Retailers Turn to Vertical Integration to Cut Costs, Strengthen Supply Chains

As costs grow and competition ramps up across the c-store industry, more chains of all sizes are considering how various levels of vertical integration can help improve efficiency, strengthen supply chains and create a competitive advantage.

The benefits to vertical integration are many. It can result in lower product costs. It can give a chain better control over its product supply and reduce the risk of product shortages. It can offer more control over the quality and consistency of products or services. Bringing various businesses inside the company can also make things happen more quickly, whether it’s servicing a piece of equipment that has gone down or getting a new foodservice innovation onto the menu.

The tradeoff, however, is the large upfront investment, which can make vertical integration more challenging for smaller chains. It also comes with increased responsibility and complexity as chains begin managing more parts of the business on their own.

Case studies

CStore Decisions’ 2026 Chain of the Year Toot’n Totum, with 98 c-stores across Texas, Oklahoma, Kansas and New Mexico, is known for its approach to vertical integration.

“Vertical integration is something that has completely set us apart,” said Toot’n Totum CEO Andrew Mitchell. “It all started back with a whole warehouse distribution center, where we could bring in items and things that other convenience stores couldn’t get.”

The warehouse distribution center first opened its doors more than 15 years ago, and the chain has been handling its own warehouse distribution ever since. These days, it distributes supplies and retail items to its stores once or twice a week, depending on the location. This shift has allowed the c-store chain to move product quickly. It has also allowed the chain to bring in local and niche items.

“A local distributor, a local provider can’t get to 98 stores on a weekly basis … so we can bring that (item) into our distribution center and move,” Mitchell said.

Seven years ago, it added transportation affiliate, SUPA Inc., which handles about 90% of the chain’s fuel transportation to its sites, including diesel exhaust fluid deliveries. By owning its own dispatch system, the company has greater control over fuel deliveries and can better ensure its locations have the supply they need.

But vertical integration doesn’t have to mean investing in large-scale operations like distribution centers or transportation businesses. Smaller chains, in particular, can identify the recurring services and functions they rely on most and bring them in-house.

In fact, getting started with vertical integration can be as simple as taking care of your own lawns, Mitchell advised.

Toot’n Totum has a landscaping business called Lawn Pros, which manages all grass, tree and landscaping needs across its sites. It also runs Cleaning Pros, a cleaning business that handles power washing lots, deep scrubs and parking lot cleanup. In both situations, owning these businesses allows Toot’n Totum to ensure cleaning and lawncare are handled at the right times, so they don’t impact guest traffic.

“We’ll do (power washing) late at night when we know the business is slow,” he explained.

The company also operates a sign division called Sign Pros, which handles all signage installations on new builds, as well as maintenance on signs throughout the company. When issues arise, Toot’n Totum doesn’t have to wait for a third-party provider to attend to the issue. It’s able to service equipment immediately.

“We pride ourselves on equipment being up and functional,” he noted, adding if the equipment isn’t working that interferes with guests, something Toot’n Totum looks to avoid. “We try and make it where our guests are never interfered (with) whatsoever from start to finish,” he said.

The above examples are just a few of the way Toot’n Totum employs vertical integration today. It also has in-house marketing and IT teams, and a centralized kitchen that acts as a commissary where the chain produces fresh products daily and delivers them warm or cold throughout the day to neighboring locations. Vertical integration allows Toot’n Totum to make sure it’s handling all aspects of its business “The Toot’n Totum Way.”

“There’s nobody that takes care of Toot’n Totum like Toot’n Totum,” Mitchell said. “We’re going to take care of ourselves, and we’re going to make sure that our guests never have an issue as they as they frequent our stores.”

Industry examples

Another chain known for its strong vertical integration is La Crosse, Wis.,-based Kwik Trip, which operates more than 900 stores across seven Midwest states. Kwik Trip operates its own bakery, dairy, kitchens, food-safety lab, distribution center and transportation company, just to name a few of the business segments it has brought in-house. Inside the chain’s stores, 80% of the products are Kwik Trip-branded items that have been made, shipped and sold by the c-store company.

“Vertical integration allows us to reduce costs of production and transportation, provide the highest quality and freshest product, and maintain a food safety chain unmatched in the industry,” said Dave Niemi, public relations, Kwik Trip Inc.

Kwik Trip’s website boasts that the chain bakes 10 different varieties of fresh bread daily, and more than 225 loaves per minute. It also makes muffins, cookies and cinnamon rolls fresh daily, and bottles more than 80,000 gallons of milk per day while its kitchens serve up 40,000 pizza a day.

When deciding which parts of the supply chain to bring in-house vs. which are better left to third-party partners, Niemi noted that Kwik Trip considers “the investment cost compared to potential savings considering the volumes we produce.” The chain considers key questions, such as, “Do we have the in-house expertise and talent to implement the project? Does it fit our business model?” Niemi explained.

As customer expectations continue to shift toward fresh food, quality and value, it’s not always easy to balance the advantages of owning more of the supply chain with the need to stay agile and innovate quickly. Kwik Trip relies on the expertise of its food research and development team that constantly tests limited time offerings. “This team meets regularly with our production team to discuss scalability,” Niemi said.

In today’s environment, with inflation soaring more c-stores are finding that vertical integration is an increasingly valuable strategy that can help them manage costs.

“With rising costs and stiff competition from grocery stores, ready to eat chains, and other c-stores, we need to eliminate as much third-party expense as possible,” Niemi said.

For c-store chains considering taking more control over their supply chain, Niemi advised them to ask themselves, “Will our current or predicted sales volumes generate actual savings considering the investment cost.”

“Innovation is one of our core values,” Niemi said. “We are blessed with ownership that supports that innovation in concept and in reality.”