Big changes for Twin Cities convenience stores

Daniel Tice loves stopping at Holiday.

He usually starts his day at the convenience store chain, dropping by for a breakfast sandwich before heading out to mow lawns. Later, he and his partner will swing by for a milk shake or a smoothie. Tice knows that wherever he's working, a Holiday station will be nearby.

But like many customers, Tice is worried that things will change. Holiday agreed earlier this month to be acquired by a Canadian company that also owns Circle K, the No. 2 convenience store chain in the United States, but one that is less known for its food.

"I might not come here if they change it too much," Tice said. "Holidays are awesome. I haven't even been in a Circle K."

After decades in which Holiday and SuperAmerica dominated the business, the local convenience store market is undergoing an unprecedented shake-up.

In June, SuperAmerica was bought by Tesoro Corp., one of the top U.S. oil refiners. It is the third ownership change since 2010, and observers say the turbulence has taken a toll. Tesoro said it intends to address problems soon.

In July, Alimentation Couche-Tard said it was buying Holiday Stationstores from its founders, the Erickson family. The Canadian company is aiming to overtake 7-Eleven as the largest convenience store company in the country.

Grocery store operator Hy-Vee recently won approval for a large-format convenience store in Lakeville. It will be the first in the Twin Cities with a drive-through and online ordering, and a spokeswoman said the company is reviewing other potential locations for the concept.

Industry veterans said this is the first time in years that Minnesota's $10 billion convenience store market has been up for grabs. To remain competitive, companies are expected to embrace innovation, especially in the area of food service. That will likely mean more items made in the store, ranging from fried chicken to salads and submarine sandwiches.

"It is going to be great for the consumer," said Lance Klatt, executive director of the Minnesota Service Station and Convenience Store Association.

The slumbering giant of the convenience store business in Minnesota is SuperAmerica, a chain that opened its first store in St. Paul in 1960.

Though it has the most locations in the Twin Cities, SuperAmerica is getting outpaced by Holiday and Kwik Trip, which generate far more revenue per store. Recent visits to SuperAmerica locations revealed malfunctioning soft drink dispensers, rusting canopies, stained ceilings and dirty bathrooms.

The issue, according to industry observers, is that SuperAmerica has been owned by companies that were more focused on the fuel business than retailing.

"SuperAmerica is the unloved foster child," said Mitch Morrison, vice president of CSP Magazine, the convenience store industry's leading trade publication. "The stores are tired. And they're competing against regional behemoths."

Tina Barbee, a spokeswoman for Tesoro, acknowledged "inconsistencies in the condition of our physical locations." Barbee said SuperAmerica's new owner is "working on a remodel campaign and new training" for employees.

"We recognize this is an important part of our overall business and we are committed to providing a positive shopping experience for our customers," Barbee said.

Some of the smaller players in the market are attracting fans with low prices and distinctive products.

"For the working class, you can't beat Kwik Trip," said Rocky Gunderson, a retired laborer. "I shop there every chance I can get."

The only problem, fans say, is that the company doesn't have any locations in Minneapolis and St. Paul. Its 42 stores circle the metro like a doughnut. Kwik Trip spokesman John McHugh said the La Crosse, Wis.-based company has avoided urban locations because real estate can be prohibitively expensive and such locations pose safety problems for workers. Convenience stores are a frequent target for criminals.

But McHugh said the company's recent agreement to buy the PDQ chain in Madison shows Kwik Trip has shed its aversion to the urban core. McHugh noted that the Madison deal was a response to consumer demand, but he was noncommittal when asked if Kwik Trip would make a similar move in Minneapolis or St. Paul.

"The Twin Cities is a good market for us, but it is also challenging because there is some good competition," he said. "You have people who are loyal to certain brands up there."

Circle K, which had only 14 locations in the Twin Cities before the Holiday deal, is trying to boost its food offerings by experimenting with premium menu items, prepared on premises.

"I was pleasantly surprised," said Garver, who rarely stops at other convenience stores for lunch. "The shrimp was fresh and juicy."

Among more than 700 convenience stores in the Twin Cities, the Minnetonka Circle K is the first in Minnesota to offer a popular fried food program known as Krispy Krunchy Chicken, which has spread to 2,100 retail locations in the United States.

Mark Ogren, the Circle K franchisee in the Twin Cities, wants to expand the program as he builds new convenience stores. But those plans have been complicated now that the Holiday deal will put him in competition with Circle K's corporate parent.

"One of the things that appealed to me about Circle K is that we had an international brand without representation in this market," said Ogren, whose Croix Oil Co. operates 17 Circle K stores in Minnesota. "And now they are coming in and buying the company with the biggest market share. If those Holiday stores become Circle K, our ability to grow the brand in the market is going to be restricted. Because they aren't going to allow us to put a Circle K across the street from a current Holiday store."

While Ogren waits for clarity on Couche-Tard's plans, another Minnesota convenience store chain is ready to pounce on the Krispy Krunchy program. Minnoco, an affiliate of the state convenience store association, will be rolling out the menu in the next year or so, Klatt said.

"Holiday and Kwik Trip have raised the bar," Klatt said. "We want to compete with the big chains."

The big question hanging over the market is what Couche-Tard is going to do with Holiday once it completes its purchase later this year.

In late 2015, the Canadian company announced it was converting all of its brands to Circle K, even some successful ones, with the exception of its namesake stores in Quebec. But some retail observers say there's a chance the company will hold back on converting Holidays, at least in the Twin Cities, where there is intense loyalty to the name. Altogether, 151 of Holiday's 522 stores are located in the seven-county area.

"Circle K could convert stores in the secondary markets, where customers are not as passionate," Morrison said. "My hunch is they will see how that performs, and if it does well, then they may migrate that program into the heart of Holiday's operations."

In a conference call with analysts earlier this month, Couche-Tard executives said Holiday's fresh food program could help Circle K catch up with competitors in other markets. One possibility is tapping into Holiday's commissary in Brooklyn Center, which produces more than 18 million sandwiches per year. Couche-Tard executives noted that the plant has room for another shift and could be expanded.

Some customers make a special trip to Holiday just for the company's gooey cookies, which are concocted in the kitchens of Lunds & Byerlys and baked off in the stores. Cookies have proved to be a big traffic generator at convenience stores, with cookie sales up 10 percent industrywide last year, vs. 2 percent for other retailers, according to industry consultant Todd Hale.

"If Circle K does convert all of the stores in the end, I think there is still a shot for the population of the Town Cities to save their cookies," Morrison said. "But they're going to have to raise their voices."

Holiday officials declined an interview request. But in a written statement, spokesman Robert Nye said that for the foreseeable future Holiday executives "look forward to continuing our Holiday brand with the same products ... our customers have come to love."

Jeffrey Meitrodt • 612-673-4132