Family ownership fuels Sheetz

By Dave Donelson

The convenience store operators are preparing for a transition to third-generation management and creating a family council.

What is Sheetz? To motorists in the six states where the Altoona, Pa.-based company operates, it’s a beloved convenience store that offers made-to-order food. According to a survey sponsored by the Pennsylvania Department of Community and Economic Development, Sheetz is one of the best places to work in Pennsylvania. But for the eight family members involved in the 61-year-old company, Sheetz is a family business ready to make a leadership transition. It is also in the process of preparing 75 family members for their role as stewards of one of the fastest-growing companies in the industry.

Sheetz, which began as a single dairy store in Altoona that Bob Sheetz purchased from his father in 1952, is now a chain with 15,000 employees and more than $6 billion in annual sales. Its growth has been accompanied by carefully planned and executed management transitions that have kept the company firmly under family control. This year, the fourth such change will occur, accompanied by the creation of a new family council and a voting trust.

At press time, Sheetz operated 434 stores selling fuel, groceries and made-to-order meals in Pennsylvania, Virginia, Maryland, West Virginia, Ohio and North Carolina. That number is fluid, however, since the company opens an average of three stores each month and has 100 new locations currently under contract.

Stores are known for their neon color schemes, red-and-yellow canopies over the gas pumps and product offerings that play off the family name, such as shmuffins, burgerz, fajitaz, fryz, shnack wrapz and pretzel meltz. Sheetz has flourished despite changing customer needs and desires by introducing new products. The chain has also evolved from standard-issue convenience stores to “convenience restaurants” serving made-to-order fresh foods with in-store dining.

The New York Times (in February 2013) and the Washington Post (in August 2009) have written about the intense customer loyalty at Sheetz as well as at Wawa, another privately held convenience store chain based in Pennsylvania. Sheetz stores are concentrated in the central and western part of the state, while Wawa, controlled by the Wood family, has claimed eastern Pennsylvania (and also operates in New Jersey, Delaware, Maryland, Virginia and Florida). Don Longo, editor of Convenience Store News, told the Times that both chains are considered “best in class.”

Bob’s brother Steve Sheetz, the chairman of the board, says a focus on customers is the key to his family company’s success. “We try to go where the customer wants us,” he says. “That’s taken us from a dairy store to a grocery store to a convenience store and now to a convenience restaurant. We’re in the business of providing that ‘on-the-go’ customer what they want, whether it’s gas, groceries, or something to eat.”

CEO Stan Sheetz says that concept comes from his father, Bob: “He instilled in us that it’s about treating customers right and about treating employees right,” Stan says. Another philosophy handed down from Bob, Stan says, is “If you’re not growing, you’re dying.” The company’s growth has been entirely organic. “We build from the ground up,” Stan points out. “We don’t buy other people’s headaches.”

Changes through the generations

Bob, 78, retired in 1983, turning the reins over to Steve, who had joined him as a partner in the dairy store in 1961. Steve, now 65, served as CEO until 1996, when he moved up to chairman to make room for Bob’s son Stan, now 57. “Dad retired at 49, but his presence is felt,” Stan says. “His vision was to open 100 stores, and when he accomplished that, he left.”

In the fall, Stan’s cousin Joe Sheetz, 46, will become CEO, Stan will take over as chairman and Steve will chair a newly formed family council.

In addition to Bob and Steve, three other second-generation brothers have been or are still involved in management: Joe’s father, “Big Joe,” who passed away seven years ago; Charlie, who retired; and Louie, who is currently executive vice president of marketing.

Joe, the CEO-in-waiting, started at Sheetz in 1995 as director of personnel and became executive vice president of finance in 1996. Joe works alongside a handful of other third-generation members. His brother Travis, 43, is executive vice president of operations, and his sister Ashley, 24, is in charge of social media. Stan’s son Adam and Louie’s son Ryan also work in the company. “They’re in their twenties and thirties,” Steve says, “so I feel really good about how we’re developing. It’s important to have Sheetz family members in management.”

Growth and change have brought challenges to the company over the years. When Pennsylvania approved self-service gasoline in 1972, Sheetz jumped in to add fuel to its then-grocery-centric stores. At the same time, the company doubled the number of locations from seven to 14. “It was a disaster,” recalls Steve. “We did not have people trained, and we were not ready. You would think we would have learned, but we did it again in the mid-’80s.” That’s when Sheetz added a revolutionary technology to its food-service operation—touch-screen ordering. “Since then, we’ve beefed up our hiring and training and worked hard to develop and grow people first,” Steve says.

While the company’s current growth rate is impressive, Stan says there were more hurdles to cross earlier in its history. “Growing to 75 stores from one was a monumental feat,” he says. “In some ways, it was harder to do than growing the way we have now. You run into more barriers going from a small family business to a medium-sized one. There are different regulatory issues, different accounting and finance issues, personnel issues. It’s a whole different scale. There were fewer people wearing more hats at that stage of the game.” And there was more to learn when the company was smaller, he notes. “When you’re growing in the early stage, you run into problems for the first time.”

In 1992, Sheetz took a major step toward vertical integration of its supply chain by putting three tankers and nine drivers on the road to deliver fuel to its stores rather than rely on regional jobbers. Today, the company operates a fleet of 100 trucks and numerous terminals to keep stores supplied through daily delivery so they can sell more than a billion gallons of fuel annually. When Steve leaves the chairman’s post at the end of the fiscal year, he will continue to be responsible for CLI Transport, the wholly owned fuel transport company.

The leap into logistics proved successful, so a distribution center for grocery and restaurant supplies was opened in 2001. Drivers deliver to every store three days a week with 53-foot trucks that can carry frozen, refrigerated and ambient-temperature items all at once. Seventy percent to 80% of the items sold in the store are delivered from the distribution center—everything except milk and soft drinks. (Vendors in those industries have their own distribution systems.)

The next step was making their own products. Sheetz Brothers Kitchen, a production facility, opened in 2008. “Half the building is a bakery where we make all our own doughnuts, cookies, muffins, rolls and bread,” Joe says. “The other half is a commissary where we make ready-to-eat sandwiches and things like that.” That facility uses smaller vans that deliver every day to every store. “That’s how we can keep things fresh,” Joe says. Growth is stretching that capacity, however, so the company is building a $32.8 million distribution and production center in Burlington, N.C.

“We did all this at the time when the rest of the world was outsourcing everything,” Joe points out. “But we study these things carefully. We decide step by step whether bringing some functions in house will be more profitable.”

Family ownership makes a strategic difference, too, Joe adds. “Being a private business allows us to operate with a long-term perspective,” he says. “On top of that, being a family-owned company lets us try things entrepreneurially because we have concentrated decision making. We can remain nimble.”

Preparing for family ownership into the future

The Sheetz family is now in the process of recapitalizing, revising their bylaws and updating their shareholders’ agreement, according to Stan. Nearly all of the 75 family members are shareholders, either directly or through various trusts. “We got to where we are today by [the second generation] being very proactive 25 years ago with a tight shareholders’ agreement and things like that,” Joe points out. He adds, “We’re trying to stay out in front of it because we’ve seen so many other families do it the wrong way.”

“Our current governance is probably not as sophisticated as it should be for a company of our size,” Joe acknowledges. “Our board of directors is Stan, Steve and Bob. We have an advisory board with people from all over the company, but it’s not officially approving anything. That’s all well and good when you’re smaller, but now it might not make sense.” The advisory board, set up by Bob in the early ’70s, is made up of a dozen key employees, outside advisers and family members. “Generations out, we’re looking to create a more formal board with a mixture of inside and outside people,” Joe says.

The family has been developing its family council with Steve McClure of the Family Business Consulting Group. “Family ownership and family employees are two separate things,” Steve Sheetz points out. “We have many more family shareholders who don’t work here than do. We try to split the ownership from the employment. The family council is a recognition that the family shareholders need some education about some of the history and legacy of the company, and what the qualifications are if you want to work here.”

“Many of the younger shareholders become owners through trusts or whatever,” Joe says, “and they need to learn how to be a responsible shareholder.”

The family council will also help deal with some of the problems inherent in having many non-employee family shareholders. “If you have ten family members who want to stick their noses in, it’s a big distraction for the CEO,” Stan observes. “The family council will take on the responsibility of sharing the company’s goals, its plans, its financial results, even what the company’s culture and brand are all about. When the company shares the family name, there’s an intimate connection.” Currently, the company holds regular shareholders’ meetings, shares financial results and has an internal newsletter that comes out eight times yearly.

Almost all of the company stock is in family hands, but some non-family key employees were given stock in earlier times; the company has the right of first refusal to buy it back. There is also an ESOP, which now owns about 6% of the company. Joe explains, “We did it first and foremost as an employee benefit and, number two, we wanted to create a secondary market for small numbers of shares that somebody might want to sell—people like one of the aunts who has never worked here and needs money for a condo in Florida. When you look at how shares recycle, it will probably never be more than 15% of the ownership.”

The family also is planning a voting trust. “One-third of that will be voted by the family council,” Joe says. “At a minimum, the family council is going to have a voice on the board of directors.”

What does the future hold for the Sheetz family after this management transition? “The senior members of the family who work for the company intend to keep it private and grow it,” Stan says. “There are only two reasons to go public. One is to raise capital, and we don’t need that. The other is to provide liquidity for shareholders, and we’ve been able to handle that internally as well.”

There are also non-financial reasons to keep the business in family hands, Stan says. “Everything about a family business is a plus,” he says. “In our business, there are eight people with the last name of Sheetz. It’s a lot of fun to work with family and to have success together.”

“We have always had great family relationships,” Steve says. “The family businesses I’ve seen fail have strained relationships. We’re tied together with the same goals. The family has to make sure the company comes first, before their personal interests.”

Musing about the years ahead, Stan adds, “I anticipate that the company will always be family-owned, but the only way to predict the future is to create it.”

Dave Donelson is a business writer in West Harrison, N.Y., and the author of the Dynamic Manager Guides and Handbooks.

 

 

 


 

 

 

Copyright 2013 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permssion from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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