What Would a Couche-Tard & 7-Eleven Tie Up Mean for the Industry?
NATIONAL REPORT — In what had been shaping up to be a quiet merger-and-acquisition year in terms of earth-shattering deals, the convenience store industry woke on Aug. 19 to news that Alimentation Couche-Tard Inc. made a nonbinding, friendly proposal to acquire all outstanding shares of Seven & i Holdings Co. Ltd.
Laval, Quebec-based Couche-Tard is the parent company of Circle K, and Tokyo-based Seven & i Holdings is the parent company of 7-Eleven Inc. Both retail companies are powerhouse players on the international scene, as well as in the United States. According to the 2024 Convenience Store News Top 100 report, Irving, Texas-based 7-Eleven is the No. 1 c-store chain in the U.S. with 12,577 stores while Couche-Tard sits at No. 2 with 5,851 locations. The store counts for these two retailers, which have been battling over the top spot for several years, were as of March 2024.
Seven & i's board of directors has formed a special committee — comprised solely of independent outside directors, led by Stephen Hayes Dacus as chairperson of the board — to review Couche-Tard's proposal. While the review process plays out, it is anyone's guess whether the blockbuster proposal becomes a reality.
Terry Monroe, founder and president of American Business Brokers & Advisors, puts the odds at 60/40 in favor of a deal. "I was surprised but at the same token, not totally," he told Convenience Store News. "There are 152,000 convenience stores in the United States. There is not one national player, not one. There's no McDonald's of the c-store industry where one company has a store in every state. We are eventually going to get here; something like this will get us there."
He added that 7-Eleven came close when it acquired the Speedway network from Marathon Petroleum Corp. for $21 billion in 2021. However, 7-Eleven opted to keep the Speedway banner following the deal's completion.
According to Monroe, what tips the odds in favor of a deal is the use of the word "friendly" in relation to Couche-Tard's proposal to Seven & i. "This tells me they have been talking," he said.
Mark Radosevich, president of PetroActive Real Estate Services LLC, was similarly surprised by the news because "it was off my radar," he told CSNews. "If it does close, my guess is it will be a long time coming. ... Maybe this time next year at the earliest."
Lacking One National Player
Comparing this potential tie up to a previous booming business in the U.S., Monroe pointed out that Blockbuster's entry into the video rental market created a national player and brought credibility to the mom-and-pop operations already in the market. A national c-store brand would have the same effect for the channel, which remains highly fragmented and comprises mostly independents and single-store owners.
"It's going to help the consumer because they'll have some consistency," he said, adding that if Couche-Tard pulls off the deal, it will bring consistency with a national offer.
"It's an audacious goal for them, but it has to be done. Something of this nature has to happen eventually. There needs to be a national player," Monroe said. "And why not Couche-Tard and 7-Eleven, which have similar business models: one has a large franchisee network and the other has a large dealer footprint. I don't think there is a better suitor than Couche-Tard and they are good at acquisitions."
Potential Shakeout
As for what will happen with a potential deal and the Federal Trade Commission (FTC), Monroe said he had not had a chance to overlay 7-Eleven's U.S. footprint with Circle K's U.S. footprint to see where — and how — they overlap. For reference, the FTC ordered 7-Eleven to divest roughly 290 stores as part of the Speedway deal.
While still in the early stages of talks, Ken Shriber, managing director and CEO of Petroleum Equity Group, said it's hard to say how Seven & i and its shareholders will react, especially given that the company has its own "bold growth initiatives."
"If approved, I don't see it changing the competitive landscape much as it would be a combining of the two biggest players," he said. "7-Eleven's foodservice offerings and commissaries would be a big benefit to Circle K."
What is likely, Shriber believes, is that Couche-Tard will face FTC scrutiny in the U.S., particularly where both companies have significant store counts, such as Texas, California, Florida, and other Mid-Atlantic and Northeast states.
According to Radosevich, a strategic network rationalization will follow any agreement based upon competitive reasons and trade area brand redundancies.
"Some sites will be slated for continued company direct operations and others may be divested to marketers for dealer lease or straight dealer sale, with fuel supply being sold or retained," he said. "It will be a mixed bag of scenarios that will take months to decide and execute."
From a purely macro view, he explained that acquisitions of established sites — many of which are of an older style and facility size — may indicate that the seller/owner is hedging their bets and monetizing their investment because the relentlessly growing and widespread stable of large and modern sites with sophisticated operators will ultimately render many of these subject stores highly vulnerable and worth much less in the future.
"Current property size, facility size, offerings and the inability to raze and rebuild or retrofit a site vs. a new-to-industry competitor, that will ultimately eat the lunch of vulnerable sites in a given trade area. This, plus political uncertainty and continued EV [electric vehicle] chatter makes taking one's chips off the table an optimal and pragmatic decision," Radosevich said.
"Strategically banking the cash now vs. a slow inevitable erosion of value in the future (with no white knight buyer out there) allows upper management to be viewed as heroes," he added. "They'll sleep better at night."
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