Uni-Marts, Inc.

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Uni-Marts, Inc.

466 East Beaver Avenue
State College, Pennsylvania 16801-5690
U.S.A.
(814) 234-6000
Fax: (814) 234-8712

Public Company
Incorporated: 1981
Employees: 2,700
Sales: $327.01 million (1995)
Stock Exchanges: American
SICs: 5411 Grocery Stores; 5541 Gasoline Service Stations; 5172 Petroleum Products, Not Elsewhere Classified

Uni-Marts, Inc., is the ninth-largest convenience store chain in the United States in sales and among the top 100 U.S. companies in the larger grocery store industry. In 1996 Uni-Marts operated 407 stores in the mid-Atlantic states of Pennsylvania, New York, New Jersey, Maryland, Delaware, Virginia, West Virginia, and Ohio, with three-quarters of its stores located in its home state of Pennsylvania. In addition to the roughly 3,500 products for sale in the typical Uni-Mart store—ranging from dairy products and dry grocery goods to magazines, candy, beverages, and cigarettes—about three-quarters of Uni-Marts’s stores offered self-serve gasoline pumps. In 1995 Uni-Mart sales were divided between general “c-store” merchandise (55 percent) and gasoline sales (44 percent). Through an aggressive growth strategy that blended new store construction and block acquisitions from such chains as Li’l General, Open Pantry, Shop-N-Dine, Handy Market, and Stop-N-Go, by the mid-1990s Uni-Marts had grown into a prominent player in the roughly $86 billion U.S. convenience store industry. Of the 1,500 companies running the 65,000 U.S. convenience stores in the early 1990s, 140 vied directly with Uni-Marts for the small town and rural market.

1970s Origins

Uni-Marts, Inc. was founded in 1972 by Henry D. Sahakian, a Christian Armenian from Iran who moved to the United States in 1956 to study mechanical engineering at Pennsylvania State University in the town of State College. After graduating, he used a modest nest egg left him by his father to found Unico, a builder of student housing projects for the university. The venture was a success, but Sahakian sought new challenges and, noting the rapid growth of Southland Corporation’s 7-Eleven convenience stores throughout the region, flew to the chain’s Dallas headquarters to personally petition for an exclusive territory of stores. When Southland offered him only a single store, Sahakian turned to Munford, Inc., the Atlanta-based owners of the Ma-jik Market convenience store chain, which granted him a 20-year license for convenience stores in the state of Pennsylvania.

Between 1973 and 1974, Sahakian opened nine Ma-jik Mart stores in such small Pennsylvania communities as Clearfield, Chester Hill, Bellefonte, Curwensville, and Altoona. To gain a stake in the industries supplying his stores, Sahakian acquired Meadow Pride Dairy in 1975, Long’s Dairy in 1976, Royale Dairy in 1980, and Valley Farms Dairy in 1988. By 1990, Sahakian’s dairy operations alone—which processed and distributed milk and other beverage products to Uni-Mart stores and other customers—reached a sales peak of $22.7 million in 1990, or nine percent of Uni-Mart’s total revenues. In 1994, after almost 15 years in the dairy business, Sahakian sold the dairy operations off to Pittsburgh’s Schneider’s Dairy for $6.1 million, enabling Sahakian to concentrate exclusively on his core business—convenience stores.

By 1977 Sahakian’s 30 Ma-jik Marts were generating $10 million in annual sales, and he decided to incorporate them as Unico Ma-jik Markets, Inc., a wholly owned subsidiary of his Unico Corporation. He next expanded into southeastern Pennsylvania, New Jersey, and Delaware and turned to a new sideline, food manufacture. Soon a Unico division was turning out Chunkee Foods sandwiches and Dino’s Pizzas, and in 1980 Dino’s ads were featuring the familiar face of Penn State football coach Joe Paterno. After less than a decade in business, Sahakian moved Unico’s corporate headquarters to a new 28,000-square-foot office building in State College in 1980.

Incorporation in the 1980s

Despite an empire that now numbered 90 stores, Sahakian had become frustrated with his franchisee status with Munford. The amount of income returned after receipts were sent to Atlanta was simply disproportionate to the effort he and his stores expended. He consequently broke with the chain in 1981, terminating his franchise agreement and reestablishing Unico and his Ma-jik Market stores as Uni-Marts, Inc., a name chosen in an office contest. Munford sued, but Sahakian eventually prevailed, winning independence for his chain and its 695 employees. The move proved to be a propitious one for the 1980s became the decade in which the convenience store concept came into its own, exploding from 30,000 U.S. stores in 1976 to 75,000 by 1986. By 1992, two-thirds of all Americans were shopping at convenience stores at least once a week. Faced with this thriving new form of competition, supermarkets reacted by staying open around the clock, and major oil companies like Texaco and Mobil opened convenience stores inside their gas stations. The convenience store market quickly became saturated, and once-dominant firms like Southland, Circle K, National Convenience Stores, and Cumberland Farms fell by the wayside.

In this climate, the success of Sahakian’s stores would have seemed all the more remarkable if its underlying strategy had not by now become so apparent: while the big chains claimed the urban markets, small towns were still mostly occupied by independent mom-and-pop stores ill-equipped to compete with Sahakian’s vast economies of scale. Uni-Mart’s 1993 annual report described the firm’s approach plainly: “Uni-Marts’ strategy is to locate many of its convenience stores in small towns and rural areas where there are fewer competitors and lower operating costs.” By avoiding the competition and crime of the big city for an untapped market with seemingly limitless growth potential, Sahakian had grown from 92 stores in 1982 to 208 four years later, breaking the $100 million level in sales for the first time in 1986.

Sahakian’s “small town strategy” not only created a booming business in an industry choked by competition, it also represented a kind of throwback to the pre-supermarket era of the 1920s when the U.S. grocery industry was still dominated by mom-and-pop stores and so-called economy stores. Like these forerunners, Uni-Marts were sometimes the only stores for miles and therefore served not only as a quick-stop filling station/minigrocery but a community gathering place (some larger Uni-Marts featured in-store seating). As Sahakian told Forbes magazine in 1995: “We’re not afraid to go into small towns. We are their gas station, their restaurant, their drug store, their newspaper stand.”

To cement the community’s attachment to his stores, Sahakian encouraged Uni-Mart store managers to stock up to 100 products with a local appeal—from refrigerated bait for active fishing communities to work gloves for blue-collar towns. Even among the standard roster of products sold in each Uni-mart, managers of the company’s five geographic regions were allowed to modify their stores’ product mix to their communities’ preferences. In Uni-Marts’ headquarters town, State College, Pennsylvania, for example, fast food and snack products sold strongly while beer, deli products, and chicken tended to do well in, respectively, New York state, Pittsburgh, and Lancaster county, Pennsylvania. As Uni-Marts’s advertising and sales promotions manager Barb Robuck put it in 1993, “Every geographic area has a little niche. You have to put in the right product and food, but you also must be careful with how you advertise. We can’t sit here and put together a corporate product.”

Uni-Mart stores themselves ranged in size from 1,200 to 3,000 square feet, with an average of 2,400 square feet. Smaller stores were designed to be run by a single worker at a cash register station located, for better security, facing the store’s aisles, and although the convenience store industry is synonymous with around-the-clock hours, Uni-Mart’s less crowded markets allowed it to maintain 24-hour operations in only two-thirds of its stores. While the company’s prices were in some cases somewhat higher than supermarkets’, they were often more competitively priced than other convenience stores. Besides the standard items like deli foods and hot dogs, dairy products, health and beauty aids, tobacco, and candies and snacks, in 1987 Uni-Marts began stocking freshly baked pizza among its fresh, ready-to-eat food goods. Hot Chester Fried Chicken soon followed and, after Uni-Marts consolidated its pizza programs in 1994, freshly baked Valerio’s Pizza. To encourage repeat business and further individualize Uni-Marts from other convenience stores many Uni-Marts also offered money order and utility bill payment services, free check cashing, videocassette rentals, and nontraditional food items like cappuccino coffee and yogurt.

Company Perspectives:

It is Uni-Marts’ mission to provide friendly, efficient service to our valued customers, offer quality products in a clean atmosphere, and return a reasonable profit to our stockholders.

If Uni-Marts could rightfully claim, as its slogan put it, that it was “more than a convenience store”—that it was in fact a modern-day “town store” with all the connotations of community involvement that entailed—its community service programs were the proof. Beginning in 1987, it began a series of programs to link its stores closely to their communities while polishing its overall corporate image. It sponsored local Little League teams and fireworks displays, created a nationwide customer service WATTS line (“1-800-UNI-MART”), and contributed money to Pennsylvania State University as well as local charities. Among its more traditional promotional strategies was a player-of-the-game program for Penn State football games, a seniors’ club to award free items after a certain number of purchases, and instant-win lottery games. The company also worked hard to foster a team attitude among employees, from forming company softball teams, sponsoring corporate golf outings, and holding annual conventions for store managers to awarding employees for outstanding customer service, providing scholarship programs for employees’ families, and faithfully promoting from within.

Responding to Challenges in the 1990s

Uni-Mart’s public relations slate was not entirely unblemished, however. Uni-Mart had reportedly alienated some public decency groups by refusing to discontinue sales of such magazines as Playboy and Penthouse in its stores. Sahakian himself rejected the charge that Uni-Mart unethically sold pornography to the communities it claimed to care about:’ ’I hate censorship,” he stated in a 1995 Forbes interview, adding “I came to this country because of freedom, and I’m not going to give it up.”

As with most convenience stores, cigarette sales historically accounted for a considerable percentage of Uni-Mart’s corporate profits (as high as 32 percent of all non-gasoline merchandise sales in 1984). Early on, however, Sahakian had taken note of declining U.S. smoking rates and the likelihood of increasing cigarette taxes and began looking for something to fill the 24 percent hole in merchandise sales that cigarettes occupied by 1994. One solution seemed to be so-called private label cigarette brands, which allowed convenience stores to market and prominently display lower cigarette prices in a way supermarkets could not imitate. Capitalizing on consumers’ desire to pay less for tobacco, between 1991 and 1995 convenience stores’ market share in cigarette sales rose from 36 to 47 percent.

Sahakian predicted, however, that even short-term pricing victories would not keep cigarette sales from declining to almost negligible levels by the early part of the 21st century. The real answer, he decided, was fast food. In 1994, Sahakian entered into an experimental arrangement with Blimpie’s International, a submarine sandwich chain, in which Uni-Marts became in effect a Blimpie franchisee, with Uni-Mart employees making and selling Blimpie subs while performing the traditional duties of a Uni-Marts store. The idea of two companies cooperatively capitalizing on each other’s brand name, known as co-branding, stemmed in part from Sahakian’s decision in late 1991 to replace the ten to 12 companies that provided the unbranded gasoline sold in its some 300 gas station/convenience stores with a single major gas supplier, Getty Petroleum. In exchange for agreeing to use Getty brand gasoline exclusively in 90 percent of its existing gas station/convenience stores, Uni-Mart leased 141 GettyMart gas station/convenience stores for its chain, increasing its retail network by 42 percent and expanding into Virginia and new areas of Pennsylvania.

If Uni-Marts could gain more repeat customers by offering branded gasoline, Sahakian reasoned, why not new repeat customers for branded fast food? The Blimpie experiment was successful, and in 1994 Uni-Marts entered into co-branding relationships with Blimpie’s and Burger King, with Arby’s to follow in 1995. Using portions of the $6 million raised from its 1994 sale of its dairy operations to add fast food installations to its stores, by late 1995 Uni-Marts was operating twenty-one Blimpie stores, five Arby’s stores, and three Burger King stores, with plans to add 25 to 30 new fast food c-stores every year. Based on early results, Uni-Mart predicted that the new prepared food operations (which offered partial menus of the fast food chains’ full restaurants) would have a “positive impact” on the chain’s customer traffic as well as adding a needed profit buffer to the razor-thin margins of its traditional c-store merchandise. Not coincidentally, Uni-Marts could also now side-step its historical reliance on cigarette sales for corporate revenues.

Not all of Uni-Marts’ expansionary plans bore fruit, however. In late 1995 the company attempted an unsolicited stock swap with Dairy Mart Convenience Stores that would have produced the third-largest convenience store chain in the United States—1,300 stores with annual revenues in excess of $900 million. The acquisition at first appeared a natural; like Uni-Marts, Dairy Mart, a Connecticut-based chain of 900 stores in 11 states, offered both convenience store and gas station services to rural and small markets. Moreover, Uni-Marts already owned a block of Dairy Mart stock. Dairy Mart, however, fiercely resisted the move, buying the stock of its former chairman to gain a controlling vote over the deal, which it promptly rejected.

Despite the setback, Uni-Marts continued to add value to its operations in the mid-1990s. In 1995 the company signed an agreement with a Pennsylvania credit union to operate automatic teller machines in 155 of its stores, giving customers one more reason to walk through the door and money to spend if they stayed. An extension of Uni-Mart’s co-branding concept was also unveiled in 1996: a “convenience center” in State College in which a Uni-Mart served as the anchor store in a one-stop business cluster that included a bank, a Mail Boxes Etc. copying and shipping franchise, a bagel shop, and a drive-through Burger King.

The company also aggressively pursued the integration of technology into its operations, which had begun as early as 1982 when electronic devices for ordering groceries were installed in its stores. A pilot program was launched in 1993 in which a store’s cash register would be linked to a PC that would automatically enter rung-up sales into a computer at Uni-Marts’s headquarters, promising improved “real-time” control of inventory and sales data. In 1996 the company also adopted an inventory management system that enabled it, in conjunction with its wholesaler, to use computers to more efficiently design optimal “shelf sets” for the goods merchandised in Uni-Mart stores. The system promised to improve Uni-Marts’s product merchandising by enabling it to more effectively limit the space devoted to slow-moving items while more efficiently arranging the space allocated to each vendor’s products.

Uni-Marts also continued to ensure its stores’ compliance with Environmental Protection Agency (EPA) regulations on the replacement of environmentally damaging chlorofluorocarbon (CFC) refrigerants in its store refrigeration systems and other EPA regulations governing the upgrading of filling station gasoline holding tanks. With 90 percent of its tanks upgraded to meet these standards by 1995, Uni-Mart turned its attention to installing high-volume fueling equipment throughout its chain.

Between 1985 and 1995, Uni-Marts’s revenues and profits had quadrupled, and Sahakian himself had seen his 6.3 million Uni-Mart shares rise to $26.3 million in value. With an uninterrupted 25-year history of profitability behind it and a realizable goal of 1,000 stores ahead, Uni-Mart’s 1996 corporate slogan— “Proud Past, Bright Future”—seemed to aptly encapsulate the company’s status as it entered its anniversary year.