Royal Farms quietly grows from dairy business

The Baltimore Sun

Royal Farms quietly grew over decades into one of Baltimore's most ubiquitous businesses, but last week the convenience store chain took a bigger stage.

On Wednesday, the city approved a $1.25 million, five-year agreement for Royal Farms to serve as title sponsor for the Baltimore Arena, to be known starting Nov. 1 as Royal Farms Arena.

The move, which comes in the midst of accelerated expansion and after years of careful branding, is a statement of bigger ambitions that simultaneously ties the retailer, headquartered in offices above one of its stores on The Avenue in Hampden, more closely to its local customers, industry watchers said

"By having an arena that carries your name, you're saying, 'Not only are we the corner store, but we're the corner store in your community,' " said Jeff Lenard, vice president of strategic industry initiatives for the National Association of Convenience Stores. "Royal Farms is also saying that 'Maryland is important to us and here's how.' "

Royal Farms, which previously advertised at the arena, was approached about the sponsorship last year, said Frank Schilling, director of marketing and merchandising.

"It is, I guess, a more visible step in our growth and evolution as a company," Schilling said of the arena deal. But, he added, "We try to stick to our knitting. … This opportunity was not something that we were really seeking as much as it just kind of was an offshoot of a much smaller existing relationship with the arena."

Royal Farms traces its roots to Baltimore's Cloverland Dairy, organized in 1918 by Maynard C. Kemp, a Frederick native and later resident of Homeland, and his two brothers, who delivered milk to Baltimore homes sourced from Guernsey stock. At the time, they marketed themselves as the company "with cows" to distinguish themselves from other distributors, an early foray into farm-to-table advertising.

In 1959, as new technology extended milk's shelf life and home deliveries waned, the family opened a "milk store," which would become the Royal Farms chain.

The retailer and the Cloverland Greenspring Dairy still share the same owner, operating under the Two Farms Inc. corporate umbrella. The privately held company passed into the hands of Maynard's son Ralph, a University of Maryland graduate and Marine Corps officer, in 1964.

Over the decades, Royal Farms expanded slowly and steadily, said Schilling, who started at the firm 25 years ago when it had about 40 stores.

The pace of growth accelerated in recent years. Royal Farms opened a dozen locations in 2012, nine in 2013 and expects to open 10 this year, Schilling said. Next year, the chain plans to roll out another 10 to 15.

The chain now employs about 4,000 people and has a total of 160 stores in Maryland, Pennsylvania, Delaware and Virginia. It ranked 53rd in Convenience Store News' 2014 list of the top 100 chains. (Cloverland, which acquired other dairies as it grew, including the original Royal Farms and Green Spring Dairy, was 90 of 100 in the 2014 Dairy Foods ranking of dairy processors in North America.)

Current Royal Farms President John Kemp represents the third generation of family ownership, said Schilling, who declined to discuss the family's history, citing their desire for privacy. Kemp, a graduate of McDonogh School and Washington & Lee University and a resident of Baltimore County, declined to comment for this article.

"They're a strong regional player," said Don Longo, editorial director of Convenience Store News, pointing to their performance against rivals such as Wawa and Sheetz. "They're in a region of the country that's noted for having a lot of cutting-edge convience stores … and they compete against those companies pretty well."

Within the convenience store industry, Royal Farms, which started selling its "world famous" fried chicken more than 30 years ago, is known for its fresh food, Longo said.

That's no accident, said Schilling, who said the company's business model changed in the last 10 years, as it looked to food to made up for declining sales in traditional mainstays such as tobacco, soft drinks and gasoline.

"As a business, we have to find ways to overcome those declines and in effect replace those sales revenues with other categories," he said. "We found that food service was a good way to do that and at the same time fulfill a need that our customers had for fast, quality food."

The switch to food coincided with a new branding effort, as the chain worked to craft a reputation based on quality, appealing to a more upscale customer, said Auburn Bell, director of marketing at Legg Mason and an affiliate professor of marketing at Loyola University Maryland Sellinger School of Business.

The chain's older stores have been remodeled, creating consistency across the brand. New stores are bigger and brighter. The firm has pledged to build to green-friendly standards and deployed local sports stars such as the Raven's Haloti Ngata to market its "world famous" fried chicken as "always fresh, never frozen" — a cut above the competition.

"What Royal Farms has done over the last decade is they've really strengthened their brand," Bell said. "They're not perceived of as a down-and-dirty convenience store anymore."

The arena naming rights further the firm's efforts to be identified as a "good neighbor," a bid that could appeal to consumers increasingly looking to support brands they can believe in, said Mitch Morrison, vice president and group editor for CSP Magazine, a convenience store trade publication.

"They've created a narrative that is kind of warm and fuzzy and that you want to hug," he said. "It's a further extension of basically upgrading their branding from being a neighborhood convenience store to something that's now much more meaningful and dynamic."

It also shows the firm can go head-to-head with trusted national brands, Morrison said. "This gives them that kind of credibility."

Compared to convenience store giants, such as 7-Eleven, which operates, licenses or franchises some 10,300 stores in North America, Royal Farms remains small. Claiming the arena naming rights is a bold move for a company its size, Longo said — but not unheard of. Salt Lake City's 12,000-seat Maverik Center takes its name from the Maverik chain of convenience stores.

"By sponsoring or naming an arena, it projects a sense of confidence," said Haiyang Yang, professor of marketing at the Johns Hopkins University's Carey Business School. "It's in a different league now."

The chain's growth has not always been smooth. Royal Farms has locked horns with neighborhood groups opposed to new stores in communities such as Towson, Columbia and Northeast Baltimore. Last year it agreed to a $600,000 settlement with the Maryland Department of the Environment to head off court action after fuel leaks were found at two of its outlets.

If Royal Farms found itself embroiled in scandal, that could hurt the arena, as consumers associate the two businesses, Yang said. Likewise, problems at the Arena, which has struggled to overcome a dingy image that dates back almost to the date it opened, could hurt Royal Farms.

But analysts said benefits for both sides outweigh the risks.

"I think it is so smart for somebody in the right retail space," said Lenard, pointing to cross-promotional opportunities such as food and ticket sales. "You can't go to FedEx field and do anything related to FedEx."

Royal Farms' agreement with the city does not cover concessions, which are handled by a separate contract, but the company is interested in exploring future opportunities, Schilling said. The sponsorship agreement also gives Royal Farms the first crack at new naming rights if the city ends up developing a new arena.

"That's certainly something that undoubtedly we will have at some point in the future, but for now the arena is continuing to be very functional," Schilling said. "We think that the arena is likely to have many more good years in it so we're not concerned."

Schilling, who declined to discuss sales figures, said Royal Farms plans to continue to add stores — all of which are owned and operated by the company, not as franchises — as profits are reinvested back into the business. But the company is focused within its current footprint, where it can more easily maintain quality control. About 100 of its 160 stores fall within a 50-mile radius of Baltimore, he said.

"It's our goal to continue to grow," he said. "We believe that's a reflection of a healthy business."

Baltimore Sun researcher Paul McCardell contributed to this article.

nsherman@baltsun.com

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