ANKENY, Iowa -- Thanks to the rapid pace at which it was able to get its new distribution center operational and serving its retail network, Casey’s General Stores Inc. has announced definite plans to move into at least one new state, with the promise of more.
The new facility, which opened in Terre Haute, Ind., in February, is functioning “well ahead of schedule,” Casey's CFO Bill Walljasper said during the company’s latest earnings call.
- Click here for more details on Casey's fiscal fourth-quarter and full-year 2016 earnings.
“Our plan was to convert about 600 stores to that distribution center in the first 12 months of operation; we did that 600 stores in roughly four to six weeks,” he said. “We’ve had no hiccups, and things are running very smoothly.”
That performance has created the opportunity for expansion into new markets. “With our new distribution center in Terre Haute, we can efficiently build or acquire in a considerably larger geographical footprint,” president and CEO Terry Handley said in the company's earnings announcement.
“Our growth plans are centered around moving east and south to leverage that distribution center," Walljasper said on the call. "We’ll have stores open in Ohio this fiscal year and continue to fill in and move in that direction.”
The sites that the company is in the process of selecting now are in western Ohio, Walljasper said. “We noticed that it was a very similar demographic to some of our more seasoned states like Iowa, Missouri and Illinois," he said. "A lot of small communities. So we think we have a tremendous opportunity there.”
Casey's also is looking into expanding into Michigan, Walljasper said. It doesn’t have any sites under contract in Michigan yet, “but we continue to look there. That will be a state that we will penetrate in the relatively near future.”
He also said the company “will continue to penetrate Kentucky, Tennessee, Arkansas and Oklahoma.”
Brand recognition is also a challenge for Casey’s, especially for prepared foods, said Walljasper, “because we’re not as well known in some of those newer markets.” This will include the chain’s Pizza to Pump promotion, in which it offers cents off per gallon for buying a large pizza. That has been successful in newer states such as Arkansas, Tennessee, Kentucky and Indiana, he said.
Along with expansion into new states, Casey’s is introducing a new store design this year.
The chain now uses two store designs. One is about 4,200 square feet for larger, higher-traffic markets with a cost of about $3 million; the other is about 3,600 square feet for smaller, low-traffic markets for about $2.5 million.
The new store design is less than 3,600 square feet in size, with a cost of $2 million to $2.5 million. It will offer the same amenities but is intended for markets between the other two in size and traffic.
“Those smaller communities are where we’re still continuing to focus, especially as we head into these new states,” said Walljasper.
He also addressed the current mergers and acquisition (M&A) climate.
“Today, the environment continues to be the same as it was in most of fiscal 2016," Walljasper said. "We did see seller expectations be quite high. Many of the acquisitions that were announced had some pretty high multiples associated with them, albeit there might be smaller ones in our market area that are still cognizant of those multiples. That made it a little more challenging. … One of the things that we’re not going to do is just growth for growth’s sake and run out and buy 100, 200 stores; anybody can do that if they have enough money. But it may not be the right thing for the shareholder base.”
On how the possible sale of San Antonio-based CST Brands Inc. might affect the M&A environment, Walljasper said, “If the CST transaction goes for a double-digit multiple, that will probably give a signal that it might continue to be a higher-multiple environment.”
Competitively, for Casey’s, he said that because the CST stores are mostly in Texas, they are “not in our marketplace, and not the direction that we’re heading. You will continue to see consolidation on some level. Most of the consolidation is of the larger size are not happening in our market areas. That’s probably a function of our marketplace—two-thirds of the operators of c-stores in our market [have] 10 stores or less.
"That’s not to say we wouldn’t be looking at larger acquisitions if the right one came up and it makes sense for the company’s shareholders," he continued. "We certainly have the financial wherewithal to do it.”
Casey's, based in Ankeny, Iowa, operates approximately 1,930 convenience stores in 14 states in the Midwest.