Euro Garages has grown very rapidly. In the U.K., they are not convenience-store operators in the traditional sense, because they master franchise groups of existing branded fast-food and related operations in food court-type facilities on motorways, rather than developing and operating their own programs.
Where has the money come from for this deal? It is difficult to understand how such a relatively new company could have sufficient financial strength to make both the German Esso acquisition and the Kroger one, regardless of their great success.
The reason for the acquisition could be as simple as the desire to take advantage of the once-in-a-lifetime opportunity instantly to become a major player in the U.S. market. This could also be buttressed by the thinking that has been the downfall of several U.K. and European companies that, having been successful in Europe and the U.K., they have some formula that no U.S. companies have thought of that will beat the competition here.
Retailers from the other side of the pond have not had great success with their U.S. entries. But starting with the profitable, stable and strong base of the Kroger store groups will be a great advantage for them, as compared to companies like Tesco [Fresh & Easy] and Lidl that started from scratch. So, if they are content to take their time and learn before they leap, they might be successful. On the other hand, bearing in mind the high price they have paid, this probably won’t generate quickly enough the required return on their investment. So, if this causes them to make quick changes before they understand the competitiveness, complexity and sophistication of the American market (or the fact that it is really 50 separate state markets), they will pay the price.
If they think their “secret sauce” is to introduce the type of roadside food-court facilities that they operate in the U.K., they will find out that what they did in the U.K. was reinvent the rest stops that already exist along major U.S. toll roads—facilities containing a number of convenience-type shops and branded foodservice counters—and that there is no need for these in the areas that are served by the Kroger store groups. Because of the density of population in the U.K. (60 million people in an area less than one-fifth the size of Texas) there is a need for far more of these in any given area of the U.K. than in the United States, where there is no similar need for this level of density. There is also no shortage of convenience stores, many with strong foodservice offerings (including branded ones) in the markets covered by the Kroger c-store companies or in any area of the United States.
So the bottom line is that EG may be in for some surprises.
—Gerald Lewis, consultant, New York