Skip to main content

Weighing Your Options: Go, Grow or Enhance?

Danielle Romano

NATIONAL REPORT — Sizeable deals made 2018 one of the most active years yet in convenience channel merger and acquisition (M&A) activity, with many of the largest chains in the industry getting even bigger. And that activity has not died down throughout this year either.

With consolidation continuing at a rapid pace, the c-store industry’s single-store owners (SSOs) and small operators are feeling the pressure. It’s getting more difficult for them to compete against the multiple advantages that large chains have. Their options have essentially become to either go, grow, or remodel and enhance their offering to stay in the game.

Taking the Exit

The total number of convenience stores operating in the United States declined by 1.1 percent last year, falling from a record 154,958 stores to 153,237 as of Dec. 31, 2018. The drop was fueled by a 2,918-store decline in single-store operations. However, single stores still account for 62.3 percent (95,445) of all U.S. c-stores, according to the 2019 NACS/Nielsen Convenience Industry Store Count.

There are several driving forces contributing to SSOs and small operators shutting down their operations and/or selling. One factor is inexpensive borrowing costs due to low interest rates. Another factor is the quantum-level jump over the past six-plus years in margin dollars in fuels and inside the store, which has led to rising asset valuations. 

“Accordingly, the industry asset class continues to attract interest in growth and investment. The quest to find more assets continues as companies seek to accrete higher earnings and spread costs among increasingly larger store counts,” explained Ken Shriber, managing director and CEO of Petroleum Equity Group. “Market share growth by the biggest players in a low interest rate environment becomes of paramount importance. It positions them financially with economies of scale, and allows them to better weather the threat from new competitors (i.e., EG Group) and potential industry disrupters (i.e., Amazon Go).”

In the past, if a c-store retailer operated 25 stores, they were considered a sizable player. Nowadays, the industry keeps moving that carrot farther out, noted Terry Monroe, president of American Business Brokers. But not every retailer is cut out to own and operate 30, 40, 50-plus stores, and beyond. In such cases, he said there can be a silver lining for owners in selling their business to one of the industry’s most active acquirers.

“I just sold a four-store chain of stores that were doing fantastic. They were acquired by a 50-store chain because it wanted the owners of the four stores to come to work for the company and make the stores great like the operator’s four stores,” Monroe explained. “It was a win-win deal for everyone.”

Holding Your Ground

For SSOs and small operators who are not interested in taking the exit, the good news is that they can secure a place in the industry’s future. But to do so, they must possess assets in exclusive markets and have the ability to maintain current levels of profitability.

If they possess the financial and operational means and abilities, Shriber believes they should:

  • Remodel existing sites on a larger footprint of up to 1.5 acres;
  • Deliver a robust foodservice program; and
  • Make several small acquisitions of three to five stores at a time over a two-year period.

“If not, they would be wise to consider exiting the business,” he advised.

Shriber cautions SSOs and small operators on the fence not to wait too long to decide their fate. He says a wait-and-see approach is not the right choice given the current market conditions. 

“We have seen firsthand many of these marketers suffer due to increased competition from larger stores/chains with modernized facilities and robust foodservice offerings. And then they wait too long to decide to exit, after their sales have substantially decreased,” he told Convenience Store News. “At that point, their ability to sell at even much lower asking prices/multiples of EBITDA becomes severely compromised.”

While the convenience store industry is built on the selling of two key commodities, convenience and service, SSOs and small operators who choose to stay and compete should identify their differentiators and then optimize them to stand apart from the competition, according to Monroe. That is, these retailers should ask themselves: What is my unique selling proposition?

“What product or service do you offer that cannot be emulated by your competition?” posed Monroe. “When I sell a chain of stores to a consolidator, most of the time they change the product mix and try to make it like all of their other stores, thereby losing the local touch the original operator had and [they] end up losing business. As a SSO, you should know your market and what your market wants. If you don’t, then shame on you. The consolidators will win every time if you are not in touch with your market.”

About the Author

Danielle Romano

Danielle Romano

Danielle Romano is Managing Editor of Convenience Store News. She joined the brand in 2015. Danielle manages the overall editorial production of Convenience Store News magazineShe is also the point person for the candy & snacks and small operator beats.

This ad will auto-close in 10 seconds