Circle K's Owner Sets Eyes on Asia for Next Acquisition PhaseBy
Couche-Tard grew gobbling up rivals in North America, Europe
Company is also trying to expand with improved food offerings
After gobbling up convenience-store chains in North America and Europe, Alimentation Couche-Tard Inc. has its eyes on Asia, where the owner of Circle K is seeking to enter the Thai and Indian markets.
Co-founder and Chairman Alain Bouchard told shareholders on Tuesday that the Canadian company is crafting a strategy for the two countries, while also looking for ways to increase its presence in southern China, where Couche-Tard has a foothold through licensing agreements but doesn’t operate stores.
“We’ve had concrete conversations with people, with management teams, with companies,” Chief Executive Officer Brian Hannasch said in an interview after the annual meeting in Laval, outside of Montreal. “There’s a lot of work to do to really understand the cultures, the ability to have a level playing field, to compete fairly.”
Couche-Tard, which started with one store in a Montreal suburb in 1980, will soon have a footprint in 48 U.S. states. Bouchard has gradually expanded the company, first in its home market, then to the rest of Canada, before entering the U.S. in 2001 and Europe in 2012. Some investors are wondering what will drive Couche-Tard’s growth given sluggish demand in parts of the U.S. and threats to gasoline consumption posed by the rise of electric and more fuel-efficient vehicles.
The shares have fallen 0.7 percent this year to C$60.45, after more than doubling since the start of 2014.
Couche-Tard -- which is French for night owl -- has a no-frills reputation, with top management known for visiting scores of stores to spot weaknesses before making acquisitions. The company is digesting a string of purchases, including CST Brands, which gave it a stronghold in Texas but also exposed it to Hurricane Harvey last month.
As of July 23, the company had almost 13,500 locations in North America and Europe, most of which combine a store and gas station. It also had about 1,700 Circle K stores under licensing agreements from Vietnam to Costa Rica.
Couche-Tard may now pause its shopping spree to lower debt, but Hannasch said acquisitions are “part of our DNA,” with lots of opportunity for large deals in Europe and some left in North America. Mexico was also brought up with shareholders.
In the U.S., one target was taken off the table earlier this month, when Marathon Petroleum Corp. decided against spinning off its retail business. Yet smaller options abound in the fragmented U.S. market. In a July interview, Couche-Tard’s Chief Financial Officer Claude Tessier said there are about 154,000 corner stores in the U.S., and 30 to 50 medium-size chains that make for potential acquisitions.
So far, Couche-Tard’s tight control on costs and well-oiled processes for integrating new stores have helped make up for weak demand. Earnings last quarter beat analysts’ estimates even as same-store merchandise sales slowed.
Couche-Tard has also been trying to improve its food and beverage offerings to get people to spend more in stores and reduce the company’s reliance on fuel and its volatile margins. In Europe, the company has beefed up menus, toying with Mexican food in Norway and trying to get Irish consumers interested in hot dogs. In North America, it’s focused on making better coffee and is now extending food choices, too.
Change has been slow to show up in the company’s results. Couche-Tard estimates that food accounted for 12 percent of merchandise sales in the year ended last April, down from 13 percent the year before. Tobacco rose to 41 percent from 40 percent, in part because convenience stores have become one of the last places for smokers to find cigarettes.
Still, from a smaller base, food sales are the fastest-growing category, according to Hannasch, who also sees opportunities with hot and cold beverages, as well as car washes. As for tobacco, it’s not going anywhere as the company grows its market share.
“We continue to be very committed to the tobacco category,” he said. “We want to provide what the customer wants. I am not going to abandon any segment.”
— With assistance by Aoyon Ashraf