and found the promise of a no-fee ATM brought people in the door. Better yet, they were buying Dairy Mart products during those quick visits to grab cash.

“It’s just one of those things that touches a chord with people,” says Stein, who still seems a little surprised at how well the idea was received. “I think it gives them the residual feeling of, ‘Gee, these people are doing something good.’”

On many of the 170 Dairy Mart billboards that dot Ohio is an ad that prominently displays the Millstone Coffee brand the convenience store offers.

Stein is banking on the fact that visitors to his stores will be enticed by a coffee that is not just a dark liquid dumped into a styrofoam cup. It’s part of a branding plan to tie Dairy’s Mart’s name with popular products that, by themselves, will bring people into stores.

Stein landed an exclusive deal with Proctor and Gamble to sell brewed Millstone to Dairy Mart’s morning customers, an agreement sweetened by the fact that the brand is currently the subject of a national television advertising campaign pushing the sale of Millstone coffee beans in grocery stores.

He also struck a deal with Chevron to provide gasoline for stores in Kentucky and Indiana, and is looking for a similar arrangement in Ohio. The presence of a brand name and logos on the overhead canopies, he says, has increased gas sales and prompted customers to buy a higher octane gas than they would if they were buying a store brand gasoline.

“What you get with that is a clear and recognizable brand,” explains Stein. “Marketing, over 100 years, has taught people that branded gas is better than unbranded gas.”

Finally, Mr. Hero restaurants were included in Dairy Mart stores as Stein aggressively pursued his goal of making food service a viable traffic builder. He is serious about it, going so far as creating a new six-person department charged with developing Dairy Mart's food service strategy.

This spring, Dairy Mart will roll out a line of breakfast offerings that will compete against McDonald’s and Burger King in the battle for the stomachs of early morning commuters.

It's all part of Stein's master plan to evolve Dairy Mart from the simple jug of milk and loaf of bread convenience store business that sustained it for years. Stein knows the corner store is not what 21st century consumers want anymore. They want a place where they can buy a hot sandwich, grab a cup of coffee, fill their gas tank and buy a newspaper, all in one stop.

And he’s more than ready to provide it, announcing last year plans to build 90 new convenience retail stores during the next two years.

“It’s going to take time, because you can only build so many stores a year based on capital and finding the land, but that’s what we’re going to be doing for the next several years,” says Stein. “There is plenty of business out there.”

How to reach: Dairy Mart, (330) 342-6600

Jim Vickers (jvickers@sbnnet.com) is an associate editor at SBN.