Adventures in Adversity

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Adventures in Adversity

By Don Longo, Convenience Store News - 11/03/2008
The national economy appeared to be headed for recession long before the Wall Street financial crisis became front page news in late September. Now, with the recently passed federal bailout, the country may be facing at least two years, and perhaps longer, of depressed consumer spending. As the federal government deficit balloons and taxes are increased to enable the government to buy up toxic debt from troubled financial firms, consumers are sure to cut back even more than they already have.

Many retailers are already positioning themselves to serve a more value-conscious consumer. For example, Wawa long ago decided it had to be competitively priced, not just against other convenience stores, but also against all the grocers, supermarkets and fast food restaurants in its trading areas. The latest consumer research from Convenience Store News' parent company, The Nielsen Co., found "value" is now the No. 1 driving force behind consumers' decisions about where to shop. Smart grocers, for example, are telling their customers how much cheaper it is to buy groceries and eat at home than to go to a restaurant. Many c-store retailers see an opportunity in selling more gift cards for necessities such as gas this holiday season as consumers cut back on their holiday spending for non-essential merchandise.

Beyond the slowdown in consumer spending, one of the biggest impacts of the current financial crisis is the scarcity of capital for acquisitions and improvements as banks tighten credit lines. We've heard some banks are pulling out of deals at the last minute, or are suddenly requiring buyers to put more money down, sometimes as much as 35 percent, to finance acquisitions, instead of the customary 20 percent down payment. This has slowed, but not completely stopped deals from closing. In some of these instances, the seller is being forced to take a second mortgage position to cover the extra 10 to 15 percent that the buyer has to put down in order to complete the deal.

Most retailers are being extremely cautious about any new projects, including retrofitting and rebuilds. However, some retailers were proactive and had already started shoring up balance sheets, slowing down expansion plans and firming up relationships with lenders to ensure access to sufficient capital in the months ahead. According to E-Z Mart CEO Sonja Hubbard, the Texarkana-based c-store chain has been working on its balance sheet for some time, and is well-positioned in this economy to acquire stores from operators looking to leave the business. They are certainly taking advantage of lower real estate prices today compared with a year ago.

While declining to reveal more information, Hubbard said E-Z Mart is looking at "a few acquisitions," and is currently meeting with lending partners to discuss options, acknowledging that banks' restrictions have drastically changed in the new economy
Don't be surprised if more retailers use this time of crisis to their advantage by purchasing depressed assets -- from equipment to competing retailers -- to gain competitive advantage and grow market share.

Or, as Harry McHugh of Wawa commented at CSNews' recent Retail Advisory Board Meeting: "When you see a pile up, it's time to step on the gas."