Property security, weak dollar, c-store successes lure investors from abroad
OAK BROOK, Ill. -- If you were to ask any of the investors getting into the convenience-store channel today what their prime motivation was, certainly a good return on investment would be among the reasons, but surprisingly, in many cases, not tops on the list.
"It's very appealing to an Israeli company to have exposure to a different market," Oren Zahavi, vice chairman for EZ Energy, Ramat Gan, Israel, told CSP Daily News. EZ Energy has purchased 24 c-store sites in the United States and has contracts for 14 more. "There are a lot of opportunities [image-nocss] in the U.S. market. It's diversified and has a lot of acquisition options here, where Israel is limited." Read more about EZ Energy's latest push into the United States elsewhere in this issue of CSP Daily News.
"The Israelis are looking for the most stable place [economically and politically] to put their money and they see the market here as a place they can expand in," said industry veteran and CSP columnist Gerald Lewis. "They see it as a way to use their expertise to get a piece of a good market."
CSP editors took a hard look into industry consolidation and the new investment dollars coming into the channel from foreign and domestic sources. Look for the November issue of CSP magazine for the findings.
Israel has about 6 million people compared to 300 million in the United States, Lewis said. "They've made money through their operations in Israel and feel naturally attracted to a market so large and with such an opportunity."
In recent years, Israeli companies such as Tel Aviv-based Alon; Netanya-based Delek and Mechanicsville, Va.-based GPM Investments (with its parent company based in Tel Aviv) have made multi-million dollar investments in the United States.
But investment from outside U.S. borders is global, with significant players coming from Canada, Japan, Russia, the United Kingdom and Venezuela.
"It's an international opportunity, with the dollar showing incredible weakness these days," Lewis said. "[One British] pound is worth $2, but look at an item that sells for 99 cents here, and it's 99 [British equivalent of U.S. pennies] in England."
A low cost of entry and a straightforward, generally profitable channel make for an appetizing prospect. Peter Zeihan, director of global analysis, Stratfor.com, Austin, Texas, said investors can borrow at such a cheap interest rate that putting capital into a politically stable, economically robust country is an easy choice.
Despite near-term gloom brought on by a fragile U.S. housing market, Zeihan believes the economy and especially the c-store channel will demonstrate resilience. "We're definitely expecting an [economic] slow down," he said, "but with retail gasoline, it'll be different. Americans have more disposable income than any other culture and they've shown that $3-a-gallon gasoline does not hinder demand."
And what does Zeihan think of how foreign investment will affect national security? "The trick is to differentiate a national security issue from a national fear," he said. "Now, with refineries and deep-water resources, there may be an issue that the U.S. should contend with. But c-stores? That's like assuming Russia can take over the world by owning our convenience stores."
As for future growth, David Wiessman, chairman of the board at Alon USA, Dallas, said market opportunities and conditions will be the factors that pull his company to their next major investment. "As long as the future [merger and acquisition] targets will meet our criteria," he said, "we will pull the trigger on U.S., European and other deals."