CSP Magazine

Circle K: Building a Global Bland?

With scale and synergy mastered, does Alimentation Couche-Tard's retail brand need a personality?

“I’ll get a Speedy dog, load it up with all the ingredients and I’ll go to town.” —Brandon, a 24-year-old pipe fitter from Crestwood, Ill., a southern Chicago suburb, who enjoys camping and off-road vehicles

“The Dorito bites … those are good.” —Shannon, Frankfurt, Ill., lives with her husband, their Persian cat, a chinchilla and two ferrets and has a thing for 7-Eleven’s “Doritos Loaded” stuffed cheese bites.

“With Slurpees, they’ve got Sour Patch Kids and all different [flavors]. … You don’t find that in [other] convenience stores. It’s just not as great as 7-Eleven.” —Felicia, a first-time grandmother from Chicago Heights, Ill.

“I like the way Speedway does their breakfast sandwiches. They just seem really fresh. You don’t have to put it in the microwave and wait—like at Shell. I think it’s Circle K.” —Shannon

Free association in a recent CSP focus group on convenience stores led shoppers Brandon, Felicia and Shannon* to inadvertently ask a question: What does Circle K stand for?

While comparable brands such as Enon, Ohio-based Speedway and Dallas-based 7-Eleven evoked savory, slushy or indulgent feelings, the network of more than 14,900 stores globally—now in transition to virtually a single Circle K brand—defined ordinary.

Is that a problem? CSP investigates.


Table of Contents

Circle K's Transformation

Piecing Together Circle K's Made-to-Order Program (Slideshow)

Grading the Circle K Brand (Enhanced Infographic)


* 7-Eleven, Circle K and Speedway online store locators all indicate about 100 stores each in the Chicago area, where CSP conducted its winter focus group. Undoubtedly, each chain has varying concentrations in suburban and downtown areas, which could have influenced the respondents’ perceptions.

The question of brand relevance for Circle K and its parent, Alimentation Couche-Tard, Laval, Quebec, seems especially heightened considering, at 7,987 stores in North America, it’s poised to rival the No. 1 North American convenience retailer: 7-Eleven, which has 8,600 stores on this continent.

Amid Circle K’s own transformation—dramatically illustrated by its move to a single, unified brand—Couche-Tard’s unique model of running as independent business units is presenting new issues:

  • Foodservice: With brand pull often relying on distinctive offers, Couche-Tard started its own “fresh food initiative” (FFI) relatively late in the game and has yet to implement a distinctive hot-food menu, an area in which 7-Eleven has progressed in recent years.
  • Value perception: Introducing a higher-quality food offer may clash with previous branding efforts and legacies such as its one-price-for-any-size Polar Pop fountain offer and generic approach to proprietary snacks, paper goods and health-and-beauty products.
  • Supply: Decentralized models and most big consolidators have to work with disparate, entrenched supply chains, potentially challenging any unified in-store offer.
  • Marketing: Barriers to creating a unified brand confound the effort to market and communicate a tangible offer to consumers, who decide which c-store to drive to.
  • Stockholder scrutiny: As with any publicly held company, pressure to grow returns often sidelines efforts to develop what’s inside the store. It also fuels the acquisition bug, bringing an ongoing tide of new formats and programs for a chain to process—stymying innovation.

No one is claiming these challenges spell disaster for what is clearly a well-run chain, as just a few of its achievements illustrate: double-digit increases in adjusted EBITDA (20.2% growth in fiscal 2015 and a whopping 65.3% in 2013), expense increases lower than inflation, steady growth of new builds, stunning steps with M&A and a doubling of its stock value in five years.

“Circle K is a mostly company-owned chain with an unbelievable balance sheet and impeccable financials,” says a consultant close to Circle K who spoke to CSP on condition of anonymity. “Is that enough going forward? The answer lies with this generation and the generation to come. Is [Circle K] cool enough to be shopped, and how much does the consumer rely on brand and trust?”

Trust can often trump cool, according to Mike Lawshe, president and CEO of Paragon Solutions, Fort Worth, Texas. “Brand is not always about being the best,” he says. “It’s about satisfying a brand promise.”

For example, Oak Brook, Ill.-based McDonald’s brand is not about serving the best hamburger but the most consistent hamburger, Lawshe says. He likens the customer expectation model to a bell curve, wherein a McDonald’s or a Circle K is trying to attract the greatest number of customers with a consistent, though ordinary, brand promise.

“In the case of Circle K, it’s a consistently good offering,” Lawshe says. “Fear of the unknown or fear of a bad experience can often lead us to take the safe way.”

The decision to convert virtually all Couche-Tard’s banners, including Statoil, Topaz, Mac’s and Kangaroo, to an updated Circle K logo came last fall, amid its absorption of The Pantry, Cary, N.C., and its 1,509 Southeast stores, and the acquisition of more than 464 Topaz-branded locations in Ireland.

Internal efficiency seemed a prime motivator. “As we’ve continued to grow, we’ve been faced with a significant question: Do we continue the recipe we’ve had, which is a company of companies, or do we join together to become one company, one business?” said Brian Hannasch, president and CEO of Couche-Tard, in a media call last fall.

“Adopting a single global brand will make us stronger, reinforce our culture and help us focus on [customer service]. … It’s about taking a little bit from each of the brands that we have, that we use around the world today, and making it a part of what we think is a refreshed, new and improved and more timeless Circle K logo.”

Transforming a Brand

On the street, Circle K’s transformation will be most visible with its rebranding, which began in the United States last fall.  European customers will see the new logo starting in May 2016, while Canadian customers outside Québec (for seemingly sentimental reasons, the only region that will retain its original Mac’s brand and owl symbol) will see the new Circle K starting in spring 2017.

Taking the lead for The Pantry transformation of its Kangaroo Express brand is Darrell Davis, senior vice president of operations for Couche-Tard. “This is much more than a signage exercise,” Davis said while on a September call about the brand unification. “With this global transition, we are strengthening our identity and the experience we will offer to all of our guests.”

The brand consolidation will also lead to best-practice sharing and benchmarking, the company said, as well as improve overall benefits from economies of scale and a simplified brand portfolio. It will “make the synergies come to the market even more quickly than they have in the past,” Hannasch said. “A core part of our DNA is to share best practices globally.”

Though officials have said much about a global brand, they have not mentioned any intention to alter their decentralized model or to centralize any aspect of their business, such as foodservice. The company has 10 business units throughout the United States and four in Canada, and it’s organizing its newly acquired European assets. On the company’s most recent investor call, Hannasch mentioned launching the Circle K brand at more than 700 stores in Mexico and having entered Egypt and Costa Rica in the past year.

Circle K did not respond to numerous requests from CSP to comment for this article.

Continued: Profiting From Scale

Profiting From Scale

Beyond store income, profitability certainly comes with the successful assimilation of new acquisitions and the incremental income generated by overlaying a consolidator’s buying advantages over the seller’s, as Couche-Tard officials have said in recent investor calls.

Last fall, the company reported that healthy same-store sales and “cost reductions” from incorporating acquisitions such as The Pantry led to 20% growth in second-quarter earnings, which compared fiscal 2016 to 2015. Excluding one-time income and expenses, that meant net earnings grew to $375 million vs. $313 million in the second quarter of fiscal 2015—an increase of $62 million.

Cost reductions at The Pantry have saved Couche-Tard about $23 million over the nine months since the deal closed in March 2015, the company reported in November. Going forward, the company expects synergy efforts to bring a total of $85 million in savings through a 24-month period since the acquisition.

Better-than-expected numbers on the revenue side from The Pantry stores surprised Hannasch, as he pointed out in the second-quarter investor call. He was more confident about profiting from synergies vs. the actual stores, calling the initial mood on the c-store side “not bullish.”

Since then, implementing new fuel programs, competitive cigarette pricing and strategies around fountain program Polar Pop, coffee and roller grills have boosted revenue and improved expectations. In the United States, Couche-Tard saw same-store merchandise revenues grow 5.2% and same-store fuel volume grow 7.4% in the second quarter. Gasoline gross margin in the United States averaged 25.66 cents per gallon. Hannasch also said the company was finalizing new fuel-supply agreements for The Pantry stores, which were scheduled to be in place earlier this year.

With some stores in Illinois having just received the new Circle K look, Hannasch said it was too early to tell how consumers are responding, but he said the company had conducted enough studies to know that it will be successful.

For certain, when assessing Circle K’s success, one must apply different yardsticks than one might for a Sheetz, Wawa, QuikTrip or another privately controlled regional powerhouse.

Circle K’s has found success as a global consolidator built on more traditional formats in the range of 2,500 to 3,000 square feet. Much of its leverage comes in scale, compared to chains such as Temple, Texas-based CEFCO and Atlanta-based RaceTrac, which are introducing new builds averaging 5,000 to 6,000 square feet.

And while Circle K is investing in larger new-to-industry stores, Hannasch in the second-quarter call underscored Couche-Tard’s role as an M&A company.

“Consolidation has to continue to happen with the pressures from nontraditional retailers, the Costcos, the Krogers of the world, and people like us and others that are building bigger formats that are just doing a lot more volume than traditional sites,” he said. “So over time, we believe consolidation will continue.”

Foodservice Cornerstone

Regardless of whether foodservice becomes a distinctive part of the new Circle K brand, the anonymous source says the chain needs to continue on that path.

“They should be doing [food] better,” he says. “When you look at our industry, there’s nothing good about $30-a-barrel oil. It puts more pressure on alternative categories, higher-margin categories … and foodservice qualifies. We all know it.”

That’s not to say Circle K has been at a standstill. Its FFI program began in earnest in 2013, with active tests starting in 2014. In the interim, it has rolled out pizza and roller-grill programs from multiple vendors and initiated a premium-coffee program. The company even outscored 7-Eleven in a survey from Chicago-based Technomic Inc. (a sister company of CSP) on foodservice, despite falling below its rival in overall brand rating. (See related inforgraphic.)

In describing its FFI offer, Hannasch said the company used third-party commissaries to deliver pastries, salads, sandwiches and fruit cups multiple times during the week, having expanded the program to 1,100 locations, with another 320 added by its fiscal-year end.

Its prepared-on-site concept is running in Houston and will soon open in Phoenix and Charlotte, N.C., he said. And while foodservice sales continues to grow, company officials have not shared what percentage of income foodservice represents at the newly outfitted locations, only to say that they are pleased with results they’ve seen so far.

The company has rolled out its new Circle K Premium coffee program to 250 stores, including 160 sites in Canada. These sites are outperforming base stores in cups per day, Hannasch said. And it has launched 120 private-label SKUs over the past year in the candy, snacks and beverages categories.

Across the Couche-Tard business units, private label has already achieved 2% to 5% penetration, he said.

While touting successes, Hannasch admitted to hurdles: “In terms of culture, our industry tends [to operate with] very tight margins and controls, and spoilage and waste is a normal part of the food business—so there is definitely a cultural shift. There is a journey around food safety and all the things that it takes to do this well.”

One lesson he cited concerned logistics. After feeling dissatisfied with delivery costs, the company began to bundle FFI items with existing deliveries to the store, whether it was with a milk or sandwich vendor or someone else in the market.

That said, it’s still lagging behind the industry. Comparatively, a retailer who was directly involved in implementing a Circle K franchise said rival 7-Eleven has made “good strides” in defining its core food program. Requesting anonymity as well, the  retailer described 7-Eleven’s menu proposition as meeting a hot-snacking occasion with a wider range of ethnic offerings.

“Circle K is a little envious,” he says. “While Circle K has an adequate offer, they’re nowhere near 7-Eleven, who’s nowhere near the regional guys.”

The retailer source says the world of Polar Pop and roller grills are driven more by price than quality. The consumer has become more discerning thanks to chains such as Altoona, Pa.-based Sheetz, which have raised the bar in areas where Circle K competes, notably the Carolinas.

The anonymous consultant concurs, calling on Circle K to make dramatic moves, specifically centralizing much of its foodservice supply chain to raise overall quality and innovation. “Once they put their mind behind things, they’re great operators,” he says. “They’ll get things done.”

Continued: Too Big to Fail?

Too Big to Fail?

Despite competitive challenges, the momentum building from Circle K’s strengths is contagious. Amin Chitalwala, CEO of Gas Express, Atlanta, chose to expand his business by becoming a Circle K franchisee in 2013. In the c-store business since 1994, he and his CFO partner, Shams Nanji, now have 22 stores.

Initially opening his stores as Food Mart, Chitalwala wanted uniformity and a clean, crisp look for the sites. After researching other brands, he chose Circle K, he says, because it gives him several advantages: consistent look, global insights, significant buying power, newfound respect from vendors and the marketing and training tools to be successful.

His agreement with Circle K eventually gives him up to 45 stores in the Atlanta area, and he was appointed a regional adviser to any area operator wanting to convert to Circle K.

Admitting Circle K’s foodservice program is “not extravagant,” Chitalwala appreciates its simplicity and calls it “easy to manage.” He has been privy to Circle K’s test kitchens and is launching Krispy Krunchy Chicken through a Circle K program, but he believes he’ll have to expand his internal foodservice team in the future if he wants to go further.

Chitalwala likes hearing about Circle K’s acquisitions. The bigger the footprint, the stronger the brand, he says. More important, he appreciates how Circle K is also an operator, able to bring him firsthand experiences and solutions.

“They’re an efficient and well-run organization,” he says. “They gave me a platform to grow.”

With 13% of Circle K’s portfolio being franchised or “other affiliated” stores as of its fiscal 2015 report, franchisees are a smaller aspect of Circle K’s growth strategy but still a viable one. Jeff Kramer, managing director for NRC Realty & Capital Advisors, with corporate offices in Phoenix and Chicago, says a franchisee model shifts costs such as health care and other regulatory expenses to those independent business leaders. That said, growth via acquisition is one of Circle K’s most successful strategies.

This includes overseas, where Circle K has been quite active. Its recent acquisition of Dublin-based Topaz and its 162 company-owned and 302 dealer-operated locations drove analysts with BMO Capital Markets, Toronto, to improve their projected stock price for Couche-Tard to $66 from $64, which five years ago was about $30. (At press time, the price was $60.50.)

More activity in the area “would further validate the European rollup thesis,” according to a BMO report from analyst Peter Sklar, who then rated the shares to “outperform.” (See acquisition timeline below.)

Many industry experts say that on a per-store basis, Circle K is a good, not great, performer. But its strength lies less in rivaling the Sheetzes and QuikTrips of the world. Rather, Circle K’s muscle is in incredible store count, operational efficiencies, unit density in core and growth markets, and the ability to tweak its retail just enough to keep consumers interested.

“They’re a good example of how well scale works,” Kramer says. “They have been able to reduce overhead and simplify systems to make their acquisitions work, where being a stand-alone company might not be as efficient.”

“Wall Street loves Circle K’s balance sheet, and they’re shrewd operators,” says the consultant, describing the company’s decentralized structure—while not ideal—as a “stable” model. “To continue down this road of dipping your toe in the water on foodservice will be a risky proposition, but in the long term, they will figure it out.”


$1.02 billion —Couche-Tard's net earnings less acquisition expenses in fiscal 2015 vs. $766 million in 2014

14,900 —Number of stores globally

Source: Google Finance, February 2016; Alimentation Couche-Tard


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