The Circle K Corporation

The Circle K Corporation

Post Office Box 52084
1601 North 7th Street
Phoenix, Arizona 85072–2084
U.S.A.
(602) 253–9600

Public Company
Incorporated: 1951 as Circle K Food Stores, Inc.
Employees: 26,000
Sales: $2.7 billion
Stock Index: New York

The Circle K Corporation, the second-largest convenience store operator in the world, runs more than 4,500 stores in 26 states and some 1,100 stores, through joint ventures or licensing agreements, in Canada, the United Kingdom, Finland, Australia, the Caribbean, and much of Asia. Circle K stores sell groceries, fast food, and other convenience items and offer many services such as money orders and movie rentals. About three-quarters of its stores also sell gasoline, making Circle K one of the top independent gasoline retailers in the United States. In addition to its stores, Circle K owns a bottling plant and is one of the largest ice manufacturers in the country.

In 1951, Fred Hervey, a self-made business man, bought three Kay’s Food Stores in El Paso, Texas, and began operating them under the name of Kay’s Drive-In Food Service. Hervey, who was born in 1909, began his business career in childhood by selling magazine subscriptions and by setting a soda pop stand outside his father’s outdoor theater. During the 1930s, Hervey and his brother started a profitable root beer stand. Hervey then went on to other business enterprises and even served two terms as mayor of El Paso before he founded Circle K.

By 1957 Hervey had a ten-store chain in the El Paso area, and he decided to expand his operation to Arizona. The company adopted a new logo and corporate trademark: an encircled K to create a western image. By 1959 the Circle K Food Store chain had 15 units in Arizona in addition to the ten in Texas. In those days, convenience stores were still a new idea—there were only 500 such stores in the country (in 1988, there were 80,000). In 1965 Circle K developed its contract store concept, individual owner-operated stores to serve remote areas. Contract stores still exist, but only 106 stores today are contract, rather than company-owned.

In the early 1960s, the company doubled in size and moved its corporate headquarters to Phoenix, Arizona. In 1963 Circle K went public, issuing 96,000 shares of common stock. Since that original stock offering, Circle K’s stock has split eight times.

In 1964 Circle K celebrated the opening of its 100th store. That same year, the board of directors began to think about expanding into non-food activities, and so changed the name of the corporation, eliminating the words “Food Stores.” The Circle K Corporation soon began selling gasoline as well as food products—the first convenience store to do so. In 1964 the company also test-marketed manufactured ice under the brand name Crystal Clear Circle K.

By the late 1960s, the company was able to devote more of its resources to technology: in 1967, business operations were computerized, and in 1968, a chemist was hired to develop food products, which eventually led to the Hi Spark’l line and Circle K Frezes. These products, along with others in the Polar Beverage division, such as Del Sol fruit punches and Just Orange juice, developed in the 1970s, continued to be sold until the mid-1980s. Today, however, the trend in convenience stores is to enter into joint ventures with brand name companies to sell fast food such as ice cream, juices, or doughnuts. For example, a Dunkin’ Donuts brand program has been successful in many Circle K stores in recent years.

In 1971, with the establishment of the foodservice division, the company began to sell sandwiches, an enterprise which continues to be successful. In 1972, the company was operating in eight western states: Arizona, California, Colorado, Idaho, Montana, Oregon, New Mexico, and Texas. By the mid-1970s Circle K had acquired 26 Quick-Shop stores, thus expanding its base of operation into Oklahoma and Kansas.

Under the leadership of President John Gillet, Circle K began to expand overseas in the early 1970s. In 1972, businessmen from Japan came to the United States to study the convenience store concept; their visit to Circle K in Phoenix led to Circle K’s first foreign licensing agreement, in 1979, with the Uny Company of Japan to establish Circle K stores there. Further overseas expansion in Asia, Europe, and Australia occurred in the 1980s. By 1989, Circle K convenience stores existed in 13 foreign countries.

The early 1980s were a period of aggressive growth. Karl Eller, CEO and chairman of the board, with the help of his long-time associate, Carl H. Linder, a director who owns 31% of Circle K, is given credit for Circle K’s ambitious posture during this time. Eller, who previously founded Combined Communications Corporation and served as president of Columbia Pictures, has a reputation as an acute dealmaker and business opportunist. (An anecdote reported by Business Week claims Eller was once able to strike a good deal buying several television stations by reading about their owner’s death in the obituaries.) And, indeed, under Eller’s leadership sales soared and the number of Circle K stores nearly tripled, mostly through acquisitions from other chains. During the early 1980s, due to changing consumer needs and the growth of the industry, competition in the convenience food industry was fierce, and Eller’s strategy was to buy up units from rivals hurt by this vigorous competition. In 1983 Circle K nearly doubled its size with its acquisition of 960 UtoteM units. Other acquisitions included 435 Little General stores and 21 Day-N-Nite stores in 1984, 449 Shop & Go stores in 1985, and 473 7-Eleven stores and 538 stores from Charter Oil in 1988. Circle K has expanded from its base in the Southwest aggressively into the South and Northwest and to a lesser extent into the East and Midwest, as well as internationally.

In addition to expansion, the early 1980s also brought a number of innovations to Circle K stores. In 1983, stores in the Phoenix area installed automatic teller machines, while commissary operations developed the Deli-Fresh sandwich concept to serve company stores as well as some supermarket and military accounts. A third innovation that year was a redesigning project to establish a unique corporate identity for Circle K. Stores were remodeled in orange, red, and purple, a distinctive color scheme that identifies Circle K today.

In fiscal 1984, Circle K passed the $1 billion sales mark, and the next year it constructed a new corporate headquarters in Phoenix—an elegant four-story building housing a Circle K store in its front section. But the fast growth and creative innovation of the 1980s were not without difficulty and controversy. Circle K’s 1980 acquisition of 13.2% of Nucorp Energy, Inc., a petroleum corporation, brought with it a lawsuit by a group of shareholders and officers of companies acquired by Nucorp in 1981. The lawsuit, filed in 1983, questioned the integrity of Nucorp’s accounting practices, and threatened the financial stability and ratings of Circle K for five years. It was settled in 1988, when a jury ruled in Circle K’s favor.

In 1988, however, there were other problems. Early in that year, Circle K triggered a gasoline price war in Alabama by cutting prices as much as seven cents a gallon. The state’s attorney and a group of retailers claimed that Circle K’s action violated the state’s Motor Fuel Marketing Act and threatened to file a suit. The impetus for legal action was stifled when Circle K raised its gas prices once again. A spokesperson for Circle K told National Petroleum News, “As a convenience store chain, we give our customers the best possible convenience and value in pricing, but we don’t sell below cost.”

Circle K generated further controversy in 1988 when it instituted a new health insurance plan for its employees which sought to exclude “lifestyle-related” health care problems such as drug or alcohol abuse. This policy would also have excluded AIDS victims, except ones who contracted the disease through blood transfusions. It would not have excluded drug and alcohol rehabilitation, however. The plan created a furor among civil libertarians and gay-rights groups, who feared that other self-insured companies would rush to institute similar policies. Brent Nance, insurance case manager for AIDS Project Los Angeles, told Business Insurance, “It’s almost as if Circle K says there are innocent victims and guilty victims, and they will cover only innocent victims.” Criticism also came from less expected quarters such as the insurance industry and the convenience store industry. Circle K eventually withdrew the lifestyle exclusions from its policy.

Circle K’s fast growth brought with it a number of personnel problems that the company has had to address in recent years. Numerous acquisitions meant that uniformity of procedures and training simply did not exist. It also led to rapid turnover and a lack of company loyalty on the part of employees who often felt an allegiance to their original employer. Circle K instituted a number of communication and training improvements. Newsletters and a toll free telephone number were designed to allay fears among employees whose stores are in the process of being acquired by Circle K. The No. 1 Club rewards sales effort with cash and recognition; the Management Development Candidate program and the Professional Retail Operator program provide comprehensive training for managers.

The convenience store industry is considered to be in the maturing stage of its life cycle: growth, overall, has slowed, and competition is keen. In order to thrive, convenience stores must keep abreast of new trends and accommodate new customer bases. The traditional customer has been a 35-year-old, male, blue-collar worker. While these customers are still important to the industry, working women and white-collar men are making up a larger percentage of customers.

Karl Eller does not intend to let up on the aggressive growth pattern he has set for the company. New conveniences are the order of the day: Circle K offers lottery tickets, movie rentals, money orders, and Federal Express drop-off boxes. To counter its fiercest competitors—gasoline marketers who have begun to sell food and beverages on prime corner locations—Circle K will soon increase the percentage of stores with pumps from about 75% to 90% of its locations. In a 1988 interview with National Petroleum News, Eller was confident of Circle K’s ability to check the threat of this new breed of gasoline vendors: “Right now we can go head-to-head with any major oil company on the same corner because I think we can be more responsive to the customer. Also we don’t lose sight of the fact that gasoline isn’t the top priority in our stores. Customer convenience is.” Circle K’s service orientation has been its strength since its beginning and over several decades of growth, and promises the company a strong future.

Principal Subsidiaries

Circle K Convenience Stores, Inc.; Circle K General, Inc.; Shop & Go, Inc.; UtoteM, Inc.; Bauman Co.; Idaho Outdoor Advertising, Inc.