FRAMINGHAM, Mass. -- Convenience stores and retail fueling have been the subject of significant organic growth and frequent acquisitions over the years, and it is embarking on further consolidation and roll-ups compelled in part by private equity. Regardless, this industry remains fragmented.
There are 154,000 retail fueling and convenience stores in the United States owned or controlled by 175 firms with a breakdown as follows:
- More than 1,000 sites: 10 firms, including 7-Eleven, Alimentation Couche-Tard, Speedway, Casey’s, CST Brands, Sunoco, RaceTrac and BP.
- 500 to 1,000 sites: 11 firms, including Kroger, QuikTrip, Wawa, Cumberland Farms, Pilot, Sam’s Club and Sheetz.
- 100 to 500 sites: 25 firms, including Kum & Go, TravelCenters of America and Ahold.
- 50 to 100: 50 firms, including Midwest Petroleum, Rutter’s and Wesco.
- 10 to 50: 80 firms, notably Buc-ee’s, Delta Sonic and Parker’s.
- And shockingly, there are still 65,000 single-site firms.
The scale advantages of 500 or more sites are significant in the corporate support afforded by procurement (fuel and merchandise), legal, IT, human resources and real estate. In fact, a strong case can be made that the 15,000 sites controlled by firms with less than 500 sites will be absorbed or closed for higher and better use.
Private equity is attracted to this space and is the perfect entity for rationalization not because of financial engineering or leverage, but because it brings significant incremental capital to an industry badly in need of it, as well as the discipline in operation and corporate infrastructure support.
Today, 20 private-equity firms control more than $2 trillion in equity, and given their 22% return on equity in the past decade and the growing pool of endowment and retirement money, there is no shortage of funds for these acquisitions.
Apollo, Blackstone, Freeman Spogoli, Brookwood Financial, Carlyle, Cerebus, TPG, Clayton Dublier and Platinum Equity are but a few of the names interested in industry acquisitions. The attractiveness of the sector is not simply the master limited partnership (MLP) structure and strong equity markets—although that helps—but also the strong cash flow, physical assets of land and plant, good operators, and the acceleration in earnings scale and rationalization brings.
The end result of this is positive for both market participants and consumers, better sites and offerings, stronger margins and healthier balance sheets with fewer but stronger firms.
Joe Petrowski is the founder of Mercantor Partners LLC, a private-equity group focused on downstream energy distribution and retail convenience, and former CEO of Cumberland Farms and Gulf Oil.
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