LAVAL, Quebec — Alimentation Couche-Tard Inc. has issued guidance on its efforts to safeguard its employees, customers and suppliers, as well as its assets and financial flexibility, during the COVID-19 pandemic.
"During these troubled times, Couche-Tard is committed to being part of the solution in the communities where we work and live,” said Brian Hannasch, president and CEO of Couche-Tard. “In most areas where we operate, we are considered an essential and critical business. As such, we have worked hard to stay open and serve the needs of our customers and employees. While the effects of this crisis may be felt for some time, our business model is robust and resilient against economic cycles, which will allow us to ride out this storm."
Here is Couche-Tard’s guidance and details on its pandemic strategy and initiatives …
Couche-Tard is taking action to preserve its cash position and financial flexibility, including a pause to share repurchases. On April 19, the company announced the suspension of its process to acquire Caltex Australia Ltd. to focus on managing operations and maintaining its financial strength through the crisis. As of Feb. 2, 2020, Couche-Tard had $1.8 billion in cash and equivalents on its balance sheet and a further $2.5 billion available on its revolving credit facility. The company's cash balance has since improved, in line with the focus placed on maximizing cash flows through the crisis.
"Couche-Tard has always been managed with a disciplined mindset and a readiness to face possible rainy days ahead,” said CFO Claude Tessier. “We have come into this crisis in a strong position from both a financial standpoint, with a solid balance sheet and well spread debt maturities, and from an operational standpoint, with experience in temporary network shutdowns that permitted us to respond quickly to the changing landscape. We have implemented weekly COVID-19 financial reporting focused on daily cash position summaries, working capital, as well as details on retail sales, volumes and margin trends. We are taking all necessary steps to be ready to reinvest in our business and in the economy when the time comes to exit this crisis."
Because of the health crisis, shopping behavior in Europe started to change during the second week of March, as the World Health Organization (WHO) officially declared on March 11 that the coronavirus had reached a state of pandemic, the company said. In North America, the pandemic’s effect on shopping trends was similar, but lagged that of Europe by one week.
Couche-Tard’s retail sites remained open in most of the countries and regions in which it operates, as fuel retailers and c-stores were deemed critical businesses.
From a fuel perspective, volumes declined rapidly during the first few weeks that followed the implementation of restrictive measures across the different regions, but they stabilized during April and began to see a gradual improvement in the latter part of the month. Fuel margins overall have benefitted from the rapid and steep declines in crude pricing.
From a merchandise perspective, sales benefitted from pantry stocking in the early days of the crisis. Starting in mid-March, merchandise sales decreased due to reduced customer traffic, but were mostly stable in their decline week-over-week since then. Overall, a higher average basket helped offset a portion of the lost customer visits.
From a merchandise category standpoint, demand has been greater for alcohol, tobacco products, basic staples, canned and dry goods, and cleaning and sanitation products, the company said. This has helped mitigate the negative effect from lower demand in the prepared food category. Informed by early data, Couche-Tard's teams in Europe recommended adjustments to the in-store assortment, which allowed stores in North America to better anticipate the changes in shopping behavior and the items that could see greater demand.
“A disciplined approach to capital allocation and cost containment has always been part of Couche-Tard's DNA,” the company said. “This crisis has reinforced the belief that only through this discipline will Couche-Tard successfully preserve and continue to grow value for its employees, customers and shareholders. The company has taken many actions aimed at right-sizing such things as non-critical capital expenditures, marketing and promotional expenses and various professional fees.”
Additional measures include adjustments to store hours and shifts based on the analysis of data from labor models, the sharing of best practices across business units and frequent scenario modeling to help optimize decision-making and minimize business risks and the required authorization by a member of the executive team for all hiring related to non-store vacancies and for all business travel.
Couche-Tard's global procurement team has had frequent contacts with key vendors to discuss possible issues in the supply chain, it said. They identified areas of potential shortages and put remediation plans in place. Through its private brands team, the company sourced key items and ensured their availability for customers and employees. To date, there have been few meaningful out-of-stocks across Couche-Tard's network, it said.
On the fuel side, Couche-Tard’s global fuels team was active from the onset of the crisis to secure fuel supply through key suppliers, while managing any sourcing opportunities, said the company.
On March 18, Couche-Tard discussed with analysts and investors its target to implement the Food at Scale program in 1,500 locations by the fall. Capital expenditures for this initiative remain in the budget for fiscal 2021, the company said. It has been building out and installing the necessary structures and equipment inside stores and the planned rollout pace remains on track. At the moment, a number of stores have suspended team training sessions related to Food at Scale to respect the social distancing guidelines, but stand ready to turn the switch back on and support the program with sampling and marketing when safety measures are relaxed.
Couche-Tard also has accelerated certain initiatives and adapted to changing customer behaviors during the crisis. Because of Couche-Tard's agile and decentralized business model, it has been able to expand many delivery platforms and pull forward technologies that could become key to serving customers beyond the current pandemic, it said, including the expansion of home delivery capabilities in North America to more than 620 stores and Click & Collect and Curbside Delivery in both Europe and North America, with pre-ordering and payment through the Circle K app.
Employee and customer safety
Meanwhile, Couche-Tard is ensuring the health and safety of its store employees and customers by leveraging the experience of its global health, safety and environment team in dealing with past emergency responses such as hurricanes, floods and fires, it said. It has put preventive measures in place, including installing plexiglass dividers at checkouts, adding queue line separators and floor markings to ensure proper social distancing and supplying gloves at the fuel pumps in certain parts of its global network.
The convenience-store chain also has taken steps around food safety, enforcing strict cleaning and sanitization procedures in stores and food preparation areas, adding single-item packaging to bakery and other self-serve food items, suspending the use of refillable mugs and cups and ceasing in-store sampling. At its distribution centers, the company has implemented temperature checks to screen employees for possible symptoms of the virus.
And Couche-Tard has put financial and general measures in place to support employees for their efforts and dedication during the pandemic, and to ensure their well-being, it said. Many of these enhanced employment benefits are part of the emergency planning for North American hourly workers who do not have the same government safety nets as in other regions where the company operates, including:
- An emergency appreciation pay premium of $2.50 per hour in North America for all hourly store and distribution center employees.
- An employee assistance program for all North American employees for the duration of the pandemic.
- An emergency sick care plan for hourly employees in North America that included both a bank of sick pay, as well as a pay continuation benefit for anyone that is either diagnosed with COVID-19 or placed under mandatory quarantine.
- Access to healthcare for hourly employees in the United States.
- A COVID-19 assistance fund to help employees most severely affected by the pandemic. The fund is seeded through salary contributions by Founder and Executive Chairman Alain Bouchard, as well as Brian Hannasch and members of the company's executive leadership team. Employees have also donated to the fund.
Couche-Tard also has implemented procedures to protect corporate employees during the crisis including reducing capacity in offices and adapting spaces to comply with social-distancing requirements, limiting participants for in-person meetings and carrying out technical processes to allow most of the support employees to work remotely. Beginning in May, in accordance with local health authority recommendations, the company started to ramp up office work, with several locations in Europe permitting greater density. To prepare for this, the company has put in place detailed checklists of cleaning and sanitization procedures, social distancing for seating and common areas and potential work shift options.
- Couche-Tard is No. 2 on the Top 40 update to CSP’s 2019 Top 202 ranking of U.S. c-store chains by number of retail outlets. CSP will release the complete 2020 list in June.
Laval, Quebec-based Couche-Tard’s network consists of about 9,900 c-stores in North America in 48 U.S. states, mostly under the Circle K and Holiday Stationstores banners, and all 10 provinces in Canada, under the Circle K and Couche-Tard banners. In Europe, Couche-Tard operates a retail network in Scandinavia, Ireland, Poland, the Baltics and Russia with approximately 2,700 stores. Also, licensees operate about 2,400 stores under the Circle K banner in 16 other countries and territories (Cambodia, China, Costa Rica, Egypt, Guam, Honduras, Hong Kong, Indonesia, Jamaica, Macau, Mexico, Mongolia, New Zealand, Saudi Arabia, the United Arab Emirates and Vietnam), which brings its worldwide total network to more than 14,800 stores.