Couche-Tard Scores High Marks In The Industry

2/1/2012

Smart acquisitions, a sharpened fresh-food plan and disciplined expense reductions are making the retailer successful

Have you heard the industry name-calling that's circling Alimentation Couche-Tard Inc. lately? "Excellent acquirers" is one. "Financially disciplined" is another. And GMP Securities research analyst Martin Landry even told Convenience Store News that the Quebec-based retailer stands alone in a very enviable industry position, and not just in the convenience-store sector.

"It is probably one of the only Canadian retailers to truly succeed in the U.S.," Landry said. "Not many make it because the U.S. has a bit more competition than in Canada, but these guys did, and it speaks to the quality of their management and the strength of their track record."

The operator of nearly 6,000 convenience stores, under the Couche-Tard and Mac's banners in Canada and the Circle K banner in the United States, has certainly had a good deal of positive press over the past year, particularly regarding its zealous acquisitions and sharper fresh-food plan.

EARNING AN "A" IN ACQUISITIONS

During the company's earnings conference call in November, CEO Alain Bouchard spoke of Couche-Tard's aggressive acquisition strategy. Since the beginning of the 2011 calendar year, Couche-Tard acquired 201 company-operated stores. And in 2012's first quarter, plans are to purchase an additional 164 stores, a figure which includes some of the 105 CORS stores Circle K bought from ExxonMobil Corp.

Couche-Tard is well-known for finding the right locations at the right price, according to Landry.

"Sometimes sellers' expectations are a little bit too high [regarding] what they can get for their operation; they see Couche-Tard coming in big with large financial means, so they try to maximize the cash. But at the same time, these guys are extremely disciplined and if it doesn't make sense, they will walk away," he said. "We saw them walk away from Casey's [last year]."

The way Landry tells it, Couche-Tard has become a master at blending in acquisitions, thanks, in part, to its model of decentralized operations. He noted that before it entered the United States, Couche-Tard was first successful in Canada, integrating and molding each acquisition carefully into its model.

"They have regional divisions that oversee a maximum of 500 to 600 stores," Landry maintained. "That's how they keep their ears to the ground and maintain a feel for the local markets."

He also praised the chain for empowering its people â making local managers responsible for their individual input at the local level. "It's a great way to operate a national chain like that," he said.

FRESHENING UP

In each of its markets, fresh food is an increasingly larger component of Couche-Tard's success strategy, now and moving forward. In November, the company revealed that its fresh-food focus achieved double-digit same-store sales growth for the 2012 fiscal second quarter.

Also during the November earnings call, Raymond Pare, vice president and CFO, called fresh food "a growth catalyst for the next few years."

Hence, the company's decentralized plan is a positive force, enabling the various regions to adapt to local tastes and culture, according to Landry.

"The food offering in Arizona is much different than the food offering in Vermont," he explained. "A decentralized structure allows them to do that, as well as share some best practices across regions where it works."

In November, the company reported that fresh food accounted for about 18 percent of the retailer's gross margins. However, Bouchard has stated that he wants to bring that figure up to 25 percent, which Landry estimates to be a five-year objective.

Joseph Chiovera, formerly a senior fresh food executive at 7-Eleven Inc., was brought on board with Couche-Tard in January 2011 to help execute that objective. After joining, touring the company, establishing a plan and then submitting that plan and getting it approved by senior management, Chiovera's initiatives have only recently started.

While Landry is not privy to all of the chain's latest foodservice initiatives, he said, "it's not rocket science; they're trying to maximize the use of the roller grill for things like breakfast burritos in the morning and hot dogs at lunch. They now want to make sure they cater to all three meals in all of their locations. That's the emphasis they want to nail down â the three meals."

EXPENSING DOWN

Beyond acquisitions and fresh food, Couche-Tard is earning high industry marks in expense control, particularly in sales and general administration (SGNA), according to Landry.

"They have been able to reduce their SGNA for the last 11 quarters and that is pretty impressive," he said. "They put a ton of initiatives in place when the recession hit to make sure they have a lean structure."