This presentation contains statements that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include any statements relating to our possible or assumed future results of operations, business strategies, growth opportunities, and performance improvements at our stores. There are a number of known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from any future results expressed or implied by those forward-looking statements.
Good morning, everyone. Welcome to Casey's General Stores 2020 Investor Day. I'm Darren Rebelez, President and CEO of Casey's. It's been a little over six months since I took on the role of CEO here at Casey's, and I couldn't be more excited about what the future holds for this tremendous brand.
The entire executive team's been hard at work over the last several months assessing our current situation and capabilities of the company and charting a path for continued growth over the next several years. What you'll see today will be a balance of accelerated growth and capability building that will set Casey's up for the long term. Before I get too deep into the content for today, I thought I'd take a minute and share a little bit about my background and what brought me to Casey's in the first place.
Now, when I think about the three businesses that Casey's is primarily engaged in—fuel, convenience retail, and restaurant—I can't think of a better company that fits my background and passions than Casey's. I've spent virtually my entire career in one of these three industries. Most recently, I was the President of IHOP Restaurants, successfully leading the growth of that brand to become the largest full-service restaurant company in the United States.
Prior to that, I served as a COO of 7-Eleven for over seven years and was responsible for everything from store operations to store development to IT and more. Prior to that, I was with ExxonMobil and held a variety of positions in their fuels marketing business. I love the fact that this industry has multiple business lines and couldn't be happier to be leading one of the best in the business. Now let's talk about Casey's.
Casey's is perhaps one of the largest retail businesses in the United States that no one has ever heard of. We're a Fortune 500 company with nearly 2,200 stores in 16 states across our footprint. We're the fourth-largest convenience store chain in the United States, and some of you might be surprised to learn that we're also the fifth-largest pizza chain in the United States.
We own and operate all of our stores with a passionate team of over 38,000 team members who work out of our stores, our two distribution centers, or a store support center in Ankeny, Iowa. Now, this business was built by bringing convenient food and services to smaller communities throughout the Midwest.
As time has passed, we've evolved to bring that same great Casey's experience to larger communities in our footprint as well. Now, we've been doing that successfully for over 50 years.
While perhaps less known outside of the Midwest, Casey's is truly an iconic brand within our geography. That comes largely from the role we play in the communities we serve. We're not just another convenience store. We're truly the hub of the community. We're the gathering place for a morning cup of coffee, the local pizzeria, a high school sponsor, and the convenience store.
Our famous Casey's pizza, combined with our ability to operate in smaller communities and self-distribute, provide us with a unique competitive advantage in the industry. Now, while we're proud of that legacy, we continue to evolve the business with an eye towards the future. Consumer preferences are evolving rapidly, and the need and desire for convenience has perhaps never been greater.
We'll continue to invest in the business to become a bigger, better, more contemporary version of ourselves—a version that has new and enhanced capabilities that will allow us to drive performance and growth in today's challenging retail environment. Now, I'd like to shift gears for a moment and share with you a bit of our perspective on the industry, how Casey's stacks up within the industry, and our track record over time.
As I mentioned before, Casey's operates primarily in the Midwest. Now, as a result of that, the economy in our geography is highly correlated to the agriculture and farm economy. Now, the ag economy over the past six years can best be described as sluggish. Net farm income is down over 40% over that period of time, and most farmers supplement their income with other jobs to make ends meet.
Now, in spite of that challenging backdrop, Casey's has been able to grow and prosper. At the same time, technology is driving significant change across all forms of retail and with consumers. Consumers today expect their retail experience to be faster, more convenient, and technologically enabled.
This convergence of technology and convenience has really manifested itself in the trend of delivery in the restaurant industry. Digital technology has enabled the creation of third-party delivery service providers, which have fundamentally changed the landscape of the restaurant industry. It has also fundamentally changed consumers' desires and expectations for convenience.
Convenience today is defined by frictionless transactions, whether in the store or online. Creating a convenient omnichannel experience is critical in today's retail environment. Now, Chris Jones will share our response to this trend later.
Consumers today expect to get restaurant food and other products delivered to them on their terms.
Now, about 50% of consumers are even willing to pay extra for that service. Trips to retailers, whether brick-and-mortar or digital, are increasingly being driven by convenience. The ability of retailers to offer the breadth and depth of assortment that consumers are looking for in a manner that's easy to shop and pay for is critical. Those businesses that cannot evolve their business into an omnichannel platform are simply going to fall further behind.
That being said, this demand for convenient shopping experiences places the convenience store industry, and Casey's in particular, in a very defensible position amidst an extremely complex and competitive retail environment. Now, in spite of that challenging environment and shifting consumer expectations, especially for brick-and-mortar retailers, the convenience store industry has remained incredibly resilient.
While most other forms of retail are seeing reductions in store counts, the C-store industry has managed to maintain a fairly consistent store count over the last decade. Now, that dynamic, however, has come at a price. The smaller operators are finding it increasingly difficult to survive, which has led to significant consolidation over the last several years.
Now, Casey's is really well-positioned to perform in this kind of environment. Roughly two-thirds of the convenience store industry are operated by a chain of 10 stores or less. These chains or single-store operators simply lack the scale to invest in the technology or the infrastructure it takes to compete effectively like we can.
This has led to the consolidation that I mentioned before. Casey's has a track record of acquiring these smaller operators and converting them to our brand.
Now, due to the increasing competitive environment for convenience, the industry has turned to food service as a differentiator. Now, having said that, the food service category has proven very difficult to master. Casey's, on the other hand, has prepared food in its DNA, and we have an extremely loyal following for our famous pizza.
This provides a foundation to build on that's really the envy of most in the industry. Now, lastly, the industry is susceptible to declining trends in some of the legacy categories like cigarettes. Casey's food service really creates more of a favorable product mix that insulates our business from some of those unfavorable trends.
Now, our strong track record of success is underpinned by several distinct competitive advantages that differentiate us from others in the convenience store space. First among those advantages is our geographic presence in smaller towns and cities.
These towns embrace the Casey's offering and have significantly less competitive pressures than the other major metro areas of the country. Next is our food service heritage I mentioned before. We're famous for our pizza and for good reason. Our stores have kitchens in them, and we prepare our food on-site, which has really proven to be very difficult to replicate in our industry.
We also have a company-owned and operated business model. We enjoy positive control over all of our stores, our distribution centers, and our real estate. That really offers us unparalleled flexibility to support our stores, evolve our offerings, and optimize our store network.
Lastly, and perhaps the most differentiating of all, is the unique role we play in the communities we serve. We have a history of supporting the communities we operate in, and people have come to know and rely upon Casey's.
This sentiment comes through in our new brand positioning, which you'll learn a little bit more about later this morning. These unique characteristics of the Casey's business model have led to some material advantages in our business. Our strength in prepared foods leads us to have a 33% product mix coming from food service.
That's nearly 50% higher than the industry average. That, in turn, makes us less reliant on the cigarette category, which has been in secular decline for about 50 years now. That mix results in Casey's having significantly higher gross profit margins than the industry average and makes us far more resilient to those changing trends in the macro retail environment.
Those advantages aren't just historic drivers of Casey's success. Most recently, the structural advantages continue to lead to significant outperformance on a total inside revenue basis versus the industry, both nationally and in the Midwest, according to Nielsen data.
This growth has been the result of a combination of comp-store sales improvement as well as net unit development, both of which are going to be critical to our continued success. Now, Casey's has a demonstrated ability to grow consistently over the long term on virtually any key metric.
As you can see from these charts, the combination of ratable net unit growth, along with gasoline gallon growth and inside sales growth, has yielded a 7.1% revenue CAGR over the last 10 years. Now, at the same time, the company has remained disciplined around expense control and capital allocation, which has resulted in nearly a 10% EBITDA CAGR over the last decade.
Ultimately, shareholders have enjoyed a 20% average annual return over the last 10 years, which is far outpacing the S&P 500 over that same period of time. Now, our long track record of success at Casey's has been underpinned by sticking to our values and continuously evolving to meet the ever-changing needs of the convenience shopper.
Now, one aspect of our brand that has not changed much in 50 years is our purpose, which is to make life better for communities and guests every day. That's why our 38,000 team members come to work day in and day out. We are part of the fabric of the communities that we serve, and it's really truly authentic for us.
We're there in the good times and in bad, whether it's as a sponsor for the local school, through the millions of dollars that Casey's contributes to various causes throughout the year, or the thousands of volunteer hours our team members contribute.
People know that Casey's is there for them. It's that commitment to our community that makes our team members passionate about their work and our guests raving fans of our brand. As I mentioned earlier, our team has been hard at work assessing our current situation and working to evolve the strategy for our future.
One thing you will not see change is our commitment to growth. Our goal is to deliver top quintile EBITDA growth among our S&P 500 retail peers. We're going to accomplish that through three different strategic pillars: reinventing our guest experience, creating investment capacity through capturing efficiencies, and accelerating unit growth.
All of that is going to be supported by an investment in our talent to drive a performance-based culture. I'll touch on each of these briefly and then be followed by the team for more in-depth discussion on those. As you can see from this illustration, Casey's has positioned itself as one of the top-performing retailers in the S&P 500 from an EBITDA growth standpoint.
Now, given that the primary metric for company valuation in the convenience store space is EBITDA, we believe that delivering top quintile EBITDA growth is in the best interest of our shareholders for the long term. Today, you'll see a plan that continues to deliver that level of performance. To deliver this level of consistent performance, we believe we have an opportunity to reinvent the guest experience to better reflect what Casey's guests are looking for today.
We'll accomplish this by contemporizing our food proposition to build on our core equity in the pizza business and evolve with new and innovative products. At the same time, we'll evolve our product assortment with private brands to better meet the product needs of our guests at affordable prices.
All of this is going to be enabled with a robust digital e-commerce and loyalty platform that's grounded in advanced analytics and insights. Chris Jones and Tom Brennan will go into further detail on that pillar shortly. To make the necessary investments to reinvent the guest experience, we've identified some opportunities to operate our business more efficiently and effectively.
We'll stand up some new capabilities that will enable us to capture enterprise-wide efficiencies, take cost out, and allow us to execute more effectively. These efficiencies will deliver both bottom-line impact and create capacity to invest in growth.
Jay Soupene will lead you through that part of the discussion a little bit later. Now, with this reinvented guest experience and newfound efficiencies, we have the capacity to accelerate our unit growth with higher returns than we've historically experienced.
This will come through expanding our addressable market, leveraging new formats, and putting a more concerted effort behind small-scale acquisitions. Brian Johnson will share more about this exciting part of our strategy a little bit later.
Now, of course, none of that can happen without a strong, diverse, and talented team of professionals. We'll continue to invest in bringing the right talent to the organization to complement the existing group of tenured Casey's team members to build a high-performing team. We'll also build a culture where every Casey's team member has the ability to be the best version of themselves and perform at a high level.
I'll share more about this later this morning. Now, when you pull all this together, you have what we believe is a fairly straightforward equation to deliver top quintile EBITDA growth. The plan you're going to hear about now will deliver consistent same-store sales growth while also expanding margins and taking cost out of the operation.
Couple that with a plan to accelerate unit development of these higher-volume, higher-margin stores, and you have a formula for success that we believe is compelling for investors. I'll now turn it over to Chris Jones, our Chief Marketing Officer, to begin the conversation about reinventing the guest experience. Chris?
Thanks, Darren. I appreciate it. Good morning, everybody. My name is Chris Jones. As Darren said, I'm the Chief Marketing Officer for Casey's General Stores.
I've been with Casey's for almost two years now, and I've been in the convenience industry for over six years. Before that, I was in the consumer products industry with Mars Incorporated for nearly 17 years, and I worked on the confectionery business and the pet care business.
Along the way, I had a stint in financial services, time with Aviva, one of the U.K.'s leading insurers. Over that time, I've had the opportunity to see the positive impact when businesses take a consumer-centric enterprise strategy and move it forward.
I'm excited to be here with the team today to tell you how we've got just such a strategy to positively impact our business moving forward.
As Darren mentioned, we've got four key pillars to our strategy, and I'm going to start to share the details of these pillars by talking about our focus to reinvent the guest experience. As we set out on our strategic planning process, we knew that we wanted to ensure that our guests' needs were the foundation and the core of our plan.
We have identified and focused on the five essential guest needs for Casey's guests. The strategic pillars you're hearing about today are either focused on delivering against these needs or creating capability or investment capacity to create the tools that help our team exceed these guest needs.
The needs that we've identified are digital connectivity, a compelling store experience, delicious food and beverage on the go, affordable choices, and favorite and new items being always available.
Now, the two that I want to talk about this morning are digital connectivity and compelling store experience. Let's start with digital connectivity. With the continued growth of the mobile phone as our guest's screen of choice, we've ensured our proposition is compelling not only in-store but also away from the store.
We expect this digital experience to have the most significant impact on our food business, where it's projected that a majority of orders will be digitally enabled over the next few years. Accordingly, our digital efforts are mobile-first, and they've been built to help us connect new services and new partners into that infrastructure easily as we move forward.
Now, even though speed and cleanliness and location have been success factors for our channel for a long time, in the last few years, the atmosphere, the perception, and the experience in-store have been the key drivers of guest preference in our industry.
Feeling comfortable in the store and feeling like the store is part of the community have risen above all other drivers of guest choice in our markets. What we'll do today is show you how we're building the Casey's brand to make sure that we excel on those dimensions.
This morning, I'm going to speak about three areas of progress and acceleration so that we can reinvent our guest experience. The first one is the ways we're enhancing the Casey's brand. The second is how we're driving industry-leading digital engagement.
The third is how we're using deepened guest insights and advanced analytics to move our business forward. First, I'm going to talk a little bit about how we're enhancing the Casey's brand. In the convenience category, the direction we develop for the Casey's brand is rooted both in what's true about our business, which Darren mentioned earlier, and also what's compelling to guests and convenience in general.
Casey's has established a differentiated role in guest lives, which really has created significant equity for our business and created authentic emotional connections with our guests. The equity that Casey's has built is really rooted in a genuine sense of community, a sense of friendliness, and the understanding that the food they buy is cooked right there in our stores.
This overall sense of warmth and caring results in a deep emotional connection between our guests and Casey's, as well as the team members in the store. Meanwhile, many of our convenience operator competitors have equity that's only rooted in this functional space: the speed, the location, the cleanliness, the assortment in their stores is all they've really built their business around.
We deliver those same functional benefits, but we're delivering more. Our competitors' equities are easily replicated, but Casey's has this difference that goes well beyond the functional and exists really in the equities we have around community, connection, consistency, and shared values.
Accordingly, the Nielsen 2019 Convenience Store Choice Driver Study placed Casey's in the top quintile of all convenience stores, and no national convenience operator scored higher than Casey's on that survey.
If you go from the national level in the Nielsen survey and go down to a regional level, Casey's strengths are even further amplified through our brand equity survey. Among the key competitors in our footprint, Casey's wins on the dimensions of community and food, and it's food overall, not just pizza.
As we set out to reposition the Casey's brand over the last year, we knew that guests were more likely to choose and stay with brands that shared their values, had a purpose, had real meaning beyond the functional role that those brands play in these guest lives.
Given our strengths over the years and the role we play in the communities and really the importance of purpose in our guest choice, we identified this strategic core of our brand that Casey's is at the heart of every community we're in.
We have been working with Schafer Condon Carter out of New York, our newest advertising agency, to create this compelling guest expression of the brand. The way we have decided to express that to our guests is like this: Casey's, Here for Good.
With the Here for Good campaign, we really want to create true and real meaning for Casey's in the minds of our guests, both our current guests and our prospective guests.
The idea of Here for Good really leverages three core truths about our brand. The first is we have good products that meet guest needs. The second is this idea that Casey's is uniquely doing good in the community. The third is the notion that Casey's is not going anywhere.
These three ideas are the winning combination to influence our guests to shop at Casey's and return to Casey's.
I'd like to now show our first advertising expression of this idea with you. I'm going to ask the AV team to run our advertising video, please.
At Casey's, we're not just here in our town. We're here for our town. Here for early mornings, Friday nights. Here for the firsts and the traditions, through the good days and the tough times. We're here for the people. We're here for each other. Casey's, here for our town, here for good.
That's good. The idea of that is to bring a smile on your face. I appreciate a couple of smiles across the room as we show that. Thank you for that.
From this communication, our guests know that we have great products. We're taking care of guests every day, and we're playing a unique role in every community we're in. With this center of gravity for the brand, the idea of being here for good, we've been involving all of our experiences and all of our touchpoints to convey and amplify this idea of being here for good.
You can see here our messaging, our signage, our website, our app, our packaging, and programs like Casey's Rewards are all reinforcing and amplifying this idea. Hopefully, you can see that the idea not only has universality across our markets but the ability to be extremely locally relevant.
We already know that guests are starting to hear this message and see this message, and they're responding favorably. We're excited about that. Now, if all we did was say that we're here for good, it wouldn't be enough. We're excited that we're also showing how we're here for good with the Casey's brand.
We've joined forces with our guests to make a special impact for people in our community. Over the course of the past year, Casey's has enabled our business and our guests to come together and support people with unique needs in our communities.
Thanks to this collaboration, these organizations you see here have all been given financial support to do good for these guests in our communities. We know that no other retail brand is making an impact in these communities the way Casey's is.
Ultimately, Casey's, with this idea of Here for Good, is uniquely positioned to win with guests on the basis of shared values. The images you see up here this morning represent the people, the activities, the events, the places, the traditions, and the values in the towns and cities where we have our stores.
They're reflected in our message, and we're confident they're going to enable the Casey's brand to resonate with even greater impact and connect with the guests that we serve. I now want to move forward and talk about the second area of driving an enhanced guest experience, and that's our industry-leading digital engagement.
Our business has made a major commitment to winning in the digital space and really setting the pace among convenience operators for digital engagement.
As Darren mentioned earlier, no other convenience retailer has the basis for as true of an omnichannel experience as Casey's has. Our food program gives us a strategic advantage and really a leaping-off point for our omnichannel engagement. Our digital transformation, as you're well aware, is underway already.
It underpins our current business, and it's already shaping our business for the future. I want to talk about the way our program is evolving. First, I'll talk about our enterprise foundation that we've now put in place to enable the digital transformation. I'll share the latest on the use of our digital toolkit to engage guests. Lastly, I'll share a little bit about the future growth we envision as we build on this foundation. Let's talk about the foundation.
Less than one year ago, Casey's had been operating at a disadvantage to key competitors in both the convenience and QSR segments. We were lagging our guest expectations, probably more critically. Now, just 10 months later, we have an enterprise foundation that leverages and fully integrates best-in-class, industry-leading omnichannel solutions.
The solutions we've implemented and integrated span from guest-facing to engagement-enabling to operational enhancement, which is allowing us to improve the accuracy, the efficiency, and the effectiveness. Perhaps most importantly, this foundation is serving now as an accelerator or jumping-off point for the next waves of our digital capability.
Already, this foundation has improved our revenue, our conversion, our average order value, as well as our ability to influence guest behaviors. This is kind of just the start of our digital efforts.
The improvements have been enabled by not only the technical solutions but also programs, actions we're taking, and engagement of guests. If you think back to less than a year ago, our 300,000 registered guests got zero or one email per month. That was it.
Today, we've got over five and a half million guest records. We've got one and a half million addressable guests, and we're executing between 10-20 targeted promotions per month. Our digital revenue in this fiscal year has grown nearly 70%. Our recent months have seen weeks and periods where that growth has accelerated to 75% or 90% growth in our online volume.
The parts of our food business that are available digitally are growing three to four times as fast as the overall PF&F business at Casey's right now.
This week, as I'm sure you're all aware, we've taken a big step forward in terms of guest engagement. The launch of Casey's Rewards is the biggest element of this next phase of our digital journey. Guest engagement through this effort takes the form of not only Casey's Rewards but also promotion activation, guest segmentation, and certainly, and importantly, new guest acquisition.
I want to spend a few minutes talking about Casey's Rewards because I know it's important to you and it's important to our guests, and we're excited about it. We know that this availability of a rewards program had been a gap for us competitively in the past. As of a few weeks ago, that gap is closed. We think we've not only closed the gap, we've actually leapt forward.
If you look at our program, it's going to give us this exponential set of data to create new and actionable guest insights. We'll be able to customize and personalize guest messaging, guest incentives, and guest engagement. Not surprisingly, given our history, our program is food-forward, and ordering is at the center of our app.
Our program is designed to not be static. As the program evolves, you're going to see us add a breadth of engagement vehicles that include gamification of guest visits to our stores and the ability to recommend and invite friends and families to our stores. We believe the compelling part of the Casey's Rewards program is really centered on two ideas: community and choice.
When we say community, we mean in that Casey's Rewards is the only rewards program that's enabling guests to convert their points into donation to the local school of their choice. We talk about choice because Casey's Rewards enables guests to convert their points into Casey's Cash, into Fuel Rewards, or into cash for their local classrooms.
Casey's Cash reward is really available to use for virtually anything you want to buy in the store, unlike our competitors who offer a narrow set of predetermined choices. Our program is about the guest and what our guest loves. Now, I'd like to show you the ad that's just started running this week for Casey's Rewards. If we could run that video, that would be great.
With new Casey's Rewards, you can turn pizza into school donations. Download the Casey's app and earn points you can turn into donations to the schools you care about most, or turn points into Casey's Cash or fuel discounts. Sign up for Casey's Rewards and start earning more ways to give and get a little more good. Casey's Rewards: points for school, points for you, points for fuel, points for good.
Casey's Rewards is ultimately not only about rewarding our guests and saying thanks for their loyalty. It's really about having dialogue with our guests and creating new behaviors. If you think about these value paths we have examples of up here on the screen, they not only provide value to our guests, but they provide value for Casey's and our shareholders.
Until now, we didn't know, and we didn't have visibility to who our guests were or how they were interacting with our business. Moving forward, we can meet guests where they are and offer them the right programs and incentives to become guests that come to Casey's for all of their needs, not just one or two. Let's look as an example. If we take a fuel-only guest moving forward, we'll work to introduce that fuel-only guest to our food and beverage proposition.
In another example, having manufacturers tobacco coupons in our program will be another guest benefit. This will give us the ability to regain tobacco guests who previously may have left Casey's because those incentives were being offered at other competitors who had a loyalty program.
Overall, our rewards program will bring new value to guests and provide Casey's with new opportunities as we close this previous competitive gap. I'm excited to tell you that over the next three days, we expect that Casey's Rewards will already surpass one million registered guests in our reward program.
We are excited about that start. Lastly, I want to talk about future growth for our digital efforts. We are building on this foundation. As we move into and through this period of guest engagement, our digital platform stands ready to move to new and even more incremental drivers of growth.
We're ready to leverage our digital foundation to provide new products and services that meet new guest needs. In January, we're going to be beginning a pilot with DoorDash in one of our markets to understand the incrementality and effectiveness of their platform to drive our food business. We're also in discussions with Uber Eats about a similar pilot.
Leveraging our infrastructure, we're also quickly moving to pilot the ability to engage our guests in-store to accelerate our sales of made-to-order, customized food via an in-store kiosk like the one you see here in the center of the screen. As you can see, our digital program has already begun to show benefits, and it's really just getting started.
The three phases of our program will enable us to generate growth and profitability, leveraging this digital foundation and creating a breadth of new growth opportunities for the future.
Over the past year, we've had great progress and accelerated progress working with Deloitte Digital to make all this happen for Casey's. The final area I want to talk about this morning is insights and analytics. One of the key areas of focus for our business moving forward is to dramatically deepen the level of guest insights that we have as a business.
During the past year, we've implemented a new store-level guest feedback loop, leveraging SMG, one of the industry leaders in gathering guest feedback. We're also conducting significant proprietary research into our guests, especially as it's related to our food and beverage program.
We're already beginning to see the benefits of having these enhanced insights, and we expect the food research that I'm discussing to unlock significant benefits in the coming years.
With the implementation of Casey's Rewards, we'll also see a huge growth in the amount of insights regarding actual guest behaviors. Already, our business has made some great strides forward in our ability to leverage the data and information that comes into our business to enhance our core business.
The new digital platform we've been discussing is just one of those areas. Our fuel pricing, our in-store price optimization, as well as the management of store-level performance, are all examples of areas that have already seen positive impact by the use of our data and analytics platforms to enhance our decision-making and the resulting revenue and profitability.
As we move forward, our emphasis is going to be on scaling the impact of these efforts and having increased and accelerated impact of the bottom-line results. Our growing guest data will enable us to further optimize our promotions.
The combination of attitudinal and behavioral guest information, plus our point-of-sale data with the application of predictive tools, will unlock new ways to accelerate our business. Our plan also calls for an enhanced level of team member focus across all parts of the business from an analytics perspective.
In addition to deploying new analytical resources to support functions like operations, category management, and our digital team, we'll be adding new resources and creating an enhanced centralized capability to focus on making decisions that give Casey's more of a competitive advantage. Darren talked about the ways in which our strategic focus areas will drive the business.
You can see how the work we're doing with the brand, with the guest experience, and with digital are focused squarely on driving revenue and gross margin performance. In support of our overall business objectives, you can see we're making really exciting progress.
I'm glad to show you the projects we've already made, and I'm even more excited about the unique opportunities that still lie ahead of Casey's by moving into a leadership role, not only for brand experience but also for digital activation with the convenience channel. At this time, I'd like to turn it over to Tom Brennan, our Chief Merchandising Officer, to talk more about the ways we're enhancing the guest experience for Casey's guests. Tom?
Thanks, Chris. Good morning, everyone. I am Tom Brennan, Senior Vice President, Chief Merchandising Officer for Casey's. I'm extremely excited to talk to you all today about how we're going to deliver on our promise for growth. I started at Casey's just this past October. I'd like to take the opportunity to tell you a little bit about myself and my background.
Joining this team marks the continuation of my 15-plus year career in the retail and restaurant industries. I've worked previously with Target, 7-Eleven, and most recently, CKE Restaurants, where I was the Chief Operating Officer. Over that time, I've had the ability or the good fortune to work and lead in a variety of different roles across merchandising, category management, store development, and operations.
I look forward to leveraging my experience to help us continue to exceed our guest expectations.
In order to exceed our guest expectations, we know that we have to continue to develop our capacity to consistently deliver delicious food and beverages on the go because that's what our guests demand. I will share the details about how we have brought and will continue to bring top-notch restaurant talent onto the Casey's team and how that will allow us to expand our overall culinary capabilities in food and beverage innovation moving forward .
Speaking of beverages, we also have a large opportunity to refresh and expand our dispensed beverages program, and that is exciting given the underlying strength of our prepared foods platform.
Our guest expectations also include affordable choices, and Casey's has considerable runway to enhance our ability to provide that by building out our private brands portfolio. I see this opportunity as a big part of our plans for the future.
Additionally, we know that being convenient means having our guests' everyday favorite items when and where they want them, as well as keeping things exciting through a steady stream of new and innovative products to keep them engaged.
W e're in the early stages of evolving our merchandising team structure centered on enhanced capabilities and rigorous category management processes that will allow us to expand the breadth and depth of our overall assortment. We're also standing up a field merchandising organization that represents a net new addition for Casey's.
With this new capability, we will work to localize our product offerings in order to better meet guest needs market by market. I will now provide additional details on each of these initiatives. Looking at the streets and analysis of share and growth of convenience trips, you can see that food service is at the top for both.
Now, Casey's is extremely well-positioned to take advantage and capture an outsized portion of this growing guest segment. We will do so by bringing a restaurant mindset to our already solid foundation of food heritage. I'd be remiss if I also didn't reiterate Darren's earlier point about the favorable implications of our food and tobacco mix versus our competition, particularly when you look at the divergence in trends between those two.
You've heard already this morning about the pride that we have in the strength of our food culture at Casey's. That has resulted in us being the number one preferred destination for convenience store prepared food in the markets where we operate. This strength has resulted in us having a 10% higher mix of prepared food to total inside sales versus the industry.
This differential is helping to drive a substantially higher overall margin rate to the tune of almost 700 basis points, as you can see on the slide, when we make that comparison compared to our competition in the industry. As strong and as relevant as we are in prepared foods, we have some opportunity to continue to drive dispensed beverage incidents with our guests every day.
We are in the pace that are positioned for food, but when you look at this comparison, you see we have some room to grow in terms of our dispensed beverages business, and that is what we intend to do, as mentioned earlier.
Framing up our overall plan for how to accelerate our delicious food and beverage on the go proposition for our guests, you can see that it's centered on instilling a restaurant mindset with our approach to innovation, quality, and consistency.
The right talent with the relevant experience will allow us to stand up and begin executing against the culinary innovation pipeline that promises to continue to exceed guest expectations with new and innovative favorable products.
We will also extend this mindset to our dispensed beverage platform and, in so doing, drive greater guest incidents and penetration of those categories, which will drive additional top-line revenue at very attractive margins.
Utilizing enhanced guest insights, we will drive a stage-gated restaurant-style culinary innovation process in order to not just maintain our margin of excellence in food, but further step-change our offering to widen the gap between Casey's and our competition.
While we'll clearly look to impact current operations as positively as we can in the near term, we know that it will take about 18 months to get our innovation pipeline populated and running to where we will then have a steady flow of new and impactful food items heading into market test prior to system launch.
We are excited to get this process established, and we know it will be key to accelerating our prepared food sales comps into the future. As I mentioned earlier, our opportunity is clear when it comes to dispensed beverages.
The foundation of our food business provides an incredible platform for us to expand attachment and velocity. To do that, we will look to widen the breadth and enhance the quality of our offering to include equipment, assortment, and overall presentation.
By getting to a better total offering and a consistent offering across our store base, we know we'll be able to position ourselves to take advantage of accelerants such as our digital and loyalty platforms. That will allow us to drive greater guest frequency and higher guest baskets.
Now, while we have enjoyed the ability to maintain premium pricing on signature items like our famous pizza, we know that we have to expand the amount of affordable choices for our guests. Financial pressures are real across our guest base, and we know we have to work diligently and creatively to strengthen our overall value proposition.
By doing so, we'll be able to keep our guests coming back to give us the opportunity to exceed their expectations on a consistent basis. Our challenge in doing this will be to not only maintain but also to continue to enhance our overall margins while providing those affordable choices. Enter private brands.
When we consider the current situation of the Casey's guests and we know that affordability and value are critical pieces of their needs state, one of the ways we plan to address that need will be to expand our private brand platform.
We certainly have a private brand offering today, but as you can see, we have considerable runway to grow that offering. Our commitment is that we will deliver higher quality and more compelling retails and at greater margins versus the national brands in the segments we will attack.
The expansion of our private brands will allow us to continue to exceed guest expectations. When it comes to affordable choices, that is what we plan to deliver. Again, critical in doing so will be our ability to deliver those affordable choices in a way that is not depreciative to our merchandise margins. Private brands expansion will allow us to do just that.
Now, complementing our shift to a restaurant mindset and our prepared food and dispensed beverages business, as well as our planned expansion of private brands, we know that the best way to continue to exceed guest expectations is to have the items they are looking for when they decide to shop our stores.
Casey's will continue to win with assortment by ensuring we stay in stock on everyday top sellers while also continuing to introduce new and innovative items to keep our guests excited and delighted. How we plan to do that is through the development of a best-in-class merchandising team focused on understanding our guest needs and how best to meet them by having the right products at the right price when and where they want them.
We plan to evolve the structure to ensure we are appropriately resourced while executing a disciplined category management process in order to drive profitable top-line sales. I would also like to reiterate the net new capability we'll be adding with our field merchandising function. By getting greater merchandising expertise closer to our stores, we know we will increase our ability to execute as well as localize the assortment store by store.
Of course, all of this will be underpinned and enabled through enhanced analytics and our e-commerce platform. With a best-in-class merchandising team and approach, I am confident in our goal of achieving top quintile EBITDA generation.
As discussed, same-store sales growth will be fueled through a combination of impactful food innovation, our revamped dispensed beverages proposition, and ongoing improvements to Casey's overall breadth and depth of assortment to include more localized executions as we get our field merchandising capability up and running.
We will look to the development of our private brands portfolio to continue to drive gross margin expansion, and we will help to make our stores more efficient in the execution of our prepared food program by streamlining and simplifying our kitchens in order to better enable the delivery of our great products with the highest consistency at the highest quality for our guests.
I'd now like to—I'll be followed by Jay Soupene, our Senior Vice President of Operations, to discuss how we will create investment capacity through capturing efficiencies. Thank you.
Thank you, Tom.
Good morning, everyone. I'm Jay Soupene, Senior Vice President of Operations. I've been on the Casey's team for just over eight years, first as the Director of the Training Department, then as the Director of Operations. Now, as the Senior Vice President of Operations, I serve store operations, grocery distribution and transportation, as well as fuel procurement and transportation.
Prior to joining the Casey's team, I served in the Army for over 20 years. I was in a number of operations roles in direct, organizational, and strategic leadership levels. I consider myself very proud to be part—to go from one great team to another, the Casey's team.
Really excited about our future together. For my portion of this briefing, I'll outline our strategy and how we will create capacity through efficiencies, specifically how we're going to drive efficiencies to improve the shape of our business and fund future growth.
Maintaining positive control and sustaining a culture of continuous improvement are key elements of our strategy. From following detailed analysis from outside support, we're optimistic about the opportunities we've identified and our ability to drive costs out of our business. Through new leadership and an increased focus on efficiencies and enhancement of systems and processes, we will improve performance to reinvest in the growth strategy.
As we plan toward best-in-class efficiencies and reshaping our business, we're focused on four primary areas: transforming our fuel capabilities, driving procurement excellence, optimizing the supply chain, and driving process improvement and store-level efficiency. I'll start with fuel. With the integration of new leadership over the past year, we've had significant shifts in our strategy, focusing on the following pillars: fuel price optimization, commercial fuel expansion, fuel procurement, and fuel transportation optimization.
From a transportation perspective, with nearly 2,200 stores, Casey's delivers 75% of our fuel today. We sell approximately 2.4 billion gallons of fuel a year. With a large and leverageable transportation division, we are well-positioned as we have significant overlap with many pipelines, refiners, and terminals across the Midwest. This provides us opportunity with our scale and buying power across a very broad footprint.
We've also placed new energy into our procurement processes. Historically, Casey's fuel procurement strategy and supporting processes have been limited to a single-pronged approach. We believe that we have a compelling model for change.
We are transforming our procurement processes and execution, shifting from a daily low-rack buying with constrained processes and proprietary systems to a more dynamic organization with significantly improved analytics, best-in-class systems for forecasting, procurement, best buy, dispatch, and fleet optimization. We're just getting started with our new approach to procurement.
Over the past 12 months, we have grown from 4% of our fuel being under contract to over 37%. We expect to continue this transition through fiscal year 2021 with a target of continued enhancements to include both purchasing, trading, and risk management later in fiscal year 2023. With our own fleet, we believe this will give us additional leverage to execute a more diversified procurement strategy to grow greater value to our supply chain.
From a guest perspective, we've already integrated a major shift in our fuel strategy. Last October, we launched our new fleet card program. This new Casey's card, along with renewed energy behind our universal card partners, has incrementally grown our commercial volume. Through the second quarter of this fiscal year, we have added over 8 million gallons to our new network.
We are optimistic about this, that it'll continue to add value. We've also made a number of adjustments to our product mixes to meet the guest expectations, as well as take advantage of some of the state and federal incentive programs. These changes provide additional tailwinds to support and fuel margin expansion.
On a final point, last year, we pivoted our fuel strategy from a decentralized approach when we stood up a new centralized fuel price optimization team with a new pricing platform. As you can see from the growth in our gross profit dollars, this has had a significant impact on performance. We believe these processes will continue to add incremental value as we add improved analytics and efficiencies to our pricing strategies.
This fiscal year, we'll be integrating new efficiencies to streamline communications directly from the point of sale to our fuel signs.
These changes will provide more flexibility as we refine our market-level strategies and continue to balance volume and margin to maximize gross profit dollars.
This transformation touches every aspect of our fuel supply chain, from the refineries to the guests, shifting from a decentralized localized pricing capability to a best-in-class strategy with the Casey's team armed with agile pricing tools that maximize fuel profitability, shifting from a linear procurement program with constrained resources to a more dynamic organization with diverse strategies and significantly improved analytics, and finally, to a supply chain team armed with advanced systems for forecasting, procurement, best buy, dispatch, and fleet optimization.
We will leverage our size, our rateability, and our relationships to secure the best possible value. We are very pleased with what we've achieved over the past year, and we remain optimistic on potential value in the upcoming years.
As part of our strategic planning, we also identified opportunity for value for non-fuel procurement processes. Over the years, our enterprise has grown. We've developed many separate procurement capabilities such as in store development, construction, maintenance, fleet management, IT, and our various merchandising categories that support our business.
Today, these purchasing teams generally work independently from each other to procure for their specific areas. We believe we are under-leveraged with this current organizational framework, and we believe there's more value to be achieved with the new approach. That said, through thoughtful assessment of our current capabilities and future growth plans, we identified an opportunity to centralize and transform our non-fuel procurement functions.
Our ability to improve capacity related to buying will position the organization for success. We're partnering with a recognized consultant in procurement to guide us through this journey.
The outcome of our efforts will result in a centralized procurement center of excellence program with leadership focused on contemporary and efficient processes to leverage our scale, as well as integrated tools and technologies to enable automation.
Finally, the ability to analyze our spend and category management through cost savings. We're just getting started, but we're optimistic about this opportunity. We will transform our procurement structure across functions and spend categories to optimize people, processes, technology, and deliver savings to the enterprise. Now to our supply chain.
From a distribution perspective, one of the key elements that differentiates Casey's from our competition is our own integrated supply chain. Today, we deliver the vast majority of our products to our stores every week from two distribution centers, one in Ankeny, Iowa, the other in Terre Haute, Indiana.
As part of our strategic planning, we've conducted rigorous analysis around third-party and self-distribution options. For Casey's, we are confident that self-distribution is optimal to lower costs, enhance efficiencies, and drive shareholder value. Our self-distribution capability provides us with the best opportunity to control costs and services to our stores, particularly with our multi-pronged growth strategy in both rural and larger markets.
Also, as we continue to innovate and evolve our product mix and services, this capability empowers us with agility, visibility, and control. Through our continued growth in both units and same-store volume, we determined our trajectory would require additional capacity in our distribution channel. With the additional stores, volume, and miles, cost per pound is slowly trending upward.
In fact, with our current growth trajectory, we will not have additional capacity in DCs one and two beyond fiscal year 2024.
That said, we recently announced the location of our third distribution center in Joplin, Missouri. We're very excited about our partnership with the city of Joplin. This new DC gives us the ability to expand our growth to the south and west while simultaneously optimizing the support to our stores in our 16-state footprint. At 283,000 sq ft, this distribution center is actually a little smaller than DC2 in Terre Haute.
With added efficiencies, we were able to reduce the size and still maintain the flexibility to expand as necessary to support our growth. Groundwork is underway, and we will be fully operational in fiscal year 2022. We're optimistic about this location, and we believe it'll be accretive in about a year and provide sustained value to our supply chain. In conjunction with this transition, we're also expanding the frequency of delivery to our stores.
We believe this added capability will reduce out-of-stocks and drive overall value. We will kick off this pilot this fiscal year, and based on our results, we'll continue expansion through fiscal year 2021. Lastly, from a supply chain perspective, we continue to identify efficiencies in our processes, whether through added analytics for continued route optimization, improved processes for picking and packaging product, or adding autonomous capabilities, maintaining a culture of continuous improvement essential to our success.
The last area of our strategy I'd like to highlight is around process improvement and store-level efficiency. Historically, with limited resources in the field, Casey's has heavily relied on our store operations leadership to deliver on performance. Whether it was opening up 80 new stores in a year or multiple acquisitions or standing up over 800 pizza delivery stores, we've been very fortunate to have a tenured group of leaders to support our team.
However, as our business has grown, so have our complexities. Entering new markets and new states, complying with ever-changing regulatory requirements, or fighting hard to win the war for the best labor possible, we believe that there's value to be gained with additional capabilities to support execution.
As part of our strategy, we're going to continue to build on our culture to drive the business through a focus on best-in-class talent, newly defined roles and responsibilities, automated tools and analytics, and the deployment of cross-functional teams. We believe these changes will enhance operational agility, elevate in-store standards, scale efficiencies, and drive performance.
In our stores, we're currently in the process of finishing a time and motion study designed to sharpen our focus and the utilization of our store team members to meet the guest experience. Through this analysis, we will assess key processes to make tasks easier and reduce unproductive labor.
Furthermore, we will refine our labor standards and integrate a more dynamic scheduling platform that will allow us to optimize our workforce. We expect this capability to be in place in about a year. Lastly, from an asset protection perspective, we're going to add more rigor around our processes, not only in our stores, but also across our enterprise.
We will be onboarding new leadership to drive this change and expand on our asset protection capabilities to reduce waste in our stores, in the store support center, as well as our supply chain. We believe that there is value to be achieved with asset protection as we apply more energy to root cause analysis, enhance our framework for execution, and sustain a cadence around driving efficiency and reducing waste.
As we assess our past performance, current capabilities, and the operational environment, and the opportunities for growth, we're optimistic about our future. Building on a culture of continuous improvement and positive control, we expect initiatives in fuel, asset protection, centralized procurement, store operations, and our supply chain.
These will drive efficiencies to enable expansion of our gross margin, as well as set conditions for profitable growth over the next three years. Thank you so much. I'll be followed by Brian Johnson.
There you go, sir.
Thanks, Jay. Hi, everybody. I'm Brian Johnson, Senior Vice President, Store Development. I've been with the company for about 17 years now, mostly in accounting and finance. During that time, I was responsible for most of the M&A valuation modeling. I've been in this role for three years now, and quite honestly, I have the most exciting job in the company. Sorry, Bill.
My team has significant experience in both building stores and finding sites. Paired with my financial background, we are positioned well to look for ways to improve returns for our new units and allocate capital efficiently. I see a lot of familiar faces in the crowd from back in my investor relations days, and I'm really excited to get in front of you today to share our long-term unit growth strategy.
As we set out on our strategic planning journey, it was apparent early on that unit growth is a critical pillar of that strategy. This section will highlight how we intend to build upon our successful track record of unit growth while at the same time enhancing the return profile of our new investments and accelerating unit growth both organically and through M&A in a profitable manner.
It's pretty intuitive, but you need to be in convenient locations to entice shoppers. It's the number one barrier to shopping at any store. While we currently have a very dense network of stores strategically built around our distribution centers, we believe there are significant infill opportunities, particularly in mid-size and suburban markets, to augment our outward expansion.
We also have some new tools in the toolbox, such as non-fuel C-stores and predictive analytics for site selection, which will help not only evaluate the position of our existing assets, but also help us build out the most efficient network strategy moving forward.
Before we get into our strategy, I want to take a moment to review what has made us so successful over the recent past. Casey's has sustained predictable, rateable growth for a long time and currently has a well-invested network of stores.
Over the last 10 years, the company built or acquired 750 locations and has replaced or remodeled an additional 700 existing stores. We believe our differentiated business model, which includes self-distribution and our best-in-class prepared food offering, allows us to operate profitably in all markets, from suburban Chicago all the way down to rural communities under 1,000 people.
This gives us a significant addressable market to further expand our brand. Our growth has come via new store construction and acquisitions, and over time, we have demonstrated the ability to acquire in a very disciplined manner. This two-pronged approach to growth has enabled us to deliver very predictable expansion and attractive returns and has allowed us to be selective on acquisitions and not overpaying when valuations are high.
Our new units continue to perform well and provide considerable growth to the company, both sales and profitability.
Both gallons and inside sales outpace our chain averages of 1.1 million gallons and $1.6 million inside sales at maturity. New stores, on average, hit double-digit pre-touch returns by year two or three of operation and tend to reach the steady-state figures presented here in five or six years of operation, depending on the market. We deliver these results with efficient store construction costs.
Our smaller store total investment is 17.5% less than the NACS rural average, while our larger format store still comes in a million dollars less or 21% less than the NACS urban average. Most of the cost difference is in our building and inside equipment, where we spend on average about $300 a sq ft versus the NACS average of $500 a sq ft.
An established group of general contractors throughout our territory, paired with our field supervision, has been the key to success and has been the key to such an efficient store build process. Despite being industry-leading in store costs, our construction team has identified additional cost reductions through things like new fixtures, less expensive wall coverings, a redesigned fuel canopy, and more efficient site work processes and cheaper building foundations.
In addition, the centralized procurement function that Jay discussed earlier will also focus on this area and will likely realize even further savings. We also believe we can be more deliberate in using our smaller 4,200 sq ft store in more trade areas, particularly where we have multiple stores in one market. All these cost-saving opportunities will further enhance the return profiles of our new investment moving forward. I mentioned earlier the significance of our two-pronged approach to growth.
We believe we can accelerate our M&A activity as well and drive shareholder value. Darren mentioned earlier that two-thirds of the C-stores in operation are owned by individuals that have 10 stores or less. We are currently in the process of reorganizing our development team to have a dedicated M&A group that will focus solely on smaller acquisitions.
There are a lot of targets out there. We have identified over 400 single-store operators in our area, and there are approximately 2,500 stores that are in chains of 100 or less. We plan to make a more proactive outreach to these smaller operators. Although the smaller chains and single stores may not grab the headlines, we feel it is a great place to play.
We have acquired nearly 350 stores at considerably lower multiples than what the big chains have gone for.
These smaller deals are often four to six turns of EBITDA lower in valuation than some of the recent larger deals and are also considerably lower than our own trading multiple, which creates immediate shareholder value, further augmented by the synergies we bring post-close. Our synergies are also more impactful, and our integration risk is less for these single-site and smaller chains.
I want to be clear, we will not shy away from larger strategic deals should they become available or come to market and come at attractive rates. My team is particularly excited about a new capability we've been developing throughout most of calendar 2019. We recently partnered with a third-party provider, Tango Analytics, and are rolling out a predictive modeling tool next month that will be incredibly helpful for site selection.
The tool will draw on performance of our existing store base and analyze demographic data that is tied to Casey's store performance. Data such as customer segment information, consumer behavior indexes, competitor analysis, all this information will be used with machine learning predictive analytics, which will give us significantly more confidence in our sales projections and site selection process over time.
Our real estate associates will utilize a user-friendly GIS platform out in the field in real time, which we believe will make their trips more efficient. The tool will also enable us to develop the most efficient network plans for larger markets, capable of supporting multiple stores, as well as accurately forecast trade area potential and cannibalization based on traffic patterns.
We believe mid-size markets of 10,000 to 100,000 people are attractive and have significant potential for Casey's.
I want to be clear, these are not new markets for us. Some of our most profitable stores are currently in these types of markets, and 66% of the current pipeline are in towns larger than 10,000 people. However, we have historically selected these locations on a one-off basis. With the help of our network planning tool, we now plan to select and build more sites at the same time in these larger communities.
Also, many of these communities still have a rural presence, and real estate investment costs are very reasonable. A higher concentration of these mid-size markets, a higher concentration of stores in these mid-size markets, will be easier for field leadership to manage stores. Maintenance will be more efficient, and we can be more effective with our media spend and advertising strategy.
This is an example of how we might apply a network plan to Terre Haute, Indiana, population 60,000 people. Our existing stores and their respective trade areas are highlighted here on the map. As you can see, there's quite a bit of white space that we currently have in Terre Haute. Keep in mind, the biggest barrier to shopping at a store is having a store that is convenient to you.
The tool will help us do a few things with respect to these larger markets that can support multiple stores. First, with respect to our legacy stores, it will help us prioritize the best candidates for replacement, remodeling, or possibly even closure should it not be a prime location. It will also highlight hotspots for our real estate associates to focus their efforts for new sites that will minimize cannibaliza
tion of our existing stores.
Through this process, the tool will also have the ability to uncover trade areas that are already serviced by independent community stores. These will be perfect candidates for our M&A team to cold call. Finally, as we optimize our network plans, the tool may uncover areas within these communities where demand for convenience is high, but due to a number of reasons, it may be difficult to build out a fuel offer.
I don't know if you're familiar with Terre Haute, but where this pizza slice is located is right by Indiana State University.
Non-fuel stores will be incredibly helpful in filling in hard-to-develop areas of the network plan. Oftentimes, certain municipalities have restrictive zoning or neighborhood covenants prohibiting a fuel offer. It's also very common for well-established trade areas to have small parcel sizes.
We frequently make multi-parcel transactions where we can, but a non-fuel format will require significantly less real estate. With smaller real estate needs and lower construction costs associated with fuel tanks and pumps, the cost to build should be significantly lower than our traditional format stores.
Also, with Darren and Tom's experience with non-fuel stores at 7-Eleven, we think these sites will produce attractive return profiles at or above our existing assets with considerably less capital at risk. The real estate team currently is negotiating a few non-fuel sites right now, and we expect to have a non-fuel site open by the end of next fiscal year.
As you can see by this map, we would now have an optimal network of stores in this community where we can leverage operational leadership, maintenance support, and marketing spend with minimal cannibalization of our existing presence.
This is why we're excited about accelerating unit growth. We believe the construction cost reductions and a more robust predictive analytics tool to assist site selection, along with everything you've heard today, will speed up the maturity curve and improve returns for these new stores.
Our total addressable market is vast. Jay talked about optimizing our supply chain earlier, and the Joplin Distribution Center will significantly improve our ability to expand, opening up new territories in the southwest and alleviating pressure off our current 2 DCs for further infill of our existing markets.
Within our optimal distribution radiuses, there are over 4,786 markets that do not have a single Casey's in town, and many of those communities can actually support multiple stores. We continue to be excited about the south.
Our recent new stores are performing very well, and real estate costs are reasonable in these markets we are targeting. Population growth is greater, and there's still significant rural and mid-size presence. Further, we truly believe our business model translates beyond our existing footprint. We believe the Casey's business model can be replicated coast to coast over the long term.
There are rural and mid-size communities in every state, which is why we believe our runway for growth is very long. Here's our plan for the next three years. We plan to bring on almost 350 additional units by fiscal 2023 and believe we can get to a place where we can deliver 4-6% annual unit growth regularly. I don't think there are very many retailers in any sector that can have that kind of plans for unit expansion.
Most importantly, the plan displayed here is fully funded with operating cash flows, leaving plenty of dry powder should a larger strategic acquisition become available. In closing, there's a lot to be excited about within store development.
We believe a dedicated M&A team, our new network planning tool, and all the initiatives discussed earlier will enhance the site selection process, speed up the maturity curve of the new stores, and improve overall returns, enabling us to accelerate unit growth and deliver top quintile EBITDA growth over the long term. With that, I'm going to turn it over to Bill Walljasper to go into the final financial details of the plan.
Bill?
Thanks, Brian. Here all this time, I thought I had the most exciting job in the company. Yeah. Welcome, everyone. I appreciate you coming out today. First of all, I'd be remiss if I didn't take this opportunity to thank all of you for your support over the years. Appreciate you being here.
As I look out across the audience, I see obviously a lot of familiar faces that I recognize. Heck, I probably know 90% of you, quite honestly. There are still a few faces that I don't recognize. With that, I'd like to formally introduce myself.
I'm Bill Walljasper, Chief Financial Officer for Casey's General Stores. Got my picture up here for you here. I've actually been with the company now for almost 30 years. Actually, this coming April will be my 30th anniversary.
In the past 16 years, I've been the Chief Financial Officer. I've also held a wide variety of other roles within the company. I was a risk manager. I was Vice President of Human Resources. I was also Vice President of Finance. With that, my area, I'm going to focus really on four main areas here.
First of all, I've briefly touched on a strong track record of our success. Secondly, I'd like to summarize the key initiatives that have been discussed and outlined throughout the presentation. I think this will help frame up our strategic plan and summarize where we believe our opportunities are to grow the business.
I will then share with you, as Brian mentioned, our financial targets over the next three years, as well as the cadence of those targets and what you should expect in that regard.
Lastly, I have a few takeaways with respect to shareholder return and capital allocation. I'll first start with our strong track record of success. As you can see on the left-hand side of this slide, we've had a significant growth in EBITDA and EPS in fiscal 2019.
Now, this momentum has continued at least through the first six months of fiscal 2020. Now, more importantly, is our long-term growth of EBITDA and dividend increases reinforced by the very predictable unit growth and inside sales performance over the years. Now, this consistent growth is further illustrated by this slide here.
You can see over the last 10 years, we've had nearly a 10% compound annual growth rate in grocery and general merchandise, over a 12% compound annual growth rate in prepared food and fountain, and a 6% compound annual growth rate in total gallons.
Now, before we frame up our long-term financial targets, I'd like to take a few minutes to summarize some of the key initiatives that represent really the foundation of the strategic plan and are currently in flight or will be in flight very soon.
On the far left side of the column here, you can see that these are just some of the initiatives that we believe will drive same-store sales, highlighted by programs such as Menu Innovation, which includes standing up the culinary team that Tom mentioned previously. Also, digital engagement, which is anchored by our Casey's Rewards program that just launched here this last week.
As you move across the slide, next you will see a list of programs such as the continued evolution of fuel procurement, which will drive margins outside the store, as well as standing up a new centralized procurement department that will drive margins inside our stores.
Now, in addition to these two areas, we think we have significant opportunities for further operational efficiencies, not only with centralized procurement and loss prevention, but also other items that you see on this list as well. Now, all three of these columns here, we believe most all of these levers will fund the accelerated growth you see on the far left-hand side of the slide and that Brian talked about previously.
Now, this next slide here actually illustrates this point and gives you a little kind of a high-level cadence as to what to expect.
As you look to the far left here, we anticipate the majority of the EBITDA contribution coming from building capabilities and operational efficiencies from the programs we just highlighted. As we move into the second and third years, this EBITDA contribution shifts. You can see the contribution comes from more of the accelerated unit growth that Brian just touched on, as well as innovation throughout the company.
With that in mind, I'd like to go ahead and walk through just briefly some of the highlights of our long-term financial targets. First of all, at the top of the slide, and first and probably most arguably the most important financial target, is our ability to achieve a compound annual growth rate of EBITDA of at least 8-10% over the next three fiscal years.
You should expect this to be a relatively smooth cadence throughout this next three years. As mentioned, this will put us in the top quintile of all retailers in the S&P Retail 400. Next, as Brian just mentioned, we'll add a minimum of additional 350 units during this timeframe. This will be funded out of cash flow from operations. The majority of these units, as you just mentioned, will be back-weighted in the final two years of this program.
We'll be weighted towards organic growth, which is very predictable. Now, there are two additional takeaways with the store growth I want to mention here. First of all, 350 stores is not a ceiling for our growth. We have the financial capacity to grow this number of units beyond this point should acquisition activity accelerate.
Second, as Brian mentioned, at the same time, we think adding these units, we anticipate increasing the returns of these units over this period of time as well. In addition to unit growth, we expect same-store—you should expect, I should say—same-store gallons to be flat to low single-digit increases over the next three years as we continue to optimize gross profit dollars.
We expect inside same-store sales to grow in the low to mid-single digits. Now, these comps will be relatively consistent throughout this period of time. At the same time we're growing sales, we're also going to realize margin expansion each and every year, both inside and outside our stores from the programs we just discussed. You should expect this margin to grow sequentially every year throughout this next three years.
Now, given all of this traction that we have here, we still have a keen focus on controlling operating expenses. We expect to maintain operating expense growth below our EBITDA growth. This growth should be relatively consistent over this next three years. It will be weighted probably slightly higher in the first year if we stand up some of these programs that we just mentioned.
We plan to achieve all of these results while maintaining neutral to a positive free cash flow position. Underlying this long-term plan is our disciplined approach to capital allocation. We will continue to prioritize our investments to drive shareholder value. Our top priority, as you can see here, will be to grow the business. We have a tremendous opportunity, we believe, to accelerate our unit growth at the same time increasing the returns on those units.
Now, the majority of this CapEx range that you see up top will be dedicated to that unit growth. However, at the same time we're growing the business, we believe we can continue to pay and grow the dividend, as well as take advantage of market fluctuations with share repurchases to drive return back to the shareholders. We have a strong balance sheet.
With that balance sheet, it provides flexibility that will look to grow the company and return capital back to our shareholders. The strength of our business and this balance sheet gives us access to low-cost financing that we expect to continue into the future. Now, we'll be paying down the 2006 note that you see here in March 2020. We'll be looking to refinance the $569 million note that's due this August here in the near future.
I will tell you this, we do not anticipate any risk in refinancing this. In fact, you should expect a tailwind with respect to interest rates relative to the current rates that you see here once the refinancing is complete. Our net debt to EBITDA ratio is currently at 2.1 times, which provides additional capacity of roughly $800 million over the course of this period of time.
Now, we believe we're in an excellent position to maintain flexibility to drive shareholder value. Now, lastly, before I turn the presentation back over to Darren, I'd suggest a few takeaways. First of all, as I mentioned, we have a very long, consistent track record of profitable growth. And our long-term plan focuses on multiple levers across the entire company. Now, we believe that we're in control of these levers and not relying upon any macro changes in the environment.
That coupled with our disciplined approach to capital allocation, we believe sets us up very well for future success. With that, I'll have Darren come back.
All right. Thanks, Bill.
You bet.
All right. We've shared a lot with you today, and I hope you share our excitement about our plan and our path forward. Everything you've seen here today will be made possible through a thoughtful and concerted effort to invest in our talent to drive a high-performing culture that can exceed our guests' high expectations. That process is already underway.
Historically, the Casey's team has been homegrown from within the company. That approach has served it well for a long period of time, but we've really identified an opportunity to bring in some new talent from outside the organization to help broaden the diversity of perspectives and help the company take its next step of growth.
As you can see here, in the last 24 months, we've brought on seven new executives who bring a wealth of experience from a variety of retail, restaurant, or oil companies. This represents nearly 40% of the executive team, and we feel it strikes a better balance between that institutional knowledge that we've had and bringing in some outside expertise.
Now, our most recent addition, Chad Frazelle, just joined the company as our Chief Human Resources Officer after a successful run at Tractor Supply Company, where he's leading the human resource function there through a similar phase of growth and change. Now, since he's only been on the job for six days, I spared him the task of having to present here today. Suffice it to say, he's just as fully committed to helping us build that world-class team and to lead Casey's into the future.
Now, while I'm speaking about our team, I want to also acknowledge our General Counsel, Julie Jackowski. Now, Julie couldn't be here today because she has a commitment in her role as a chairperson for the National Association of Convenience Stores, which is our industry association.
Now, I know Julie wanted to be here today, but we're proud of the work that she's been doing as a chairperson of NACS. We're happy to share her expertise and leadership with the broader industry. Now, our commitment around talent and diversity isn't just for the company itself, but extends to the boardroom as well. In the last 24 months, the Casey's board has undergone significant change.
As you can see, the board has added a number of new members who also bring a wealth of experience from a variety of retail formats, including big box, online retail, retail banking, and others.
Now, recently, the board was also recognized by the Women's Forum of New York for having more than 50% women on the board. We were only one of 26 companies in the S&P 500 who achieved that. This is a really talented group of directors, and they're fully supportive of this strategy and committed to seeing Casey's succeed. To wrap things up this morning, our commitment is to deliver top quintile EBITDA growth among our S&P 500 retail peers.
We're going to accomplish that through executing against our strategic pillars, reinventing the guest experience, creating investment capacity through capturing efficiencies, and accelerating our unit growth. All of that's going to be underpinned by a commitment to continue to invest in and strengthen the team and to create a high-performing culture.
Now, our team has a high degree of confidence in our ability to execute this plan for a number of reasons. First is we're building on a foundation, a strong foundation, and leveraging our current strengths and competitive advantages. We're making a more concerted effort around leveraging guest insights to derive value from all of our initiatives.
Third, the breadth of value levers we're pulling is expanded. We're adding net new capabilities, and we've identified opportunities to take cost out, to expand margins, and to invest in growth. We have a significant, untapped, addressable market in which to grow, which gives us a long runway for the future. Lastly, but significantly, we enjoy positive control via our business model.
We have a company-owned, company-operated, self-distribution model, which allows us to control when, where, and how we execute any and all facets of this plan.
We have the balance sheet strength to fund it. I hope you share our enthusiasm for the future of Casey's. With that, we're going to take a 15-minute break. When we come back, I'll ask the rest of the team to join me on stage, and we'll entertain your questions. Thank you.
Ladies and gentlemen. The question and answer session will start in five minutes. Ladies and gentlemen, please take your seats for the question and answer session. Oh, something's going on there. Is that our fifth? I'm going to go right over the back. I can tell already. Q&A will begin. Ladies and gentlemen, please take your seats for the question and answer session. Thanks. Is it time? I figured as much. Oh, shit, this thing's hard working. Oh, wow. Thought we were skipping this part. Never let them change your seating arrangement. Okay, got about a half hour set aside for some Q&A, so why don't we go ahead and get started? All right, there's no questions. We got Paul.
Good morning, I guess still.
You all got through those slides in rapid pace. Thank you very much for the presentation. Very helpful information. I wanted to ask about food. Three-part question. First, maybe just talk a little bit more about how you get that fuel-only customer to experience more of the food. Second, maybe talk a little bit more about, as we think, 12 to 24 months from now, what will be different and elevated about the assortment on the food and beverage side. And last, is just maybe give us a little bit more insight on how you're thinking about the non-fuel stores. Thanks a lot. All right.
Maybe I'll take the first part. You can take the second part then. I think the first question is, how do we get a fuel customer to be participating in the rest of the store?
I think, as I mentioned earlier, we have not had good visibility to who the fuel-only guests were in the past. Now, with Casey's Rewards, we will have plenty of information to know which are participating across the entire proposition and who is just coming for fuel. With kind of the typical approach we would use for generating trial, consideration, conversion, and repeat, we can leverage those incentives directly to that individual guest.
We had in the past an arguably inefficient opportunity to try and get trial generation because we were putting that same offer out to everyone universally. Now we will know exactly who that person, Paul, is when he comes to the pump, only buys fuel, and we never see him inside the store. The standard trial and repeat generating tactics delivered via the mobile app will be our key tool for doing so.
I'd say when we think about how is the food and beverage offering going to evolve over the next 12 to 24 months, I would point to the fact that we've recently updated our packaging. Obviously, packaging is a critical part of that experience, and we'll continue to evaluate that as we go forward.
I think more importantly, as I discussed, we're really looking to bring and stand up a culinary innovation team, leveraging guest insights, and then through the stage-gated process, really get a lot more honed in on what are the emerging tastes and interests for our guests that we're not meeting currently, and how do we develop products to meet those in the future.
In doing so, having a testing protocol to then, when we do get to a system launch, that we're doing it based on data, we're doing it based on guest insight, based on what we're seeing in terms of sales velocity, that will allow us to bring the most successful, most craveable products to market.
I think as part of that as well, I would also talk about just we're certainly not waiting, right, to leverage insights where we can. In particular, when we think about dispensed beverages as well, as mentioned, right, we have a lower incidence for dispensed beverages based on how strong our prepared foods penetration is. That is such—I just see that as such a big opportunity for us as we go forward.
It's really about contemporizing our current offering, but then also getting into some categories that we're not currently playing in today, and doing it in the Casey's way, and doing it, right, to leverage that food heritage that we have. Maybe Brian.
Yeah, maybe I'll step in on the non-fuel side. I mean, really from a development standpoint, we believe a good location for a convenience store with fuel also would be a good location for a store that does not have fuel. It really is challenging sometimes in these, especially in these a little bit larger markets where parcel sizes just aren't big enough to put the fuel format out in front, but you still know you have a gap in the market where your customers don't have access to your food.
That's the approach we're taking right now as we start looking for corners to build these stores on. I can tell you from a store design standpoint, we're not doing anything different than what our current prototypes are. We're starting kind of in our backyard. Des Moines, Iowa, there's even in Des Moines where we have a ton of stores in the DMA, there are still pockets that we would love to penetrate, and the non-fuel format is going to get us in there.
Yeah, I'll just add on on the non-fuel side of things. Historically, I think there's been a perception that you have to sell fuel to be a successful convenience store. When we look at our data, about 70% of our guest visits are non-fuel visits.
It makes logical sense if you think about how frequently you'd fill up a car over the course of a week. Might fill your car up once, maybe twice if you have a long commute. How often do you eat or drink? It's multiple times a day. Just the sheer opportunity to capture transactions via a non-fuel transaction is so much higher than with a fuel transaction in the base case.
Tom and I, when we were at 7-Eleven, had over 5,000 non-fuel stores. It's not a theoretical exercise for us. This is something that can really happen. The key to that is really in the prepared foods and in the dispensed beverages that Tom talked about. Those are the differentiators that get people to come into the store for a non-fuel visit.
We already have the platform very well established on the prepared food side, and we'll get better. The dispensed beverage side presents a really unique opportunity for us.
Thanks for Karen Short from Barclays. A couple of questions just in terms of the cost savings opportunity. I mean, you've given the components of it, but you haven't really given any dollars. I wonder if you could give some dollars associated with that. I also wanted to just clarify with respect to, I guess, price optimization. You gave the premium price pizza example versus your competitors. How do you think about going into these, I guess, slightly larger markets where you're going to have heavier QSR competition from a pricing perspective?
Yeah, I'd be happy to start off on that cost piece of that.
There are multiple levers with respect to cost reduction that are embedded into the plan. Obviously, to your point, Karen, we did not necessarily bifurcate these and start going down a path of this is going to be $10 million, that is $20 million. If you think about some of the components that we have going to be coming through cost reduction, and again, it comes back to the slide that I pointed out with respect to EBITDA contribution in the first year.
Jay talked about a time and motion study that right now is currently underway. It should be finished roughly. The time and motion study will be done this fiscal year. Yeah. What this time and motion study does really, it really syncs up with the labor management scheduling. It creates an efficiency with our scheduling.
Now, as our performance of our stores ebb and flow, so will the schedule of labor. We'll be able to optimize even better than what we currently do with respect to that. Secondly, centralized procurement. Right now, we're in a process, and we've engaged a leader in this area.
Right now, we just launched, actually, earlier this week, a six to eight-week engagement that will be done. That will frame up the finalization of the business case for this. We have preliminary indications with respect to centralized procurement. Again, this is non-fuel procurement.
The other thing that you've mentioned as well is loss prevention. We have loss prevention in the store, but this is an effort to seriously enhance loss prevention activities. You'll probably see this more coming from a margin enhancement than anything.
Keep in mind, though, with that, Karen, as we go into every fiscal year, we will give out more detailed operational guidance throughout the course of this plan. This was intended to be a high level, not necessarily intended to say this year it's going to be this and this year, because things can ebb and flow.
I would add one more piece to that around distribution. Five years ago, we opened up Terre Haute, our second distribution center. Through significant analysis around that, we saw savings around mileage. That's really the key driver in terms of route optimization and how you cut back that labor. As we've continued to grow, we've obviously seen the necessity for that third distribution center.
We see similar savings that we saw five years ago in this new model as we support our chain as we continue to grow out.
Yeah. Just one last point on all the things that we both just talked about, and Darren mentioned this. All of these things that we just mentioned, these are things I think we call it positive control. These are things that are in our control to execute on. It's not relying upon some change in the customer behavior or a change necessarily in some macro environment. We believe we can execute on these. We will move forward, and that will fund the accelerated growth that Brian mentioned.
In regards to the price optimization question, I think particularly when we think about the competitive landscape, and you mentioned QSR, it's certainly not our intent to get into any kind of chasing the falling knife scenario. I think when we think about value for our prepared food offering for our dispensed beverage offering, right, it's the combination of both price and quality. We will always strive to deliver the highest quality products for our guests. Certainly, right, we'll need to evaluate different dynamics market by market. Our analytical tool gives us the ability to do that. In no way are we going to look to get into some type of decreed of margin exercise because we really want to win with our quality.
We want to win with our connection to the community and leverage the great platforms that we're building from an e-commerce and loyalty standpoint as well.
I think that's an important point. Like the discussion we've had about fuel, we don't have to have a value-oriented offer to all of our guests simultaneously. We can find people who aren't participating in certain segments and create those opportunities to bring them in with the right value offer when it makes sense. The right people at the right time in the right segment is a capability we now have.
I think that one of the benefits of our model in general is that we have these three different areas of business. We have the food business, the convenience business, and the fuel business.
Unlike your typical pizza competitors, you could earn reward points for buying pizza, and you could use that for discounts on fuel. That's something that's pretty attractive to people that you wouldn't have with a traditional just convenience store or a pizza player in that space. That's why we think this gives us a lot of optionality to pull different levers to drive growth, but also gives the guests opportunities to enjoy rewards on their terms.
Can I just ask one other follow-up on gas margins? You gave the percent that would be under contract by 2021, I think it was, the 50%. I'm assuming that's just a linear increase.
I guess I was wondering if you could give a little bit of color on what you thought the actual fuel margin opportunity on the cents per gallon would be by the time you're at that 50%.
I think we'll see that as we publish our fiscal year 2021 guidance. We'll have a more clear bandwidth in terms of what that margin is going to look like. I'll tell you that from a price optimization and a procurement perspective, I think we're ahead right now in price optimization. What you've seen in terms of the growth in margin, the gross profit dollars that have come with that have been through our price up efforts that we put in place last year. We are just in the initial innings with fuel procurement in terms of, and you've seen in those numbers a year ago, we had 4% under contract.
Now we have 37%. We'll grow that out to north of 50% as we're leaning into the next fiscal year. That could continue to grow northward. The reality is fuel is incredibly dynamic, and we want to have as many levers as possible. Through fuel procurement, that just opens up another lever for us to be more competitive in certain markets to maximize our gross profit dollars.
Just maybe to add to that, Karen, I mean, one of the things going forward, it will be challenging to try to bifurcate the two, meaning to say this margin is price optimization, this margin is fuel procurement, because quite frankly, we are going to take fuel procurement. That's one of the things that can only be competed away if we let it be competed away. Where price optimization, there's a chance some of that could be competed away.
In other words, we may take fuel procurement right to the bottom line. In other situations, we may decide to invest that into some of the other areas to drive whether it's something in fuel or whether it's to drive something in merchandising. That could ebb and flow near the same store sales as well as the margin with respect for fuel. Ben? All right. I think we're good. Okay. Chris back there.
Hey, good morning, guys. Christopher Mandeville from Jefferies. Bill, could we start off just with the long-term guide on inside sales? Low to mid-single digit comp, any ability to give us some further granularity with respect to just how to think about that for grocery versus prepared food?
Really, how did we kind of get there versus what was previously, at least within the value creation program through fiscal 2021, more of a mid to high single digit comp?
I'll start it. Maybe somebody else can certainly chime in unless you want to take it. Go ahead. Start off. When you think about low to mid-single digits, just by definition, a mid-single digit gets you up to 6%. Four, five, and six in our estimate would be a mid-single digit. Currently, when you look at inside sales, which is the combination of prepared foods and grocery general merchandise, we're tracking currently right now in the low single digits, arguably to the higher range of that low single digits. We certainly plan on acceleration in this plan.
To that degree, one of the kind of, I think, the benefits or the uniqueness of this plan is the multiple levers. Just as I mentioned, we're going to make decisions going forward that may drive comps or may take margin depending on the circumstances and the competitive landscape as we go forward. Back in the 4, 6, and 10, it comes back to these multiple levers, Chris. We have a plan that we believe we can play upon multiple levers relative to a plan that maybe was more dedicated or more focused on a sales anticipation being executed. That's why we're really excited about the execution of this plan.
Just to follow up, if you're able to execute on that 8-10% EBITDA figure, and you can, in fact, become more capital efficient, which actually, I'm curious if you'd be able to help quantify just what terms of CapEx reduction you might be able to see with some of these newer formats or just the legacy format, if you will. Was there any contemplation as you were outlining this roadmap to provide a targeted ROIC? And why maybe did you opt not to do that?
I'll start there. If I don't answer all your questions, please circle back there. With respect to ROIC, I'll take there, and I'll even throw EPS into that equation. I mean, the expectation that EPS will grow similar to what the EBITDA figure that you saw up here.
ROIC, we believe, will grow sequentially over the course of this time. Keep in mind that ROIC, even though it's going to be growing over the course of this time, at a time where we're accelerating the company, there will be a little bit of a timing disconnect. If you go back to what Brian's presentation was, currently, right now, we have roughly about a five-year maturation cycle on our new units. This is a three-year plan, of which during that period of time, especially in those last two years, we are accelerating units. Inherently, there's a disconnect in timing there with operating expense ramping up quicker than the overall earnings contribution of a mature store.
To that end, to the degree that we have the ability to execute on shortening that maturation cycle, when you look at fiscal 2024, which is outside of this plan, that's when you'll see even the ROIC continue to tick up after that. We did not want to have a misleading ROIC, but I think that's the expectation you have from an ROIC and an EPS perspective. Now, your first part of that question, though, I do not think we answered, Chris. See if you remember it. Yeah. Now we do not feel bad about forgetting it. Yeah. Mesmerize me. I'm sorry. No, actually, I was just thinking in terms of the capital efficiency, if maybe Brian could touch upon that at all, just in terms of the true quantification opportunity to reduce CapEx.
We have not disclosed the specific dollar amount, but I mean, it's going to be twofold.
One is we have identified some immediate cost reductions in the construction process. Once we stand up central procurement, that's also going to be a level of focus. It is all about indirect spend, primarily in new store construction.
Maybe just to add on to that, if you might remember that there was a slide that I had in my presentation that had a range of CapEx from $500 million-$750 million. That was intended to be kind of the cadence, that $500 million would be closer to what we would anticipate next fiscal year. Again, we will give a detailed guidance on that as we head into that particular fiscal year. That $750 million is more in that outer year as we accelerate to that number of units that Brian mentioned. I think that's kind of a general cadence.
Now, most of that's going to be dedicated to accelerate new units, which keep in mind is that it can be a discretionary activity for us. If we see things or other opportunities, we can make adjustments accordingly in that regard. The intent is to invest back into the business. At the same time, we're going to increase the returns on the units. We think this is the right investment to make. Yeah. I think that's the important thing to keep in mind is a lot of these initiatives that we talked about on the merchandising side, on the prepared food side, digital side, cost outside, that doesn't just affect the base business, but it's every new store that we build and open as well. Ultimately, the cost of those new units is less. The margin and the acceleration should be higher.
Every one of those units should perform better than what we've performed historically. There just is this timing issue. Again, with a five-year maturation curve and a three-year plan, you're going to have that little bit of a disconnect. Ultimately, these are sound investments, and over time, we'll continue to realize that full potential. Yeah. I think Kelly and Ben have my questions here.
Thank you for doing this meeting. This has been really, really helpful. I have so many questions, so I'm going to just start with a couple, and I'll hand it to Ben. The focus on the menu innovation is really exciting. I was hoping if you could talk a little bit about more, what are you going to test? What kind of, I think you mentioned more frequent deliveries. What is the cost of that on the supply chain?
Have you mapped that all out, or is that still very early? And then just any more details on the rationalization of the menu and the simplified kitchen. More details there would be really helpful.
Why do I not start at a high level? I will let Tom speak to that.
Really, when you think about the innovation, what Tom and I both bring here is some experience in the restaurant industry. I think historically, we have had some people that worked really hard on creating some innovation. There is a process that this has to go through and a rigorous process when you are in the restaurant business. We are in the restaurant business now. We have to be a little more rigorous with consumer insights. We have to have professional culinary expertise.
We have to really stand that capability up so that we're hitting, we have a higher percentage hit rate on new innovation as it comes through the pipeline. That takes some time. We're going to do that from a high level. At the same time, with that innovation, at times can come complexity. If you have to invest in complexity in the innovation, you got to remove complexity somewhere else in the operation to make that efficient. We've got to balance both of that. Not every menu item that we have today is as productive as it should be.
That's what Tom and his team are working on, is really identifying where are we having great success, where are we investing a lot of time and effort in something that's not really providing much benefit to either the guest or to us, and rationalizing that to simplify the operation to allow them to execute at a higher level with more innovative products that will deliver on the guest experience.
I would say that it really starts with the guest, right? You heard reference the food research and study that we're going to be engaging in. That's really the foundation for the innovation pipeline that we want to develop and get up and running here.
Because ultimately, obviously, we're going to lean into our famous pizza, but also based on kind of where the guest is going and what excites them and what's interesting from a flavor profile, from a food platform profile, we'll certainly look to test those through the stage data process. Ultimately, the biggest winners are the ones that we'll launch into the marketplace. I think to Darren's point about the work that we do to rationalize and simplify, culinary is also about commercialization. Critical to commercializing these products, right, as we get them out to the marketplace, is going to be to do it in a way that is least complex for the stores to execute so we can deliver the highest quality most consistently every day to our guests. I think that's work that's already underway.
As we continue to bring in additional resources and restaurant talent with that type of experience, it's only going to accelerate our ability to do that.
How supply chain is part of this?
The supply chain really won't have to change much to adapt this because remember, we prepare food in our store. We're bringing in ingredients. We're not based on a commissary where we have to stand up a commissary and prepare all this stuff and ship it to the stores. Supply chain is already stood up to deliver the ingredients that our stores prepare on site. Everything that we need from a supply chain standpoint is accounted for. With DC3, it just makes it more efficient to deliver that.
I think there was a question in there about multiple deliveries. We're just rolling out our pilot right now.
We'll complete that first phase of the pilot by the end of this fiscal year as we lean into the next fiscal year. We'll make a decision to expand that pilot going forward. As we look at added expense, we see this as our hypothesis is it'll be about net neutral in terms of added expense to our supply chain just because you're delivering to twice as many stores on those routes and with less product. It's just more efficient. We're excited about this change in our supply chain, and it makes it more dynamic.
Okay. I'll just ask one more, and then I'll hand it to Ben. In terms of the EBITDA growth outlook, 8%-10%, if you historically look for Casey's in years where fuel margins are flat or down a little bit, EBITDA doesn't grow.
I guess my question is, what is embedded in your 8-10 outlook for fuel margins? Can you grow EBITDA in a scenario where fuel margins do eventually flatten out? Or how much is dependent on fuel margins?
I think there's a lot embedded in our EBITDA forecast, and just essentially everything we talked about is embedded in there in some form or fashion. I think in a flat fuel margin environment, it'll really depend on the other levers that we have to pull. That's really the great thing about this plan, that we're not reliant on fuel margin alone or one particular tactic in order to be able to generate those EBITDA numbers. If we get into a flat margin environment, we have optionality in terms of the merchandising and assortment to pull levers. We also have removing cost out of the system.
We can also toggle our growth depending on how we want to adjust that. It's all organic and small acquisitions. We can ramp that up. We can pull that back. It's all within our control. I think that's one of the positive aspects of this plan is that so much of it is in our control. If we get a curveball thrown, whether it's on fuel margin or recession or anything like that, we have the ability to flex and adjust to keep our plan on track.
Just a couple of additional takeaways on that. Darren's exactly right. To the extent that we have, I'd say, a pressured fuel margin environment, I think we have done a much better job in the last 18 months of adjusting operating expenses to account for that. I think therein lies the flexibility that Darren's talking about.
Secondly, think about it from this perspective. We are in a flat fuel margin environment. It's probably due to a macro environment. We would not be at any competitive disadvantage with our peers. I would probably argue that our peers who are less sophisticated in their structure will probably be pressured even more. It comes back to the opportunity for accelerated M&A opportunities because of that pressure that Brian kind of alluded to. There may be another lever there that we push on or lean into to help account for that. Ben.
Thanks. Ben Bienvenu with Stephens Inc. I want to ask a follow-up to Kelly's question about the twice-a-week deliveries. Is that something that you can do in a cost-effective way through self-distribution, or would you need to partner with a third-party distributor?
Then help us think about what parts of the store benefit most from twice-a-week deliveries.
Yeah. Actually, it's interesting you asked that because when the team did the analysis on twice-a-week delivery and third-party versus internal, it actually was more efficient for us on twice-a-week delivery than it was for the third-party. The twice-a-week is definitely more advantageous from our standpoint. When you think about it, if you're going once a week, you have a week's worth of product per store on that truck. If you're going twice a week, you only have half a week's of product. You should be able to put double the number of stores per truck on there. From a cost standpoint, it'll cost a little bit more, but it's not 100% more to double because each truck will be a little more efficient.
I think in terms of what parts of the store benefit, certainly the prepared foods benefits, center of the store benefits, probably lesser extent on the vault, on the cold vault, although there's a number of products we distribute through our own distribution center that go into the vault. Really, anything other than the DSD products really benefit from having that. The other thing that we'll continue to look at is as we design our stores, we've built those stores at a certain size with a certain amount of storage space because we have to hold a week's worth of product in those stores. If we're only having to hold four days' worth of product in those stores, there may be an opportunity to make that building still a little more efficient because we don't have to have as much storage capacity.
No, you're exactly right.
I would say also, and it really kind of dovetails off of what Tom talked about earlier in terms of affordability to our guests, this opportunity for us to lean more towards our own private label proprietary products. We'll be able to expand that, and you'll see less and less DSD products in our stores as we move forward from the other vendors that have supported us in the past.
My second question is about EMV chip card readers. That looks to be a potential significant incremental cost for the industry in 2020. Many operators are probably ill-equipped to bear the burden of that cost. I'm curious, Brian, maybe from an M&A perspective, does that potentially dislodge more small independent retailer targets that might, rather than bearing an incremental cost, say, we'll sell the business? Where are you all with respect to installing EMV?
What's the cost for you all from a CapEx perspective?
I mean, yeah, obviously, anytime you have pressure on the industry, I think it brings those smaller operators. It's just one more reason to look to sell the business. There's all kinds of factors, not just EMV, but take, for example, Oklahoma and Kansas. They just recently started carrying full weight beer. For those small operators to compete in that environment, they now got to add beer caves, add cooler space, if they even can. We view that from a competitive standpoint. I kind of tend to like the gloom and doom a little bit because it kind of makes prices come down and acquisition targets more plentiful. Absolutely will. With respect to our EMV plans, I mean, it's a couple of things.
One is it'll play a big part of our legacy store planning that I touched on briefly in my presentation. One of the things that this analytical tool that we're standing up is going to do is really enable us to come up with a very specific legacy plan for our existing stores. There might be stores that we tend to replace, and we don't want to invest in EMV capability because we're just going to relocate that store down the street and put brand new pumps in anyway. That's kind of how one of the ways we're thinking about EMV. I don't know if you want to add to that. Just from a CapEx perspective, we do have a phased integration of EMV throughout our strategic plan going forward. We did contemplate that here in the numbers that you see. Yeah.
We'll talk more about that in detail when we get into the operational guidance for the next fiscal year of what's embedded into that. Yeah, it's definitely contemplated. Keep in mind, this is not a mandate. It's a decision we make. That may not necessarily be across our entire chain because it is rather expensive.
One last question for me, Jay. You seem to make some allusion to, on the fuel side of the business, various sourcing procurement changes. You mentioned pipelines. I'm just curious. I know you've got plenty to do around contracting maybe before you get to pipeline. Where does that fit? When you think maybe five plus years from now, what does the overall basket of procurement look like on the fuel business?
Great question.
I would say that we're really focused right now on the blocking and tackling of procurement and standing up the systems that we need to go beyond buying low rack every day. You can see the growth that we've had already in terms of our fuel under contract that we've started to expand that. As we continue to expand that to 50% or higher, that adds more complexity to the supply chain in terms of systems that we're going to have to have to be able to make those decisions every single day to either buy low rack or to lean on a contract that we may have. In terms of when you think about risk management, buying in the pipeline, hedging, those kinds of decisions, we put that on the back end of our strat plan in fiscal year 2023 where we'll start to contemplate that capability.
We did put it in there because we do see it as a part of it. The decisions to get there, we have to be making now in terms of the systems that we put in place. We can't just think nearsighted in terms of solving these problems. We have to think of a longer term in terms of the tech that we employ in our fuel team to meet it.
All right. We've got time for a couple more, and then Anthony's going to wrap up. Anthony? Yep.
Yes. Good afternoon. Anthony Lebiedzinski from Sidoti & Company. Thank you for the presentation. Just wanted to follow up on the previous question as regards to twice-a-week delivery. Jay, you mentioned in your prepared remarks that you didn't quantify, but I just wanted to get a sense as to where your auto stocks are now.
As you move into twice-a-week deliveries, where could that go to? I have a separate question about private label products. Where are you now? What is the opportunity, let's say, five years from now, the margin differential? I guess as those are more affordable products, it does have a little bit of a negative impact on the basket size potentially. I just wanted to see if you can answer those questions. Thank you.
We're, again, kicking off our pilot for this multiple delivery piece. Just for a competitive perspective, we have not released in the past in terms of our out-of-stocks and what the impact will be in our model.
I think as we lean forward into our fiscal year 2021 plan, we'll have a little more clarity around what this will do to the top line as to performance. In terms of private label, I mean, certainly that's always a concern when you think about the relative retails, right, because that's the compelling proposition. The way that we plan to approach it is to very much look at the incrementality that we can drive from an affordable choices standpoint, right? There are certain categories perhaps we're not seeing the engagement on, the traction on, the velocity on, right, that we know a more affordable option would then unlock that for us. Certainly that's how we're thinking about it. I would tell you that just from an overall category perspective, we're continuing to evaluate where we're at today.
As you saw on the slide, we are well kind of underdeveloped and underpenetrated from a private label perspective today. Certainly when we think about packaged beverage, when we think about single-serve snacks, when we think about a lot of non-food items, we think about health and beauty. These are all categories that we are evaluating and then determining what makes sense for us to attack. You will see that as we go forward. Again, very, very mindful of any kind of trade down. Approaching it again from how do we capture an incremental unit in a transaction that we are not getting today.
Thank you.
All right. Looks like that might be it. All right, Kelly, you are the last one. We are going to let you sneak this last one in there.
I guess just sort of on a follow-up to that last question. Historically, when I think about Casey's, there was an unbelievable ability and usually historical pattern to raise prices, and that was part of the comp driver. It sounds like there's a little bit more focus on some of these low price point items. I guess my question is, do you think you went too far a little bit with that? What categories? Is that just really the private label, or is there more value price point? Is that more on the prepared food side or the grocery side?
I'll start with that, and I'll let you guys weigh in on that.
I think whether we had the ability to raise prices or not, I'm not sure that we were as strategic about it with respect to the category management architecture and the roles and intents that each category plays within the store. I think we probably still have opportunities with price optimization. As we've talked about before, price optimization doesn't mean raising prices. It can mean raising prices. It can also mean lowering prices or not doing anything with the price based on where that category sits. I think Tom and his team are getting further definition around the category architecture and what role those categories will play. That will inform whether we take prices up or down. Certainly within our geography, we see a need for affordability. That can come in a lot of different forms.
We think private brands give us the ability to improve the quality of some of the products that we sell right now, lower those retails to make them more affordable, but increase the margin rate at the same time. We will generate more gross profit dollars even though we are at lower retails on the same velocity. If we increase velocity because we have more affordable retails, that is just more additive to the equation.
I do not know if you want to add anything to that. I mean, certainly just maybe a little bit to say that when I talked about a best-in-class merchandising team, you heard Darren mention category roles and intents and category architecture. That is something that I am working with the team on as we define what that is for Casey's and what that means inside of our markets.
Our field merchandising capability that we'll be adding here in the near future, right, will help us even better understand the local dynamics on a store-by-store, market-by-market basis and really make the most optimal pricing decisions, right, to maintain velocity and to maintain margin. How we strike the efficient balance between those two is always something that we'll be looking at. Again, as we further define our roles and intents, that's going to define how we price in our stores.
Perfect. One other one just on the DoorDash and the Uber Eats announcement. Just curious how you think that has impacted your performance in prepared food comps. Are most of your competitors on that platform? How many markets are those platforms in your geography?
Yeah.
We only have about, I think it's 375 stores that actually could go on to one of those platforms if we were to light them all up today, I believe. The vast majority of our stores don't have that capability, I guess, is the short answer. We have a little over 800 of our stores that have our own delivery capability today. I think we've kind of right-sized that delivery capability to the stores that can make it economic. We don't do it today in those stores that it really hasn't penciled out.
I think what a DoorDash or an Uber Eats gives us the ability to do is maybe where we don't deliver today because we haven't stood up that capability, but we have some coverage from a third-party provider and may give us an incremental opportunity to do some delivery without having to stand up the full infrastructure and labor burden of a delivery program in-house. We can test our way into that. If the incrementality and the delivery velocity gets up to a certain point, then we can make the decision whether we want to invest in putting in our own delivery as well. I think it's a nice way of complementing what we already do without having to make a big investment in it. Regardless, it's only about 370 stores, I believe, was the last number I saw. Yeah.
I mean, maybe I'll add a little bit of color to that. If you look at the 800 stores we deliver in today, there are 375 stores where we don't deliver where Uber Eats and DoorDash could deliver to those stores. There's also another 300 stores where Uber Eats and DoorDash could add to the days and hours of stores where we currently deliver today. There is an opportunity to have more delivery stores and more time when delivery is available. They can do it in a way and at times when we can't do it cost-effectively. If we have predictability on Friday night and Saturday night at a store in Des Moines, Iowa, we can make the economics work for delivery. On Tuesday morning to deliver a breakfast pizza doesn't make sense for us, but DoorDash can do that.
We can do it, we believe, economically with their economics and access to their driver pool. There are different ways that you can do it. You can be in their marketplace. Back to your first question, you've seen and heard a lot around the industry about the impact of third-party delivery because if your business isn't in that consideration set for the DoorDash customer, you're just not in the consideration set, period. We think we can become in more consideration sets. We can add incremental periods of delivery for stores where we already have delivery, and we can add totally new delivery to 350-400 stores beyond the 800 we have today.
Okay. Thanks, Kelly. All right. Thank you, everyone, for coming out today. Really appreciate your time and look forward to seeing you in the future.