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2 Models for Smart Growth

Whether through acquisitions or new builds, c-store retailers offer tips for successful expansion

LAS VEGAS -- Whether a convenience-store retailer’s growth involves mergers and acquisitions or an organic path, there are rules that govern its success in either model. Two retailers with very different growth strategies shared this key learning at an education session on expanding wisely at the 2018 NACS Show in Las Vegas.

Yesway typifies the modern M&A model. Its first acquisition was in December 2015. Since then, the West Des Moines, Iowa-based chain has grown to nearly 150 stores in several states, including Iowa, South Dakota, Nebraska, Missouri, Kansas, Texas and Oklahoma.

Driving that growth has been the financial resources of its parent company, Brookwood Financial Partners, Beverly, Mass. “If any of you are expanding your current footprint, look at partnering with a private-equity firm,” said Kolby Jones, regional director of acquisitions for Yesway. This type of partnership brings infrastructure and a source of money to a retailer looking to grow.

Yesway has been fairly disciplined in its acquisitions, targeting a 4 to 6 multiple on EBITDA, and buying sites mainly in rural and suburban markets. Jones acknowledged that this is challenging. For one, many sellers are not realistic about the multiples their stores could receive.

“There are two sellers we work with: the first doesn’t know what EBITDA is, and another wants really high multiples,” said Jones. His team conducts a lot of “seller education” to explain to sellers on the more realistic valuation for their sites.

Yesway could have bought more than 300 stores by this time if it did not stick to this 4- to- 6-multiple range, he said, but it would have been tough to stick to its value-added growth platform.

“The core of the company is a real estate company, so we’re looking at where we add value with the real-estate component,” he said. This includes upgrading signage outside the store, improving the merchandising and bringing Yesway’s economies of scale. “As we improve inside sales margins, knowing that we will be that size, being able to buy better, that’s a value add for us,” said Jones.

Yesway also invests in its stores, spending an average of $250,000 per store in capital expenditures. Much of that expense comes from adding new tech such as back-office and point-of-sale systems. It also develops the in-store offer; more recently, this has included adding private-label bottled water and soon salty snacks.

That said, Yesway is considering developing prototypes for a ground-up approach, “but for now, we’re sticking with M&A.”

Organic Growth

Tulsa, Okla.-based QuikTrip has a purely organic approach to growth, said Josh Tuck, corporate purchasing supervisor for the chain of nearly 800 stores. This is even as it enters new markets. That said, the chain has learned through trial and error what works and what doesn’t in establishing new markets through new builds.

For example, QuikTrip transfers 20 to 30 store teams to a new market to help establish its strong employee-centered culture. But the timing must be right. When QuikTrip moved into the Carolinas, it moved its people before all of the stores were completed. Now it aims to bring the store teams in closer to completion.

Also with this ground-up approach, QuikTrip has had to learn the right mix of contractors to build the stores. In the Carolinas, many of the contractors it hired weren’t familiar with the chain and its culture. “Now we use a mix of experienced and nonexperienced general contractors,” said Tuck. This includes in a couple of its more recent markets in San Antonio and Austin, Texas.

Also critical to the success of a ground-up approach to growth when entering new markets is to know the market and competition, Tuck said. For example, in Arizona, QuikTrip has to deal with different vapor recovery regulations for its fueling infrastructure. Dallas has wet and dry counties, which complicate the alcohol beverage assortment for a chain that likes to have the same exact offer in every store.

And sometimes there are regional tastes a retailer must adopt in its food offer. In the Carolinas, QuikTrip learned that coleslaw is a popular topping on almost everything from hot dogs to burgers. In Austin and San Antonio, locals were unfamiliar with QuikTrip’s breakfast burrito—and so the retailer had to swap it out with breakfast tacos.

Josh Tuck (left) of QuikTrip; Kolby Jones of Yesway; and Scott Minton of OnCue Express. Photograph by CSP Staff

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