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TriFactor Home > TriFactor Learning Center > White Papers > Considerations for Designing a Convenience Store Network Distribution Center

Considerations for Designing a Convenience Store Network Distribution Center

Introduction

material handling systems, TriFactor, distribution center design

Between vying for business from non-traditional customers, retaining key customers, and fending off threats from rival retail channels, convenience store operators face more competitive pressures than ever.

One way they are responding to marketplace shifts is by stocking a greater assortment of products on the shelves, from health-conscious, ready-to-eat meals to e-cigarettes.

Although broader product variety can stress distribution inventory and handling capabilities, overcoming the challenges is possible. With well-planned design and an unbiased approach to equipment choices, distribution centers supporting a convenience store network can meet store demand and satisfy customers’ evolving preferences.

Meeting expectations of current and non-traditional customers

In 2017 – a year that saw retail chains folding at a nearly apocalyptic pace -- the U.S. convenience store count reached an all-time record, rising 0.3 percent over the previous year to 154,958 stores. Among all brick-and-mortar retail industries, only the dollar store channel is larger. And while online shopping is drawing customers away from other categories, the future of the convenience store sector looks strong: even consumers who make most of their purchases via their phone still have immediate needs that convenience stores are best equipped to meet. For this main reason, according to consumer research firm Nielsen, convenience stores are the only brick-and-mortar channel that will win an increase in retail spend share by 2021.

However, there are plenty of competing channels looking to derail that positive outlook. Grocers, mass marketers, dollar stores, urban neighborhood markets, and e-commerce retailers are all taking aim at the on-the-go, value-minded consumers who traditionally shop at convenience stores. And that’s causing the line between channels to blur: everyone is getting into each other’s business.

To distinguish themselves, convenience stores are altering their product mix to help retain current clientele and attract non-traditional customers, including health-conscious and ethnic shoppers. This has led to a growing emphasis on categories such as fresh foods, ready-to-eat meals, gourmet coffees, and sparkling wines. At the same time, the market for cigarettes, a convenience store stalwart, is shifting to electronic and vaping products, and bringing new shoppers with it.

As convenience stores change their stock to meet customer demand and expectations, they are also looking for ways to optimize their distribution centers to better accommodate both traditional convenience store fare and new, on-trend offerings. That means considering the best way to meet requirements for:

• Product temperature control, including cold chain

• Cigarette processing

• Hazardous product storage and handling

• Handling fresh, prepared, and baked foods

Unique challenges and constraints of the convenience store market

Convenience store distributors face product challenges that other retailers do not. For one thing, most convenience stores lack a back room and have complex replenishment cycles, making just-in-time delivery critically important. In addition, convenience stores are more physically constrained than any retail chain, which means each product must be the right fit for the market – culturally and geographically. Increased stocking diversity only adds to the complexity.

To ensure that all products are delivered where they need to be, on time and in proper condition, the distribution center must:

• Store, pick, and ship products at the right temperature, whether ambient or frozen.

• Understand and be equipped to handle the cumbersome processing of cigarettes.

• Handle hazardous automotive products safely.

• Efficiently process, pick, pack, and distribute labor-intensive products, such as fresh and prepared foods and baked goods. Often these require special storage and transportation efforts to ensure speed of delivery and consistent quality.

Bringing it all together

There’s more to a distribution center than meets the eye. In addition to selecting and setting up shelves and sorting machines, there is a lot of detailed work that happens behind the scenes, from day one, including:

Design and planning. Since planning a new distribution center usually begins with architects and construction companies, it’s important that convenience store operators ensure that every detail of their distribution center design -- from column spacing, height planning, floor loadings, compressed air and electrical service requirements, lighting plan, and sprinkler coverage -- is designed with supply chain distribution in mind.

Project management and procurement. Designing a distribution center can be a full-time job, but project management and procurement experts with access to a range of equipment solutions can help reduce the workload and worries.

Acceptance testing requirements. The accuracy and completeness of orders is important to convenience store companies, which is why it’s critical to have means of ensuring orders are correctly picked, such as in-line weigh scales or order verification scanning at final packout.

Training. While most distribution centers rely on automation to some degree, convenience store networks shouldn’t overlook the need for training: After all, distribution center employees have to learn how to use all of the new conveyors and sorting machines well in advance of commissioning – and not just by being handed a manual. This is especially important to remember when using equipment made by a variety of manufacturers -- and it’s a good reason to make sure that, early on, someone is in charge of organizing all of the necessary training.

Sheetz Convenience Stores: Staying relevant and meeting consumer demand

Through detailed planning, process flows, and standard operating procedures, effective distribution center design can create a strategic advantage for convenience store networks. For Sheetz Convenience Stores, building a new distribution campus created an opportunity to eliminate bottlenecks and improve everything from product picking to delivery and unloading.

Started in 1953 as a family business, Sheetz Convenience Stores has grown to 570 locations in six Mid-Atlantic states: Pennsylvania, Maryland, Virginia, West Virginia, Ohio, and North Carolina. The privately held company contacted TriFactor while designing a new distribution center in Pennsylvania, hoping to optimize picking processes, sorting technology, and storage solutions.

The top priority for Sheetz was a distribution center design that would allow for growth as the chain opened new stores in multiple states. The design needed to improve cigarette throughput and make the cigarette picking, sorting, and packing process -- a unique pain point for convenience store distribution -- more efficient. It also needed to help Sheetz speed up delivery of freshly prepared foods, a major component of Sheetz’s business.

Food is of particular importance to the company’s operations. Although about 50 percent of Sheetz’s revenues still come from traditional tobacco and cigarette products, sales in that area have gradually weakened due to price hikes and cultural changes. To counter the decline, the company is expanding food options for the on-the-go market, already a major source of sales. This includes ramping up the variety of fresh snacks offered in stores and providing a broad range of ingredients for its made-to-order (or, in trademarked company lingo, “MTO”) and ready-to-eat options. 

“We’ve had made-to-order food for the majority of our history,” says Sheetz Director of Operations Darrin Pohar, who says most Sheetz customers put the convenience store chain in the same “quick-service restaurant” category as Subway or McDonald’s. But while made-to-order and ready-to-go offerings have helped Sheetz remain relevant to consumers -- particularly millennials looking for fresher options and people who eat healthy snacks throughout the day -- these items present a logistical challenge for a company with several hundred stores.

“We’re trying to position ourselves to sell more made-to-order food and more high-quality ready-to-eat foods,” says Pohar. But because items like premade sandwiches, parfaits, and other grab-and-go items tend to have very short shelf lives, the company has had to ramp up deliveries, tailoring logistics to meet “fresh” needs in more ways than one. Stores receive truckloads of products seven to 10 times a week, including daily deliveries of bottle drinks, fresh and frozen food products, and dry goods. “The pressure is on us to deliver more frequently to make sure we have the freshest ingredients possible,” says Pohar.

Solutions through distribution center design

Before construction got underway at its new distribution center, Sheetz hired TriFactor to act as a partner and project manager, ensuring that every step -- from preliminary design and procurement to system testing -- was aligned with Sheetz’s goals. Pohar says the company considered several companies, but TriFactor’s experience and ability to work in a collaborative, flexible manner were the deciding factors.

“We didn’t want to reinvent the wheel, and TriFactor did the best job of understanding our needs and adapting to our requests and being collaborative during the design and engineering,” Pohar says. “They brought experience to the table, but they applied their experience based on what they heard from us and not just what they’ve done on previous projects.”

The process began with a needs assessment: In addition to reviewing the scope of work that listed Sheetz’s priorities for the new facility, TriFactor also conducted a thorough assessment of the company’s existing processes. From there, the companies worked together to decide what to discard, what to change, and what to keep.

Elements of the new Sheetz distribution center design included three main objectives:

1. Optimize cigarette/tobacco picking, sorting, and packing. Even though smoking rates are declining nationwide and profit margins are slim, cigarettes still represent a significant part of Sheetz’s business, making fast, efficient processing a must. TriFactor’s custom design incorporates space-saving, multi-level cigarette picking modules that can be expanded, torn down, or re-configured as needed. The mezzanine-style pick modules also feature stairwells and lighting to make it easier for distribution center staff to navigate the layout, select cartons of cigarettes, and place them in totes headed for sorting. A new, state-of-the-art central conveyor system ensures the totes move from Point A to Point B as efficiently as possible. The new system represents a marked improvement in picking time, says Pohar. The tobacco picking area in Sheetz’s original distribution center featured a conveyor belt, but the system lagged when it came to moving totes: In one minute, only nine totes could move from one level to the next. The new system moves 20 totes per minute.

In addition to improving the picking area, TriFactor worked with an equipment vendor to create customized sorting equipment designed specifically for cigarette cartons -- a step that Pohar says made a huge difference in cigarette throughput. “It wasn’t just about buying a piece of equipment that could work faster,” Pohar says. The new sorting equipment separates cartons of cigarettes, scans barcodes, stamps, sorts, and divides them among three packing stations -- at the impressive rate of about 90 cartons per minute. Overall, the improvements to Sheetz’s tobacco processing system resulted in a 50 percent increase in cigarette throughput, Pohar says.

2. Create a supply chain that ensures the daily delivery of fresh foods. To keep up with growing demand for fresh, ready-to-eat, and made-to-order foods, Sheetz has begun producing baked goods like cookies, donuts, and bread in-house (the new Sheetz distribution center has a full bakery). “It’s a logistics equation: We need to meet the need for fresh foods and remain competitive with our pricing,” says Pohar.

TriFactor worked with Sheetz to provide racking and conveyor systems to help design a blend of customized racking and conveyors to reduce labor, increase efficiency, and ensure that baked goods are delivered with an eye to consistent quality and speed.

3. Ensure room for growth. The equipment in the new distribution center -- from the mezzanine-style tobacco picking modules to the sorting and scanning equipment -- is scalable, which means Sheetz can easily expand, shift, or remove equipment as needed. “This gives us the ability to grow and be flexible in the future,” says Pohar, who notes that the company has recently stepped up its marketing efforts to reach millennial customers looking for fresh food options. “We have good long-term equipment, and we can add to it, tear it down, or expand it,” he says. “TriFactor used our item movement data to right-size the facility for current and future growth.”

Pohar advocates the use of an equipment integrator like TriFactor, and says getting them involved early on is key. In the case of Sheetz’s new distribution campus, he says, the benefits were easily apparent in terms of saving time and effort. But more than that, Sheetz could depend on TriFactor to provide a cohesive solution that helped them make appropriate decisions and avoid long-term mistakes.

And in the fast-paced, ever-evolving world of convenience stores, where missteps can cost customers and money, getting it right the first time can help operators stay ahead of challenges.

For more information, visit http://www.trifactor.com/