The Circle K Corporation Case Study

The Circle K Corporation

I. Identification of Strategic Issues and Problems

A. Issues

Circle K’ s financial condition has been deteriorated during the past two years. The expansion program had resulted in a heave debt burden, and the negative effect of merchandise and price policies instituted in 1989 led to a 6-7 percent decline of store merchandise sales volume. On May 15, 1990, Circle K and its subsidiaries filed for protection under Chapter 11 of the United States Bankruptcy Code.

B. Constraints

The demand of most convenience store products is elastic except gasoline. The typical convenience store customer is a blue-collar worker with a high school education who is comparatively more sensitive to the price. These two factors determine that it is not feasible for Circle K to boost revenue by increasing prices.

C. Decision / Action Options

To revitalize Circle K, the company can change its merchandise practices, increase its advertising and promotion efforts by conducting a $100 million advertising program, or make a new pricing plan such as an overall price reduction of 10 percent.

II. Analysis and Evaluation

A. Organization Assessment

The circle K Corporation, headquartered in Phoenix, Arizona, is the 30th largest retailer in the U.S. according to Fortune. Circle K operates 4,631 convenience stores and related facilities and has 1,400 joint-venture stores in 13 foreign countries. Prior to fiscal 1989, when Circle K incurred an operating loss of $3.8 million, the company had recorded an average annual increase in operating profit of 25 percent. Exhibit 2 shows the sales and cost analysis from 1988 to 1990. The 4,631 stores operated by Circle K are located in 32 states. However, 84% of the stores are situated in Sun Belt states. Exhibit 3 shows the store concentration analysis of Circle K. Circle K stores sell over 3,800 different products and services. They consider themselves a massive distribution system and try to...