Company News

Couche-Tard's 'Big Challenge'

Need to demonstrate growth driving retailer's recent reorganization

LAVAL, Quebec -- Holes to plug in California. Smoothing out operations in Florida. Growing its market share. These are likely some of the objectives Alimentation Couche-Tard has outlined as it prepares to reorganize its marketing structure in the United States, as reported exclusively by CSP Daily News this week.

"Clearly their motive is growth," a supplier source who has worked with the company told CSP Daily News. "They need to show [shareholders] that revenue is increasing. So if you factor in increased taxes on cigarettes and variables with respect to fuel pricing, at the end of the [image-nocss] day, you demonstrate value by continued, aggressive growth."

The supplier source, who requested anonymity because of his relationship with the company, said the reorganization is a way to position its "best and brightest" people in areas poised for expansion. And with hundreds of oil-company properties from the likes of BP, Conoco and Shell going up for grabs, Couche-Tard seems to be preparing for major moves, he said.

Similarly, an industry analyst said the company "should have done this earlier. It's a positive step," the analyst told CSP Daily News on the condition of anonymity. "They like to run decentralized operations, and they figure they'll be able to do more. But I think they should have done this at an earlier stage [in the company's growth]."

In a press release issued yesterday, Réal Plourde, executive vice president and COO of Couche-Tard, stated, "This realignment was necessary due to acquisitions that occurred over the past few years, and in order for our business units to position themselves for growth opportunities and to maintain the integrity of our business model which calls for each of the divisions to remain close to their stores, their customers and provide opportunities for our people."

With a goal of positioning itself for future growth in the United States, Couche-Tard announced its plans internally this month to reorganize its U.S. business units effective May 1. The reorganization will split the six divisions currently in the United States into eight divisions.

Florida will be split from the Florida/Gulf Division, taking a small portion of the Southeast Division with it. Jason Broussard, currently marketing director in the Florida/Gulf Division, will become the vice president of operation for the Gulf Region.

Also, a Southwest Division will be carved out of the West Coast, Arizona and Gulf divisions. Lou Valdez, currently working in the Arizona Division, will head up the new Southwest Division.

The Midwest, Great Lakes and three Canadian divisions will not be affected by the reorganization, according to Couche-Tard documents.

So why make the change now in the regions that were chosen?

"The conditions are pretty tough, especially in the Florida market," said one source. "Also, their objective is to get to 500 stores in California, and they're not there. So if there's any place to plug a hole, it's in California. I think that's a priority."

Ultimately, it's meeting shareholders' expectations that will drive the public company's goals, said the analyst.

"The big challenge for them to grow is: They're at over 5,000 stores, and the market would like to see them grow 10% if not more," he said. "That's adding 500 stores, and it's not easy to find 500 stores [to add]."

After three years of strong store-count growth in the United States, Couche-Tard has been uncharacteristically quiet in its 2008 fiscal year, purchasing fewer than 50 stores in the first nine months of the year.

The analyst said that's due more as a response to the real estate market than to a change of strategy for Couche-Tard.

"You've got to give these guys credit. These guys are very patient," he said. "They're willing to wait till the right time comes to pull the trigger, and they've always thrived during rough [economic] times. If the economy slows down, the multiples will come down, and I think that's [when Couche-Tard will make a deal]."

In November, Couche-Tard president and CEO Alain Bouchard said he was confident the company would achieve the 200-300 store acquisitions it predicted for fiscal 2008. Bouchard said the company had reviewed several acquisition opportunities in the United States in the first half of the fiscal year, but most were asking "unacceptable prices or multiples." "We are growth-driven but not at any price," he said. "I feel some of our shareholders are getting impatient, but I think they will appreciate our discipline."

Couche-Tard's stock stood at $16.49 a share yesterday after hitting an all-time high of more than $28 per share in mid-2006.

Laval, Quebec-based Alimentation Couche-Tard Inc. is the leader in the Canadian convenience-store industry. In North America, Couche-Tard is the second-largest independent convenience-store operator in terms of number of stores. Couche-Tard operates a network of 5,637 convenience stores, 3,434 of which include motor-fuel dispensing, in the United and Canada.

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