CINCINNATI — A 1,700-store startup: That’s how EG America executives might describe the U.S. arm of EG Group, based in Blackburn, U.K.
Two years ago, EG Group came out of nowhere to snap up Cincinnati-based Kroger’s 762 c-stores for $2.15 billion and founded EG America. It followed that dramatic debut with a series of acquisitions that skyrocketed the chain to No. 8 in CSP’s2019 Top 202 list of U.S. c-store chains. It was a U.S. debut unheard of since Canada’s Alimentation Couche-Tard scooped up the struggling Circle K chain of 1,663 stores in 2003.
Through a series of rapid acquisitions, EG Group built a platform of about 1,700 U.S. c-stores seemingly overnight. After Kroger’s c-store network, the retailer picked up the Minit Mart chain of 226 stores from TravelCenters of America, Westlake, Ohio; 70 sites from Certified Oil, Columbus, Ohio; and 54 stores from Fastrac, Syracuse, N.Y. And in July, EG Group made its second-biggest acquisition: the 562 locations of Cumberland Farms, Westborough, Mass.
Now, EG Group hopes to expand by acquisition and organically, planning to build up to 50 new-to-industry (NTI) sites per year.
“I work internationally, and I’m comfortable telling you, [the United States is] a big freaking country,” says Dave Marcotte, senior vice president of insights for Kantar, a Boston-based retail consultancy following EG Group. “The top 80% of convenience-store sales are in 300 companies … so there’s enormous space to grow.”
And that growth for EG Group comes with speed. EG America President Jay Erickson grew up in retail, having stocked shelves at his parents’ Loaf ‘N Jug c-store when he was in high school. (Loaf ‘N Jug was acquired as part of Kroger’s c-store network.) He is in awe of the fast-paced platform he now leads.
“What’s surprising is the speed with which we do things,” says Erickson, who worked in IT, foodservice, merchandising and management positions in Kroger’s c-store group. “Today, we’re very flat.”
That nimbleness may prove imperative as EG America seeks to prove that British retail expertise can translate to U.S. markets, despite the recent failure of Tesco’s Fresh & Easy grocery chain.
“We might make mistakes,” Erickson says, “but we’ll move quickly [to improve].”
My goal is to expand the business and have 5,000 sites in the U.S. in three years.
This determination was evident when CSP met exclusively with EG America’s top management team—many who have backgrounds at Kroger corporate or stores—as they put the final touches on the first rebranded EG America sites. Even the retailer’s Cincinnati headquarters highlighted EG America’s newness, with job applicants waiting next to a half-dozen office workers temporarily housed at shared computer desks. Like EG America’s growing convenience empire, its office space had yet to be built out.
Erickson speaks with a “pardon the construction” enthusiasm for EG’s potential in the United States. During the Kroger bidding process, he says, “They said they would give opportunities [that employees here] could never have dreamed of.”
For brothers Mohsin and Zuber Issa, who founded Euro Garages (EG) Group more than 18 years ago, the growth trajectory of their company is also tough to comprehend. “If you asked Mohsin and Zuber, they never in their wildest dreams would have imagined 5,500 gas stations in nine markets,” says Ilyas Munshi, group commercial director of EG Group in Blackburn. “If they had only 20 sites, they would have felt they had done their job, but like any entrepreneur, when you have a light bulb moment, a success with something that’s working, you start to think differently. You want to replicate that model and grow to however big you can make it.”
Pinpointing EG Group
Starting with the Kroger acquisition of five separate banners—Kwik Stop, Loaf ‘N Jug, Quik Stop, Tom Thumb and Turkey Hill—spread across multiple states, EG Group grew its U.S. platform to include Minit Mart, Certified Oil and Fastrac.
Source: EG Group
Reinvesting in Stores
The biggest competitive energy EG Group brings is reinvestment. Within a year, all Minit Mart stores will receive an EG America rebranding makeover that includes new foodservice equipment, display monitors, a reconfigured layout and a graphic redesign balancing white space, teak-style composite-wood finishes and 3-foot steel letters designating key categories.
Depending on future acquisitions, a remodel may also include remerchandising, a store-within-a-store vape shop and a branded fast-food franchise, including Burger King, Popeye’s and Subway.
EG Group intends to spend about $300,000 per store, not including a fast-food buildout, to upgrade the former Minit Mart sites, which average about 2,000 square feet, says Robin Lawrence, vice president of acquisitions and development for EG Group. That number aligns with figures from NACS, which put the average cost per remodel at $480,574 in 2018.
The key word is “reinvestment.” “Historically, when people buy, they try to run the store as is and not invest in the location,” Munshi says. “From day one, we start to put in our blueprint.”
While EG executives look for all opportunities, whether single sites or portfolios of assets, the ability to improve a location is a primary driver. Munshi says the desired blueprint has fuel, in-store categories and food to go each providing a third of the location’s business, or a specific combination of sales and profit.
EG Group’s reinvestment in stores and the new blueprints create an attractive model for its shareholders and lenders, Munshi says.
“The value of asset increases, so we safeguard the investment,” he says.
Updated food-and-beverage stations boost the customer experience.
The M&A Engine
The Issas’ first major lender was their father, Vali Issa, who operated his own old-school petrol station.
Through their teenage years, Mohsin and Zuber would help their father run that station, but they were disinterested in the humble kiosk. Upon graduating, the brothers helped in another family business, making plastic linings for envelopes and packaging.
Next, the Issas ran five shopping mall kiosks that sold confectionary items. That business inspired the brothers to take another look at convenience, and they bought their first petrol station outside of Manchester, England, with the help of their father.
After getting a taste for retail, the brothers expanded the convenience offering in the forecourt shop. Without the wholesaler infrastructure that exists today to guide them, Zuber visited local merchants, gathered ideas and stocked that first store. The rest is history, Munshi says.
The brothers named their company Euro Garages. Over the next 10 years, they benefited from major oil’s divestment of retail assets in the U.K. In the beginning, with the help of local investors, they made small purchases of one or two sites. Eventually, the majors offered larger portfolios. By then, the brothers were up to about 70 stores, with enough reach for bigger opportunities.
Some of their acquisitions had fast-food franchises. Their big break came with Starbucks: The Seattle-based chain was focused on walk-up stores in the U.K., but the brothers secured a contract for what would eventually become 50 drive-thru Starbucks located mostly at their fueling locations.
“The story is that Zuber didn’t even read the final contract, he was so excited,” says Cindy Rantanen, vice president of brand partnerships for EG America. “He just signed it and sent it in.”
The Issas would eventually become the largest Starbucks franchisee in the U.K. “That was a big milestone for us,” Lawrence says. Then in 2016, Euro Garages, with the backing of private equity investment firm TDR Capital, London, merged with European Forecourt Retail Group (EFR), Breda, Netherlands. EFR had sites in the Benelux region (Belgium, the Netherlands and Luxembourg) and France. The merger created EG Group, with more than 1,450 sites in the U.K., France and Benelux. Soon after, it expanded into Italy and Germany. In 2018, the company picked up about 550 stores in Australia from Woolworths Group.
We’ve gone back to empowering the store managers , asking them to be true entrepreneurs of the business.
During this time, multiples in Europe had reached “exorbitant” levels, especially as more players entered the market, Munshi says. This made the U.S. seem like a bargain.
“The U.K. was mature,” Munshi says. “And while the U.S. multiples are not as attractive as they once were, they are a lot more economical than buying in the U.K.”
“Given their direction of late and the overall ease of property transference, I would assume the U.S. is considerably cheaper vs. the U.K.,” says Marcotte of Kantar. “There are also considerably more assets in play along with commercial real estate to be realized in the U.S.”
Owning land in the United States is definitely a perk, says Dennis Ruben, executive managing director of NRC Realty & Capital Advisors, Chicago. “Foreign investors often find owning property here desirable, and [EG] has become known for seeking high-value assets,” he says.
EG Group’s new international tool set has allowed it to consider markets across continents where multiples aren’t as high, Munshi says. This also shields its larger portfolio from economic downturns in any one economy—for example, in the U.K., which is navigating its economic exit from the European Union.
“Whatever the impact of Brexit, we’re not too worried,” Munshi says. “Because our network is sitting in other markets, we’re geographically a lot more resilient.”
Whether EG Group purchases a portfolio or single sites, the company intends to grow in the U.S. wherever opportunities present themselves, with some of the drivers including strong properties, market density and even “protecting” current networks.
And it goes beyond M&A. EG America will build six to 10 NTI locations this year, about 25 to 30 next year and 50 to 100 per year after that.
“My role is to expand the business and have 5,000 sites in the U.S. in three years,” Lawrence says. “The U.S. is a key area for EG Group and we will be investing significant capital in this market as it presents a tremendous opportunity for the group to expand further.”
Touches such as checkout positioning and a stand-alone vape shop (left of cashier) translated from across the pond.
Crossing the Atlantic
That global mentality will undoubtedly fuel EG Group’s expansion in the United States, Erickson says. The U.S. management team, which includes executives with experience at Kroger corporate and c-stores, will work directly with the Issa brothers to grow the company’s U.S. platform. Its foundation is built on a cultural and community focus from the U.K., now tempered by American entrepreneurialism.
Before, each of the five different chains that made up the Kroger c-store platform had its own president. Under EG America, that structure has moved to a shared-services model, with two regional vice presidents overseeing the West and East regions.
Another American characteristic is EG America’s penchant for franchises. Whether it’s with the Spar c-store brand in Europe or Starbucks, Burger King or KFC from the United States, EG Group has a successful history of benefiting from the marketing, branding and technological benefits that such relationships bring.
“And with NTI and larger stores, we’ll have two brand partners, with a drive-thru and a secondary grab-and-go option,” Rantanen says. “We’ll be working with multiple brands from pizza to value offers to high-end to everyday.”
With the EG America locations, in-store category merchandising decisions will more align with information from vendor partners such as Temple, Texas-based McLane Co.
“That’s a big strategy change for us,” says Holly Veale, director of merchandising and marketing for EG America and who used to work for McLane. “Suppliers bring expertise and data to the table.”
Also new to the chain’s mindset is holding individual stores accountable, plus providing the data and entrepreneurial tools to give individual managers and clerks more control over their location’s profitability.
“We’ve gone back to empowering the store managers, asking them to be true entrepreneurs of the business,” Erickson says.
Many of EG’s U.K. concepts are making their way across the Atlantic. The blueprint of thirds is one of these. Others are more cosmetic, including the clean, sleek design of upgraded stores, and merchandising and layout strategies such as placing the entry door several yards from the cashier. That way, a line of confection and other impulse items can line the shelves along that pathway.
Bean-to-cup technology offers customers a fresh brew.
Will It Work?
Some industry observers question the potential of EG Group’s current trajectory.
“I am very skeptical about EG, because I don’t know what they bring to the table to justify the high prices they have paid and continue to pay to buy so heavily into the U.S. market,” says Gerald Lewis, a British expatriate and a longtime c-store consultant based in New York. “A lot of companies have come here by thinking that their success in their home markets was based on some magic bullet that no one had thought of in the U.S.—and that it would propel them past the competition here.”
One of the more notable examples was U.K. supermarket giant Tesco and its failed attempt at U.S. domination with its Fresh & Easy stores. Marcotte of Kantar says he would put German supermarket group Lidl in the same grouping.
“They came in and told everybody they’re going to own the market … and boy, that didn’t work very well,” he says.
A more accurate comparison to EG Group would be the German supermarket chain Aldi, Marcotte says. It entered the U.S. “saying, ‘OK, this is going to take time,’ and it has,” he says. “It took Aldi 20 years to get to the [successful] point where they are now.”
Munshi says EG Group isn’t naive to think, for instance, that every foodservice concept will work in any given market. He says it’s a trial-and-error process that EG Group must learn from quickly. It is also keen on execution, assigning specific managers to each fast-food brand and not commingling staff at the store level.
That operational focus extends across the franchised brands EG Group works with and into its entire business.
“These brands have trusted us to deliver a consumer experience,” Munshi says. “The brand is a promise of consistency and the customer having the right experience—that’s what we’ve got to deliver.”
EG Group's Core Strategies
EG Group’s main strategies for the U.S. market:
- Remodeling and rebranding dozens of stores annually.
- Building 25 to 50 new-to-industry locations a year.
- Replicating a blueprint in which food, fuel and merchandise are equal contributors. Executing foodservice with brand-name franchises, but with an operational focus.
- Combining a European aesthetic of clean design, tactical layout and new ideas, such as in-store vape rooms, with American lessons of vendor reliance, a lean infrastructure and an entrepreneurial spirit.
EG Does It Again
In another surprise move, EG Group entered into a deal in late July to acquire the 562-unit Cumberland Farms c-store chain, based in Westborough, Mass., with locations in eight states.
In April, Cumberland Farms CEO Ari Haseotes told employees at a town hall that the company had retained Bank of America to look into selling the chain, as first reported by Oil Price Information Service (OPIS). OPIS had pegged EG Group and Marathon Petroleum as the top two possible buyers.
While terms of the transaction were not disclosed, OPIS predicted that Cumberland Farms would fetch a price in the billions of dollars.
“Over nearly eight decades, the Haseotes family has built Cumberland Farms into an outstanding portfolio of large, modern facilities run by a team of associates who are connected to the communities they serve,” said Zuber Issa, founder and co-CEO of EG Group. “It is rare that an asset of this quality becomes available, and we are delighted to have been successful in a highly competitive process.”
The purchase of Cumberland Farms will bring EG Group’s network to a total of nearly 1,700 stores across the United States, operating in 30 states and retailing more than 2.5 billion gallons of fuel with merchandise sales of more than $3 billion on an annualized basis.
EG Group will retain the Cumberland Farms brand on all acquired stores and is considering the addition of Cumberland Farms products into its own portfolio.
“The acquisition of Cumberland Farms is a transformative one for our U.S. business,” said Mohsin Issa, founder and co-CEO of EG Group. “It brings us greater scale and a well-established network in locations we do not currently serve that is highly complementary to our existing U.S. store footprint. We believe that the Cumberland Farms portfolio comprises some of the very best convenience stores within the [United States].”