CHICAGO -- Convenience retail has experienced Wall Street mayhem before. Just toss a mental dart back to Carl Icahn’s corporate-raiding heyday to recall T. Boone Pickens, whose hostile moves on Gulf Oil, Phillips Petroleum and Unocal in the 1980s made investment types billions of dollars in the ensuing run-ups. Subsequently, 7-Eleven and Circle K had their publicly traded peaks and troughs—and, yes, bankruptcies.
Bearing witness to the M&A drama of Speedway, Casey’s, Sunoco and others, the industry knows that successfully selling Snickers bars and cups of coffee is not always about selling more Snickers and coffee.
Therein lies the tension. In a 2017 report, Mike Konczal and Kathryn Milani of the New York-based Roosevelt Institute called the trend “short-termism.” Thirty years in the making, it’s a corporate philosophy “that prioritizes immediate increase in share price and payouts at the expense of long-term business investment and growth.”
For c-stores, it’s when the desire to build a better mousetrap smacks up against five or six lackluster quarters. Listen first to Brian Ferguson, chief merchant for Knoxville, Tenn.-based Pilot Flying J, describe what the infusion of Berkshire Hathaway’s private-equity capital will do:
“We’re focused on providing the best guest experience and hospitality, with parking, diesel and gasoline, showers, lighting, coolers—the retail experience—and create that ‘wow’ factor, that this is a tremendous place to fuel, eat and shop.”
Now guess who said this: “The one prevailing request [customers gave] was that they be greeted and treated like family. Once they’re in, they come back. … Fuel is a customer driver, but we want our stores to be the long-term customer driver.”
That was Kim Lubel, former president, chairman and CEO of CST Brands, San Antonio, before so-called activist shareholders forced her out and before the chain’s sale to Laval, Quebec-based Alimentation Couche-Tard in 2017.
“In the early days, [my banker] said to me, ‘Alain, you’re too aggressive, you’re growing too fast.’ I changed bankers.”
Of course, Lubel faced an incredibly steep climb. Even though she held the tax advantage of a master limited partnership, she had to revitalize a network of largely legacy, smaller-format locations on a publicly traded stopwatch. The odds weren’t in her favor.
And no one’s saying that customer-centric innovation won’t carry on with Couche-Tard, owner of the Circle K chain (pictured), or that Pilot Flying J won’t maintain its “wow” factor under Berkshire Hathaway. M&A, especially in a highly fragmented industry, has its rewards.
Take the Marathon-Andeavor potential as a case in point. “It’s a huge, accretive transaction that has no real overlap and now gets them coast-to-coast coverage,” says Ken Shriber, managing director and CEO of Petroleum Equity Group, Chappaqua, N.Y. “It’s one plus one equals three—definitely a case where the whole is greater than the sum of its parts.”
The most successful business plays add value—even growth for growth’s sake. Ask Alain Bouchard, founder and chairman of the board of Couche-Tard. When his autobiography came out in 2016, he told CSP: “The worst advice [I received] was from my banker. In the early days, he said to me, ‘Alain, you’re too aggressive, you’re growing too fast.’ I changed bankers.”
But as Bouchard knows too well, publicly traded companies—and to a degree, private equity—carry the burden of impatient shareholders. That’s never been truer than now, when investors are becoming more demanding and returns more aggressive.
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