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Ripe for Consolidation?

In a report released last month, analysts at Merrill Lynch announced that the North American convenience store industry, dominated by mom-and-pop operators, is ripe for consolidation, a trend that would favor the large publicly traded store operators.

"With significant scale advantages, economics favor large chain operators in the c-store industry," the analysts said. "With a still high degree of fragmentation, the publicly traded c-stores stand to be beneficiaries of the inevitable consolidation we foresee."

The "Big Four" non-oil company convenience store chains — 7-Eleven, Alimentation Couche-Tard, The Pantry and Casey's — seem to be in the cat-bird's seat for the foreseeable future. And all of these companies are taking steps to cement that promising prognosis.

7-Eleven continues to improve its same-store sales year over year. Although its number of stores remains relatively stable at around 5,800, the chain is closing underperformers and adding stores in high-profile, urban locations such as Boston, Chicago and, most recently, returning to New York after an absence of more than 20 years (see story on Page 12).

Couche-Tard, on the other hand, has taken a Pac-Man fever mentality to growing its business. The company announced last month that its record-breaking sales can be attributed to its successful billion-dollar purchase of the Circle K chain in 2003. At press time, CEO Alain Bouchard announced that the Laval, Quebec-based retailer was in talks with four convenience store chains over potential small- and medium-sized acquisitions, and is on the lookout for another major purchase involving up to 2,000 stores.

The Pantry, which operates nearly 1,400 stores in the Southeast, is also taking a growth-by-acquisition tack. Since its acquisition of Golden Gallon in 2003, the company has been systematically purchasing small to medium-sized chains such as 53-unit Cowboys and 23-unit Sentry Farms, establishing itself as the dominant convenience chain in its region.

And then there's Casey's General Stores, the subject of this month's cover story. Unlike its three rivals, Casey's quietly goes about its business, yet continues to have a stronghold throughout the Midwest. As senior editor Barb Francella points out, there probably won't be any flashy announcements of new prototypes or great upheavals in the company's longstanding business strategy.

Not that Casey's is acquisition-phobic: Until five years ago, Casey's unit growth came through newly built stores. Now, acquisitions play a much bigger role.

"We think there are ample acquisition opportunities in our nine-state area, but will take a look at others, too," said John Harmon, senior vice president, secretary. "We have identified the chains of 50 or more stores and are seeing if they fit into our business model. But we're likely to buy single stores, too.

"We are very aware of retailers who overexpand," Harmon continued. "As long as we are very careful, stick to our niche and use the business model we've used to acquire stores in the past, we don't have to worry so much about overexpanding as we do overpaying. We are in good financial shape."

For Casey's, slow and steady may just win the race. And that's just fine for this highly regarded chain of 1,369 stores.

To c-store veterans, it seems like only yesterday it was the Big Oil companies who were making all the noise in the convenience industry. But these days they're making a different kind of noise — the sound of pulling out of the convenience business and focusing on petroleum. And that opens the door for operators like Casey's to step in and grow their business.
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