There are compelling reasons to peg either Couche-Tard or 7-Eleven as the best candidate to acquire [image-nocss] Casey's. (See related story in this issue of CSP Daily News).
"The entry of 7-Eleven is interesting because they're really the only other major convenience store that's big enough to take a run at it," Dley told the newspaper.
"In the race for consolidation, I am not surprised to see 7-Eleven compete with Couche-Tard to acquire a great company like Casey's," Roger Woodman, managing director of Morgan Keegan & Co. Inc., Memphis, Tenn., told CSP Daily News. "Casey's is a well-run company and represents an enormous group of assets. In the convenience store industry, it is very unusual for a company the size of Casey's to be put into play. While it would seem that Casey's geographic market focus is not an ideal match for 7-Eleven, its sheer size combined with its distribution capabilities make it an attractive opportunity for 7-Eleven to pursue."
Casey's is a good fit for either of the two international convenience store companies pursuing it, but 7-Eleven is a more likely buyer, and not just because its current bid is higher, Morgan Keegan analyst Ben Brownlow told The Des Moines Register.
Casey's has two other aspects that are attractive to both bidders, he said. One is that Casey's was an early adopter of in-store food sales and has perfected hot-food sales, which is something 7-Eleven has recently begun pushing in its stores. Fresh food and hot food items are more attractive to store owners because they have higher profit margins, Brownlow said. Another aspect is that Casey's has its own warehouse and self-distribution of food and other products, which boosts profits by cutting down on middleman costs. The 7-Eleven chain has begun introducing self-distribution to some of its California stores and could probably learn from Casey's successful operation, Brownlow said.
Couche-Tard, he added, has no self-distribution and could also benefit from Casey's transportation and logistics expertise.
Either buyer would be likely to continue the Casey's name, Brownlow speculated, because the brand is so well known and respected in its territory. In the past, 7-Eleven has typically converted everything it buys to its brand, he said. "But they've never purchased such a strong brand as Casey's," he told the newspaper. "I don't think it would be a smart strategic move to rebrand all of the Casey's stores 7-Eleven."
There is one area, though, where Casey's and 7-Eleven have different philosophies: franchising. After selling shares to the public in 1983, Casey's moved to a strategy of company-owned stores and gradually bought out all but one of its franchisees. Today, 1,400 of its 1,531 stores are company- owned, according to the report
7-Eleven went the other way, the report said. Most of its stores were originally company-owned, but the business has been aggressively selling stores to franchisees in recent years. About 75% of the company's U.S. stores are now owned by franchisees, and the goal is to franchise all stores.
Casey's business model is an opportunity for 7-Eleven to accelerate growth, Brownlow said. If 7-Eleven bought Casey's, it could sell company-owned stores to franchisees in a move that would bring in money for growth elsewhere, he said.
Brownlow said one reason Casey's is talking with 7-Eleven when it would not negotiate with Couche-Tard is that 7-Eleven's offer, in addition to being higher, was "more open-ended."
The bids from Couche-Tard had more contingencies, he told the paper. Also, Couche-Tard put up its own slate of directors in opposition to Casey's directors, ensuring an adversarial relationship between the two chains.
Between 7-Eleven's push for self-distribution in California and its efforts to increase in-store food sales, "the initiatives they are taking are very much in line with what Casey's is doing," Brownlow told the Register.
7-Eleven has a track record of rebranding acquisitions to the 7-Eleven brand, the White Hen stores in Chicago and New England being recent examples.
"Changing Casey's to 7-Eleven would not help increase business. Casey's has a really loyal following in the Midwest and it would probably reduce sales, not increase them, which is why I'm scratching my head," Karen Short, an analyst with BMO Capital Markets, New York, told The Financial Post.
Although Couche-Tard also rebrands most of its acquisitions to its U.S. Circle K brand, "Couche-Tard has said all along they want to keep Casey's as it is," Bill Kavaler, an analyst at New York City-based Oscar Gruss & Son Inc., told The Japan Times. "If 7-Eleven wants Casey's to change its stores to 7-Elevens, I don't understand why you'd do this. To radically alter the brand is paying for something you effectively throw away."
7-Eleven is part of an international chain of c-stores owned by Seven & I Holdings of Japan. It had about 38,000 stores around the world, including some 450 in Canada, at the beginning of this year, according to the Canadian Press. The North American unit had sales of $16.7 billion last year and had about 6,000 owned, operated and franchised stores in the United Stateswith about 4,700 of those as franchisees.
Acquiring Casey's would build on Tokyo-based Seven & I's network of c-stores in North America as it seeks to expand outside the shrinking Japanese market.
Casey's has 1,531 stores as of June 30, 2010. The Ankeny, Iowa-based company and its wholly owned subsidiaries operate c-stores under the name Casey's General Store, HandiMart and Just Diesel in nine Midwestern states, primarily Iowa, Missouri and Illinois. The stores carry a broad selection of food (including freshly prepared foods such as pizza, donuts and sandwiches), beverages, tobacco products, health and beauty aids, automotive products and other nonfood items. In addition, all of its stores offer gasoline.
Click herefor a closer look at The Des Moines Register's map of Casey's, 7-Eleven's and Couche-Tard's U.S. geographic distribution.Laval, Quebec-based Couche-Tard operates a network of 5,878 c-stores, 4,141 of which include motor fuels dispensinglocated in 11 large geographic markets, including eight in the United States (operating primarily under the Circle K name) covering 43 states and the District of Columbia, and three in Canada (operating primarily under the Mac's and Couche-Tard names) covering all 10 provinces.
7-Eleven is a private company, a unit of Seven-Eleven Japan Co., which in turn is owned by Seven & I Holdings Co., Tokyo. Seven & I acquired a controlling share in the company in 1991 and acquired the remaining 27.3% stake in 2005 for $1.18 billion. The North America division of the business is headquartered in Dallas. The company operates, franchises or licenses approximately 8,200 stores in North America. Globally, 7-Eleven operates, franchises or licenses more than 38,000 stores in 16 countries. During 2009, 7-Eleven stores worldwide generated total sales of more than $58.9 billion.
(Andclick here for previous CSP Daily News coverage of Casey's and Couche-Tard.)
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