Canadian Tire hopes Q stands for profit

Canadian Tire Corp. Ltd. has launched its first two eye-catching and spacious convenience stores, called Q, as it races to bolster razor-thin profit margins at the gas pump.

The Globe and Mail
February 28, 2005

Canadian Tire hopes Q stands for profit
Adds eye-catching spacious convenience stores at its gas pumps, MARINA STRAUSS writes.
Marina Strauss

Canadian Tire Corp. Ltd. has launched its first two eye-catching and spacious convenience stores, called Q, as it races to bolster razor-thin profit margins at the gas pump.

The test outlets, the first of what is expected to be many more, are more than 10 times the size of the company's existing convenience stores and feature a drive-through Starbucks, a Mediterranean-style "marché" restaurant run by Toronto-based Richtree Inc. (formerly Movenpick), a soon-to-be completed Sobeys Express grocery section that includes meats, fruits and vegetables, and toys and games for under $10. Dubbed Operation Leapfrog, the concept is striking — bright, high-ceiling outlets with large windows, skylights, multihued walls and a large artificial, but authentic-looking tree sprouting from the centre, surrounded by rows of fresh fruits, salads, sandwiches and baked goods. Servers hand out free samples of muesli; the washrooms are roomy and clean (so far).

"We set out to leapfrog the competition," says Canadian Tire executive vice-president Mike Medline.

Mr. Medline is in charge of new business development at Toronto-based Canadian Tire.

"We felt there was a very large unmet need for customers to get a fast convenience offering… . We wanted to offer quality but we also wanted it to be quick," he said in an interview in the Milton, Ont., Q store.

Operation Leapfrog is the latest attempt by a fuel and convenience store operator to update and improve the outlets as gas stations face skimpy margins and look increasingly to alternative and higher margin sources of financial returns.

At the same time, major retailers such as Wal-Mart Canada Corp. and Loblaw Cos. Ltd., both of Toronto, are adding gas pumps at their stores in a bid to steal customers from traditional operators.

The Q store "raises the bar on convenience centres," said Jane Auster, editor of trade publication Your Convenience Manager. "It is going to shake things up … It's really a whole new model for the convenience industry."

She knew of no other precedent of a supermarket chain — in this case, Stellarton, N.S.- based Sobeys Inc. — teaming with a convenience outlet to run an in-store grocer.

The profit motive is evident for better c-stores, as they're referred to in the industry, she said. While fuel profit margins are about only 2 per cent, those for c-store items can average about 25 per cent, and as much as 37 per cent for fast-food items and 30 per cent for snacks and beverages, she said. The big challenge for Q, she added, will be to market its name and build it into a recognized brand.

Customers at Q in Milton, which opened last week, (the other Q outlet is in Windsor, Ont.), were clearly impressed.

"It's the big city brought to the little town," said Quincy Mack, 28, a motivational entertainer who lives in Guelph, Ont. He picked up a take-out glass of freshly squeezed orange juice, a muffin and a Danish, all for about $5, after filling his car with Canadian Tire gas for $25. A big fan of the marché restaurants, he was pleased to find one at Q along with other healthy foods.

Carol Moser, 60, who had also just filled her car at the gas pumps, said the store is "bright and cheery," adding she would return to buy groceries and fresh food. A nearby resident, she looks forward to the Sobeys Express opening in four to six weeks, allowing her to nab promotional discounts for having bought gas at Canadian Tire pumps. "Sometimes you don't want to run into the supermarket if you need just a few things."

Canadian Tire's research found that time-starved customers want a more convenient way to shop quickly, said Peter Kilty, president of the company's petroleum division. Customers want fresher, healthier foods and they want products at better prices in a cleaner environment, he said. Working families and "empty nesters" are the target customers.

Q's prices aren't inflated, like those at many other c-stores, he said. For example, a roll of Certs is 79 cents, while a one-litre container of motor oil — which sells at almost $5 elsewhere — can cost $2.69 at Q. The store even offers a "blow-out price" display, touting deals such as six double-A batteries for $3.99, a half-price special.

Canadian Tire, which has 265 gas bars, runs some form of convenience store at each of them, although many are simply a kiosk with little merchandise.

The company had toyed with the name "life's quintessentials" for the new concept, but finally opted for Q, Mr. Kilty said. It stands for "quality food, quick service and no question" and is "a little bit edgy."

Canadian Tire, which began exploring Operation Leapfrog about two years ago, has been trying to build the non-fuel side of its petroleum division since 2001, Mr. Medline said. It now has 60 car washes as it focuses on Q to try to fatten the profit margins.

Last year, the petroleum division's pretax profit fell to $3.4-million from $22.1-million a year earlier, the company reported recently, citing volatile gas prices. The division's revenue rose 14.4 per cent to about $1.2-billion from $1-billion; of that, convenience store sales jumped 21.6 per cent while car-wash sales climbed 20.5 per cent.

Q is aimed at beefing up the results. And while the company is pouring more money into each store to give it an edge, the investment should pay off in stepped-up business, Mr. Kilty said. The Windsor store, launched a few weeks ago, is already beating targets, he said.

Meanwhile, Q outlets eventually could carry a broader array of goods, such as clothing, he added.

He wouldn't say exactly how many Q outlets are in store, but hinted that there could be many. The two pilot outlets are located at former Canadian Tire properties; the company is also looking for other high-traffic spots for Q, including sites in big cities, he said. Each store will have a gas bar. "We didn't put all this work in this to have only a few or a few dozen," he said. If the concept flies, "this could be a very big business for Canadian Tire."

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