Applegreen thrives on culture of change

Applegreen, the number one motorway service area operator in Ireland and a leading petrol forecourt retailer with operations in Ireland, the UK and USA, is motoring ahead with a focus on food, people and partnerships. Fiona Briggs reports.

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Joe Barrett, Applegreen's chief operating officer, describes the business as a learning organization - a company with a culture of change.

"We never stop, we constantly evolve and improve," he says. "The day you stop is the day you begin to die."

He's not wrong and it's evidenced in Applegreen's latest set of results for the year ended 31 December 2017.

During those 12 months, the business increased EBITDA by 24% to euro39.8m from euro32.0m in 2016 and reported a 25% rise in gross profit to euro181.7m on the previous year. Sales rose by 21% to euro1,428.1m with like-for-like growth of 7.4% in non-fuel gross profit (food and store).

Overall, like-for-like food and store sales increased by 3.9% and by 4.6% in the Republic of Ireland. In the UK, like-for-like non-fuel sales climbed 0.3% on the previous year and generated a 4.2% rise in gross profit.

During the year, Applegreen expanded its estate by 99 sites to a total of 342 at the year end and opened 77 new food outlets during 2017.

Capex for the year was euro113 million, following euro60m in both 2016 and 2015.

In October 2017 Applegreen completed the acquisition of seven petrol filling station sites from the Carlsley Group in the UK and 42 sites from the Brandi Group in the USA.

Food journey

Applegreen's growth journey has been founded on the creation of a food rather than fuel-led business, as Barrett recalls.

"When Applegreen started 26 years ago we were what the industry describes as dealers and making very low fuel margin but we recognized the importance of needing to sell food in our shops very early on," he says.

Early partnerships were formed with Dunkin Donuts, who rented space but ran their own operations, and Bewley's with the development of Bewley's Express cafe counter, a first of its kind; and the self service coffee cart offer, another first. Tie ups with Pierre's, Cuisine de France and then Spar and its Spar Deli offer followed.

The key at the start lay in partnering with brands that knew about the food business, Barrett reports.

"What I call my degree in food came from the experience of working with the likes of Bewley's and Wimpy," he says. "With Bewley's we were developing coffee and seeing what worked but moving with the customer. Filter coffee was the standard at the time but customers were looking for bean to cup and that led to developing the self service machine with Patrick Bewley. The other was Wimpy ( a table service burger business). We had purchased the master franchise and this forced us to learn all about food costs, paper packaging costs and labour cost, which were very different skills to running a shop. My food degree was won during those years of learning that business and then using the same methodology - sales, gross margin, operating costs - across different brand names and monitoring their performance. It's a different business but you have to learn that and it's part of the journey. It was also enlightening for us because as a foodservice brand we learned that you can buy products more cheaply than a retail brand can - we were not aware of that prior to getting into the business."

That learning spawned the creation of the Applegreen brand and subsequently the company's own Bakewell Cafe - the next stage of evolution - offering high quality food at a reasonable price and with a focus on a good coffee and pastry offer.

According to Barrett, Applegreen has been firmly focused on providing 'for me, for now food solutions' versus take-home products; and the grocery range and take home offer has been pretty limited to staple dairy lines such as milk, bread and eggs.

The partnerships, however, have continued apace and today Applegreen operates 260 food offers: 38 Burger Kings, 81 Subways, 18 Costa coffees, 9 Greggs, 9 Chopstix and 4 Freshiis plus 83 Bakewell Cafes. "It's a big spread of branded food business and it really drives our food sales," Barrett says.

People focus

Partnerships along with people and training have driven Applegreen's 'foodvenience' development. "They are the three big things that we are constantly trying to improve in the business," Barrett says.

Investment in people has been a constant. "During the height of the recession we outsourced some accountancy back office tasks but brought design & development and food in-house and there are more than 10 people in the food team now," Barrett says.

"Bob [Etchingham - CEO] and I are very strong on food and the importance of food and are constantly pushing people to trial things. Our culture is that you have to crack an egg to make an omelette so we try things and see if they work. They may not work like you thought they would but you learn from that and move on."

Training is prioritized too and team members are encouraged to challenge and not be all 'yes' men and women. "We are also very strong when it comes to information flow such as P&L performance. It creates a circle of continuous improvement where we monitor, develop/change and implement," Barrett says.

Awards participation, such as the NACS Insight programme, and successes are celebrated too. "It's really important to put ourselves up against our competitors because that challenges us to succeed," Barrett explains.

That the 'learning led' organization sets great store in information comes as no surprise either. Applegreen is a member of Retail Excellence Ireland and regularly participates at NACS and NRF events. "We travel a lot and you learn from when you are traveling and seeing how well other people do things. Then it's all about how you bring the ideas back home and implement them. We've never gone to any conference or trip abroad without coming back with one or two ideas, be it a type of sandwich, food, coffee offer or new packaging solution," Barrett says.

"Personally, I like reading and every year I would read minimum of half a dozen business books that are related to the industry - they could be about coffee, innovation or management but they are all about leadership and inspiring a culture of learning."

International presence

With a presence in three leading international forecourt and convenience markets, Applegreen is gleaning more information than ever.

"It's really important to recognize that every country and region is different," explains Barrett. "Northern Ireland, for example, is a completely different country to Southern Ireland and customers think and act very differently. Similarly, the Irish customer is very different to UK customers and those customers within the M25 in the UK are very different to those in the North of England," he says. It's exactly the same in the US, where Applegreen now runs sites in the North East with an HQ in Boston and 42 new locations in South Carolina, following the Brandi deal. "The point is to recognize that not one type fits all and that you have to target the offer to the market you are operating in," Barrett says.

Keeping in tune with customers' needs across markets is paramount too, as Barrett explains. "We are highly conscious of customers who are needing 'for me, for now food solutions', two-income families who are looking for breakfast and lunch on the go etc."

Barrett also cites changing work patterns as a key influencer on the Applegreen model and one referenced in Charles Handy's book, The elephant and the flea. "The elephant is the big business and the flea represents loads of small businesses but they both need each other. One of the big things we recognized is the number of people that work for themselves and need places like our service stations and coffee shops for small meetings. That drove our learning in terms of putting tables and chairs into our shops," he says.

In a similar vein, Barrett was delighted to have recently witnessed two elderly gentlemen playing a game of chess at the retailer's award-winning site in Lisburn, Northern Ireland, in the site's quiet, airline-style lounge.

Quality and ethics

The trend towards quality is on the Applegreen radar too, Barrett reveals. "We are acutely conscious of the trend towards quality and that customers want quality food," he says. Provenance is key, as too are ethics, especially among younger consumers who want to know where their chicken or coffee originated, for example.

Barrett reports Applegreen recruited a food technologist two years ago, who has reviewed its suppliers and made sure they are up to standard before they join its network.

Travel inspires trends too, Barrett says. Europe is more environmentally conscious and the trend to electric cars is greater than in the US. However, many trends originate in America and cross the pond such as the surge in drive thrus. It plays back to Handy's book and the growth of micro businesses - people for whom the office is their car and don't necessarily wish to park up and go inside a station. Equally, parents with small children favour drive thrus for security and safety reasons, as well as convenience, he reports.

The need to constantly evolve and change is ingrained in the Applegreen organisation because the industry in which it operates has faced multiple disruptions such as the evolution in fuels from unleaded to diesel and now electric, hybrid and unleaded.

It's also been a disrupter, challenging what Barrett calls 'insult' convenience pricing and a small range of products and car accessories with convenience, easy parking and a strong fuel and coffee/food offer.

For itself, Applegreen was a disrupter with the launch of its own brand range of products plus its own distribution system in Ireland, Barrett says.

"It's been very helpful to us and has meant we can buy well and give discounts to customers," he says. "We were also highly conscious of the environment and calculated the number of truck deliveries at our stations - there were well over 100 vehicles a week calling in with everything from news, to sweets and alcohol." By introducing its own distribution, Applegreen culled two thirds of those pull ins, boosting its efficiency and reducing its impact on the environment as a result.

Focus and luck

But you can't talk about the Irish and not mention luck.

"Luck is very important in life," Barrett concedes. "At the height of the recession we joined the tender process for six motorway sites in Ireland and were in a position where five of the tenders were accepted to go through to round two. However, three of the tenderees left the process for financial reasons, so it became a straight shoot out between ourselves and Topaz and we got six sites plus our first branded link ups with Burger King and Costa, which enabled the development of our Bakewell brand."

Luck, yes, but a willingness to take risks too, as Barrett explains: "It cost a lot of money to keep in that tender process - it takes bravery to stay in the race but you reap the benefits when you win," he says.

Now Applegreen's poised to reap the rewards of its recent performance and strategy; as stated by CEO Bob Etchingham along with the latest results announcement: "We are confident in the prospects for company in 2018 as our underlying business continues to perform well and we further evolve our growth strategy," he says. "The significant acquisitions completed in 2017 are performing as expected and we are well place to progress both our organic and acquisition led development plans in the coming year."

"That will be delivered," states Barrett. "There is a strong pipeline of opportunities across various markets. It's hard work but a very exciting time for the business."

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Fiona BriggsFiona Briggs Freelance retail business journalist

Fiona is an experienced journalist and editor, writing exclusive content for GCSF. She is founder of retailtimes.co.uk. She contributes regularly to NACS Magazine and writes articles on omnichannel shopper trends for Radial. Fiona is available for commissions at fionalbriggs@gmail.com

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