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Thursday, March 23, 2017

How CST & Couche-Tard Combo Will Change the Industry
Biggest impact may be felt in the c-store acquisition environment.

Source: Convenience Store News
By Tammy Mastroberte

LAVAL, Quebec and SAN ANTONIO — As Alimentation Couche-Tard Inc. continues to grow and dominate more regions in terms of presence and buying power, what does this mean for competitors, or the convenience store industry as a whole?

In a move that will make it the largest U.S. independent convenience store operator in store count, Circle K parent Couche-Tard announced plans to acquire CST Brands Inc. for $4.4 billion in August 2016. The company has been expanding through a number of acquisitions as of late, but this one offers an opportunity to purchase one of the few remaining North America c-store chains with more than 1,000 stores.

As part of the deal, Couche-Tard will acquire 1,146 CST Brands c-stores, primarily operating under the Corner Store, Nice N Easy and Flash Foods banners, and also control the general partner of Allentown, Pa.-based CrossAmerica Partners LP. Additionally, Couche-Tard plans to sell CST Brands’ Canada retail assets to Parkland Fuel.

As the completion of this deal draws near — closing is expected early in Couche-Tard’s fiscal year 2018; the company is currently in its fourth quarter of fiscal year 2017 — convenience store industry insiders are beginning to speculate on the future industry impact.

The biggest impact will be for those companies bidding against the retailer for future acquisition deals, predicts Dennis Ruben, executive managing director of NRC Realty & Capital Advisors LLC, based in Scottsdale, Ariz.

“In the last few years, there has been an ongoing consolidation, and when we do deals, there is a big number of larger buyers who could do a deal without having to get financing,” he explained. “I think this will mean a less competitive environment for deals because with Couche-Tard buying CST, there is one less big player to call.”

For those in direct competition with Circle K stores, the bigger Couche-Tard gets, the better the buying power, so it will become more difficult to compete with the retailer on price, according to Terry Monroe, president of American Business Brokers and Advisors, based in Naples, Fla.

Couche-Tard will be getting better deals from vendors, leaving neighboring stores to find other ways to stand out. “These competing stores will have to accept the fact that they can’t get the same deals from vendors. It’s no different than when Walmart came to town and put people out of business,” Monroe said. “Companies need to distinguish themselves from Circle K, whether it’s different flavors of coffee or their own type of breakfast rolls.”

Foodservice is a great way to differentiate from the competition in any area and, for those competing against Circle K, another option is to offer services they don’t, such as a loyalty program, Ruben pointed out.

“Some Circle Ks are branded Shell and they have a loyalty program, but many are unbranded,” he noted. “If a store competes in an area with Circle K and they offer a loyalty program, this is something they should promote.”

Overall, Circle K’s reputation in the industry is very good, and they are known as great operators, Ruben shared. This will give the entire industry a boost and give people the incentive to “improve their game and offering.”

“By putting more name-brand equity into the marketplace and showing, good consistent operations, it helps the entire c-store industry,” Monroe agreed.

For more on the future of CST, Couche-Tard and the entire c-store industry after the merger, look in the April issue of Convenience Store News.

To see a list of convenience stores for sale and gas stations for sale, click here.