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At his expansive office in Netanya industrial zone, Paz CEO Moudi Ben Shach is surrounded by posters for Yellow, the company's chain of gas station convenience stores. Retailing on the roads is only a small part of Paz's activities, but it keeps Ben Shach busy all the time. In the past year Paz has invested extra effort in promoting the chain of stores it founded four years ago.

"Our goal is for the shopping experience at Paz to be uniform but distinguished," says Ben Shach, who admits the chain still has a long way to go. At present there is still a mixture of stores at Paz stations. Some 65 stations have Yellow outlets, but their food services are not uniform. The Paz station at Hasira interchange in Herzliya, for example, recently opened a branch of the Pancake House.

Ben Shach finds nothing wrong in this. "Paz is 82 years old, while Yellow is only four. We are in no hurry." Paz opened about 30 branches in 2003 and has similar plans for 2004 to improve countrywide coverage and the chain's purchasing power.

"Although Yellow is currently not being run perfectly,it has advantages over the competitors - broader distribution and the fact that it is part of Paz, not a separate entity," Ben Shach said.

When Ben Shach mentions that Yellow is not a separate entity, he is referring to the May 2002 decision by Paz's executive to make the chain part of the company, and since then it is subject to Paz's vice president of operations and retailing, Uzi Fried. Ben Shach said it is impossible to build a chain of convenience stores any other way. "In the past," relates Ben Shach, "anyone who had a bit of land [beside a gas station] would ask the gas company [for permission to build a convenience store] and would sign a contract with it. Our first problem was to gain control of the gas stations." Paz now has 165 stations, and Ben Shach says that none of the changes would have been possible under the old structural system.

"In the past few years Paz has undergone a process that was neither cheap nor easy," notes Ben Shach, "and in 2004 we will be operating close to 200 of the 250 stations that sell Paz gas. We cannot build a retail chain without controlling the stations themselves."

Retailing is a small but growing part of gas station revenues. "Gas is no longer a product that stands alone," says Ben Shach "but rather a product whose sale is connected with other things. In the 1950s the American gas stations took pride mainly in their product and the service they provided for cars. Now we serve the drivers."

Ben Shach notes that retailing on the roads can be a profitable activity, not only an accompanying service. "Yellow switched to being profitable in its fourth year of operation," he says.

Paz is a privately owned company, so does not publish its financial reports, and Ben Shach is not volunteering any data.

Supplementary

Yellow offers drivers everyday items such as bread, milk, cigarettes and newspapers, as well as fast food and impulse items. This type of store has enjoyed much success abroad, with total annual sales of $300 billion and a payroll of 1.5 million employees in the United States in 2003.

Ben Shach is aware of the differences between the U.S., Europe and Israel - and the contention that there is no need for convenience store in Israel because distances between locales are shorter.

"Every concept has to change," says Ben Shach. "If an Israeli driver can fill his car, buy water, make a cash withdrawal, buy a newspaper and cigarettes, have a bite to eat and continue on his journey, the goal of the one-stop-shop has been achieved." So far, however, Ben Shach admits that not many people come yet to buy bread and milk at a Yellow store.

One of the tasks for 2004 is to convince a large share of the over 120,000 drivers who pass through Paz stations daily to make such purchases and to take advantage of the other services. For a trial period the Yellow store at the Ein Vered gas station is offering a cash withdrawal service - up to NIS 300 per customer, via credit card, directly from the stores cash register, at no extra charge. Ben Shach is confidant that Yellow stores could be successful in the big cities, too, even though Israel already has a retail model that does not exist in Europe - kiosks that are open 24 hours a day.

"Sixty percent of the customers at Yellow stores in the cities did not come to fill up with gas," says Ben Shach. "The Yellow outlet at the Tel Aviv exhibition grounds serves people from Ramat Aviv for supplementary shopping."

Competition

Paz is not the only company busy developing gas station convenience stores. Its smaller competitor, Dor Alon, is also building its chain of Super Alonit stores, with 57 branches so far. Ben Shach notes that most Dor Alon stations are outside cities, and are larger than the model on which he is building Yellow.

"We will not be a supermarket, but rather a drugstore," says Ben Shach, although he does not rule out larger stores in the future.

Yellow's future character will actually be determined by the cooperation currently forming between Paz and Supersol. In 2000 the two signed a cooperation agreement, similar to those between Dor Alon and Blue Square and between Sonol, Clubmarket and Neopharm, but it has not yet been implemented.

"The cooperation agreement, which includes the supply of Supersol products to Yellow stores and the construction of Paz stations on Supersol parking lots, takes time," says Ben Shach.

Retailing

Ben Shach differentiates between the development of the retail activity and the function of the gas stations as profit-making real estate.

"Paz rents 400 `real estate units' (sales or service points) at 250 Paz stations," explains Ben Shach. "We try to get the greatest yield from each site, and change their rent every six months, in keeping with real estate demand. Hence some stations have restaurants or cafes while others don't."

Some stations have small branches of Burger Ranch, which Paz acquired in 2001. This fast food chain has been in the headlines for months, with Paz owner Zadik Bino being quoted as saying he intended to sell the losing chain because it did not fit in with the company's other operations. Paz had also tried to buy Burger King, but when Bino was prevented from doing so by the Antitrust Commission, discussions began for Burger Ranch's future with Paz.

"At the moment," says Ben Shach, "we are at the height of organizational streamlining at Burger Ranch, so the chain will be remaining with Paz for the moment. Our goal is to improve the financial results of a company whose brand and its position in Israeli consciousness no one has any doubts. After all, Burger Ranch has always been my favorite."