Couche-Tard to Divest ‘Nonstrategic' Stores

By 
Greg Lindenberg, Editor, CSP

Couche-Tard

LAVAL, Quebec -- Expect to see Alimentation Couche-Tard Inc. sell some less-profitable retail assets in an effort to reduce its debt as the company moves forward with its integration of CST Brands Inc. and the pending acquisition and integration of Holiday Stationstores.

  • Click here for details on the CST acquisition, and click here for details on the Holiday acquisition.

“We are committed to deleveraging, and a piece of that is really evaluating our lower-tier stores, our nonstrategic stores that we don't feel comfortable either putting our new brand on long term or that will be competitive long term,” Brian Hannasch, president and CEO of Alimentation Couche-Tard Inc., said during an earnings call on July 12. “So you'll see some ramped up activity looking at paring the lower-hanging fruit in our network … and the highest and best use of real estate. That's part of the overall plan that we had since we signed CST to make sure that we meet our deleveraging targets.”

He did not offer any clues as to which retail assets meet those descriptions.

He also took sale leasebacks and real-estate investment trusts (REITS) off the table. “In terms of whether we’re looking at sale leasebacks or anything else to finance either CST or Holiday, the answer is no. We think we’ve got much better capital sources than doing a sale leaseback or anything like that, or a REIT for that matter,” said Hannasch.

In reporting Alimentation Couche-Tard Inc.’s record fourth-quarter fiscal 2017 net earnings, he said, “We continue to benefit from our geographic diversification, our excellence in integrating acquisitions and realizing associated synergies and our strong cost-control culture—a pursuit of our ongoing quest for financial efficiency.”

During the call, Hannasch and his team offered updates on some recent deals and how the company is integrating those new stores into its giant global network.

Here is a look at the progress Laval, Quebec-based Couche-Tard is making …

‘Getting it done’

Esso

“Successful integration is based on one key element,” said Hannasch. “Getting it done, getting it done fully.”

Fiscal 2017 included the integration of the 278 Esso-branded Imperial Oil retail locations in Ontario and in Quebec that Couche-Tard acquired in March 2016 for $1.3 billion.

“This was an important achievement for us,” he said. “With this transaction, as well as CST, the Couche-Tard network here in Canada now consists of over 2,200 stores. This affords us the opportunity as we spread the brand or raise brand awareness to high-profile retail sites and allow further expansion of our position in high-density metropolitan areas that have significant growth potential.”

“We are pleased with the integration process to date,” Hannasch said. “The sites are performing very well. Looking back at The Pantry, we reached our 24-month annual cost-reduction target of $85 million and quickly surpassed our merchandised and service supply cost-reduction objective of $27 million, as well as our target for fuel synergies associated with the fuel rebranding of approximate 1,000 stores in the Southeastern region of the U.S. This integration was a real success story and our teams are very proud of it.”

The integration of new stores in Denmark and Ireland is also “well underway,” he said.

Integrating CST

Corner Store Market CST Brands

Regarding CST Brands, Hannasch said, “The Couche-Tard integration team has done a remarkable job both in the preparation and closing phase. And we are now dedicating our efforts to the transition—a key phase in any acquisition process for us. We've very experienced management team and leaders ready to make this happen. Job offers and acceptances have been finalized and work streams in each of the main parts of the business have been clearly identified and staffed to get ready to execute.”

Couche-Tard has appointed Darrell Davis to spearhead the integration of San Antonio-based CST Brands' 1,300 c-stores. “He is the same gentleman that led the integration of The Pantry,” said Hannasch, “so he has got real-life, hands-on experience in integrating large enterprises into the Couche-Tard family.”

After focusing on securing the people at CST Brands and CrossAmerica, the strategy is to “divide the business up in the work stream,” he said. “That is focused on first of all capturing the synergies, documenting and identifying best practices and then overall alignment and integration of the business, whether that be on the accounting side, the finance side, tax side, etc. So it is a very detailed work plan.”

But Couche-Tard has not forgotten the consumer experience.

“Taking what I think are some relatively weak trends that CST had over the last two years—certainly some of that driven by the slowdown in sales in Texas—but we are focused on reversing that by introducing some of the best practices from Circle K, some of our programs that are the foundation of our brands and again trying to reverse the traffic that we've seen there.”

Couche-Tard hopes to make its Simply Great Coffee known to more of its customers. The offering is now available in more than 2,700 stores globally and has been a success in Europe, Hannasch said.

“The next year will be dedicated to increasing customer awareness and trial here in North America,” he said. “We'll continue to invest in other key categories also, such as cold beverage and fresh bakery, which have proven sales results in several markets that they have been integrated and rolled out into.”

In the stores, “the next year we'll be focused on improving top line and then specifically rolling out core Circle K programs like Polar Pop, to optimize their joint private-label programs, and preparing for full rebranding to Circle K,” he said. “In the CST network, the rebranding this year will focus on markets where both brands are present today.”

Holiday meet and greet

Holiday Stationstores

Touching on the 522-store Holiday acquisition, the subject of a separate conference call on July 10, Hannasch said, “These are very unique assets in the very attractive new markets for Couche-Tard. [Previousl owners] the Erickson family has done a great job building this company over the last 90 years. There is truly a deep brand and consumer loyalty in the region.”

He said, “I believe we can learn from each other, share best practices with the strong management team and that there are tremendous synergies between the two organizations. The months to come will be dedicated to valuing the business and planning the integration process which will start upon closing.”

Hannasch and Couche-Tard Senior Vice President of Global Fuels Alex Miller met the Holiday management team and most of the office employees in Bloomington, Minn., earlier this week. “It certainly reaffirmed our belief that there is just a lot of talent and experience in that organization, and we are excited to get to know them,” Hannasch said.

Couche-Tard has combined the CST and Holiday foodservice teams. “They are working to identify best practices in both of the offers, menu and SKU rationalization, what are the best items that we can do in both,” as well as in new-to-industry stores, Hannasch said. They are also working on a scaled-down version for smaller-format stores.

“Holiday certainly provides a very interesting dimension to this that I think accelerates our food journey,” he said, pointing out that has been operating a commissary for close to 15 years. “They had a long time to really refine the offers they have, the products they have, what travels well, what freezes well, what can be reheated, and turn out a high-quality product. So we certainly see an opportunity to leverage not only the commissary itself but the learnings that Holiday has in terms of doing that in a broader sense and certainly outside of core markets where you are delivering fresh every day.”

Rebranding

Circle K

In 2015, Couche-Tard announced that it would consolidate its Circle K, Statoil, Mac's and Kangaroo Express retail brands under one refreshed global banner, creating a new, global convenience brand, Circle K.

Hannasch also offered an update on that rebranding.

“The corporation's global rebranding project is now successfully complete in Scandinavia and was launched in Poland and the three Baltic countries in May,” he said. “To date, the rebranded locations both in Scandinavia and in the Baltic countries have outperformed legacy Statoil brands, taking one major risk of our fiscal year off the table. It has been a tremendous success and the team has brought lot of energy to the rebranding process.”

The company acquired Statoil Fuel & Retail in 2012. It operates a retail network across Scandinavia (Norway, Sweden, Denmark), Poland, the Baltics (Estonia, Latvia, Lithuania) and Russia with approximately 2,300 stores.

“We are more than satisfied with the results especially in Scandinavia where the brand had an over 100-year legacy, and we continue to see sales … exceed our expectations. And we’re very confident we are on track to repeat this in Eastern Europe,” Hannasch said. 

He said that more than 1,300 stores in North America and more than 1,200 stores in Europe now display the new Circle K brand.

“There is no doubt the next year will continue to be dedicated to building our brand globally and to pursue the rollout of numerous sites in North America,” said Hannasch. “We are confident on the positive impact this will have on customer traffic as they become increasingly familiar with Circle K's added value to their shopping experience—to our convenient experience, our products for people on the go and our evolving and improving fuel offer.”