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Buc-ee’s gets rich by doing everything Wall Street hates
Buc-ee’s may be technically categorized as a “convenience store,” but for millions of Americans, it’s more like a roadside pilgrimage. No matter how big its new stores are, they remain packed. The chain has a fanatically loyal customer base, and it has become a destination for those not fortunate enough to have a Buc-ee's nearby. What’s the draw? Buc-ee's has enormous restrooms that are immaculately clean, cheap gas with often more than 100 pumps, a kitschy-fun shopping experience, and exceptional food — including Texas barbecue and an in-house bakery. In addition, it’s heavily staffed with low-turnover, career employees.I shudder to think of the destruction that would be brought upon the Buc-ee's business model if private equity decided to “fix” its operations.Buc-ee's is thriving by rejecting numerous destructive “best practices” currently embraced by corporate America and private equity.Fortunately for Buc-ee's, it’s still privately owned by its founders, Arch Aplin and Don Wasek, whose business acumen came from running convenience stores and working directly with customers and employees. They weren’t poisoned by an elite business school education, where modern executives learn that customers are prey and employees are a pestilence whose compensation reduces executive bonuses.The winning formulaThe magic formula to Buc-ee's success is built on a very simple foundation: clean restrooms and cheap gas. It first developed its cult following in Texas by being a place you could always count on for a clean restroom while driving the interstates. Good candies, food, and pastries then added to the appeal.Nowadays, the same foundation is in place: clean restrooms and cheap gas. But once a customer walks inside to use the restroom, a wonderland of food and products awaits. The food and merchandise are not necessarily cheap, but they’re high-quality, and many customers enjoy making those purchases as part of their Buc-ee's experience. But it’s still possible to visit Buc-ee's for gas and a potty stop without paying a premium.Standing up to Wall StreetBy contrast, Las Vegas tourism is down dramatically — in no small part because of the city's outrageous pricing. The old Vegas model of cheap buffets and affordable rooms to get people into the casinos was not unlike Buc-ee's lure of clean restrooms and cheap gas. But the Wall Street wizards now in control of Vegas have ditched the old model in favor of revenue-mining every possible moment of a visitor’s stay.As Jeffrey Turner explained on his Substack, “The MBAs and data-crunchers at the corporate casino have installed Disneyland pricing into their models.”Buc-ee's still understands the power of the previous business model that Las Vegas abandoned: Provide a high-quality “loss leader” — or two — to get the customers in the door, and then provide high-margin products that entice them to open their wallets.For those who work at Buc-ee's, it’s more than a job — it’s a career. Buc-ee's doesn’t consider its staff to be “unskilled” labor who deserve near-minimum wages. Their excellent compensation results in lower turnover and better customer service. The food at Buc-ee's might be a little more expensive than at a nearby fast-food joint, but it’s of much higher quality and served by professional staff — things customers will gladly pay a premium for.As I discussed in a recent column, revenue mining has become an all-too-common corporate business strategy these days, especially in private equity. Revenue mining exploits customers while slashing costs to the bone, shipping jobs oversees, firing veteran employees who know the business best, wrecking customer service, downgrading quality, and killing innovation. That pernicious strategy may briefly produce record short-term profits, but it also destroys customer loyalty and brand value.I shudder to think of the destruction that would be brought upon the Buc-ee's business model if private equity decided to “fix” its operations.RELATED: Fear the beaver: How a gas station became a cult (and why you should consider joining) Photo by Chip Somodevilla/Getty ImagesThe famous Buc-ee's restrooms by themselves produce no revenue, and they occupy significant square footage. Its full-time staffers make about $40,000 annually simply to keep these restrooms clean. In other words, the restrooms are a loss leader, drawing customers in but producing no revenue. That’s anathema to private equity.Private equity would slash the restroom maintenance, eliminate or outsource the cleaning crews, and decrease their square footage. Or maybe they’d try to charge admission to the restrooms. But they would undoubtedly kill the golden goose — the restrooms — and thus lose the golden egg that gets customers to the checkout registers.A job sign outside a Buc-ee's in Alabama recently showed that several manager positions within a Buc-ee's pay in excess of $100,000 per year, and the store’s general manager can earn more than $200,000 per year. Wall Street or private equity would waste no time in slashing Buc-ee's employee head count and compensation, assuming it would increase the bottom line. But it wouldn’t; it would simply destroy the staffing that makes Buc-ee's success possible.RELATED: Corporate America is eating its seed corn — and our future Photo by Tim Grist Photography via Getty ImagesPrivate equity would also be aghast at the “lost revenue” from offering below-market gas prices. Estimates are that Buc-ee's sells about 400,000 gallons of gas per day. Just charging 5 cents more per gallon would bring in an additional $7 million annually, all things being equal.But all things aren’t equal.A success story worth copyingBuc-ee's sells such a high volume of gas because its prices are lower. Buc-ee's understands that a lower gross profit per gallon with higher volume produces more gross profit than lower volume at a higher price. But more importantly, those swarms of cars fueling up on inexpensive gas are full of people who stroll inside and purchase high-margin discretionary products. It’s a simple concept that is alien to rapacious financial wizards, but one that’s well understood by retailers on the ground.Buc-ee's success is a refutation of prevailing business wisdom. May it serve as an example to the next generation of business leaders on the importance of developing a loyal customer base with abundant staff, career wages, great customer service, high-quality products, and an enjoyable customer experience.
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