New Territory for Couche-Tard

Expanded deal with Irving Oil opens door to New England, Atlantic Canada

Steve Holtz, Editor in Chief, CSP Daily News

SAINT JOHN, New Brunswick -- In a major expansion into two new regions, Alimentation Couche-Tard will extend its retail brands into Atlantic Canada and northern New England through an extension of a partnership with Irving Oil. In 2001, Couche-Tard took over operation of 56 Mainway stores, rebranding the sites but continuing to offer Irving 's gasoline brand. That agreement, pending regulatory approvals, will now grow to include an additional 252 stores, as reported in a CSP Daily News Flash yesterday.

“For Couche-Tard, this is a strategic growth opportunity and it allows us to expand [image-nocss] our representation in two major North American markets,” said Michel Bernard, vice president of operations in eastern Canada for Couche-Tard, on a conference call yesterday. “To fuel and exhilarate the base of our growth, we will take over sites that are already very well operated and profitable.”

For both companies, the deal is an opportunity to focus on their individual strengths, according to Harry Hadiaris, director of business to consumer marketing at Irving Oil. “It will give our company the opportunity to focus on our core business of processing and marketing clean fuels for our customers,” Hadiaris said on the teleconference. “Our company will continue to own the retail sites, and Couche-Tard will operate them. Our company will also continue to supply the fuel to the sites.”

Bernard said Couche-Tard will begin rebranding Irving 's Mainway and Bluecanoe sites this summer, although he added it has not yet been decided which of the company 's three retail brands it will use on the stores.

When questioned about the rebranding in light of Irving 's recent reimaging of many sites to the Bluecanoe brand, Hadiaris said it was specifically the success of Irving 's newest retail brand that made the expansion of the Couche-Tard partnership possible.

“This partnership for Irving Oil really is about focus and growth.… In the future, we 're going to be focused solely on growing our branded liquid [fuel] sales,” he said. “We 're very proud of Bluecanoe. We 're very proud of the service we give our customers. We 're very proud of our associates. But this is about us having the opportunity to partner with the second-largest convenience retailer in North America.… When you combine their marketing efforts, their innovation inside the store with a strong liquid [fuel] brand, we believe this is really a marriage made in retail heaven.”

And with that comes expectations of growth in these regions for both companies. “For sure for us, this is a strategic growth opportunity,” said Bernard. “We had no platform in the Northeast U.S. We now have a platform, and we will build from that platform.”

Similarly, Hadiaris said he is confident Irving can be Couche-Tard 's fuel partner as it expands its retail reach. “It is the intent of both organizations that this partnership is going to provide a great number of growth opportunities,” he said.

Bernard agreed. “We will see some growth out there, and our preferred brand will be Irving in both of those areas.”

The 252 sites in the new agreement are located in Atlantic Canada, including Newfoundland, Nova Scotia, Prince Edward Island and New Brunswick, and in northern New England, including Maine, New Hampshire, Massachusetts and Vermont. Both companies are optimistic future growth is possible in the southern New England states, including New York, New Jersey and Pennsylvania.

Irving Oil will retain ownership of the convenience-retail properties, and Couche-Tard will lease the properties at market value for the next 20 years and buy the store equipment and inventories by using internal available cash dollars. The fuel pumps and canopies at the sites will remain Irving-branded, and the stores will operate under a Couche-Tard brand.

The sites involved have annual average merchandise sales of approximately $1.2 million per company-operated site. The annual average petroleum volume of the U.S. sites is approximately 2 million gallons per site, and the annual average petroleum volume of the Canadian sites is approximately 4.4 million liters per site.

Following a 12-month integration period, it is expected that the average store earnings before interest and taxes would be aligned with Couche-Tard's company-operated store performance. Pursuant to this agreement, the parties would share net operating income. According to a confidentiality agreement between the parties, the financial arrangements between the parties cannot be disclosed at this time.

"Subsequent to this transaction, Couche-Tard's Eastern Canada Division would include a total of 693 company-operated stores and the Great Lakes Division would include 432 company-operated stores,” Brian Hannasch, Couche-Tard's senior vice president of U.S. operations, said in a press release. “We are very excited to expand our relationship with Irving. Our relationship over the last seven years has been very strong and has proven to be beneficial to both companies.”

Added Hadiaris, "Expanding our existing partnership with North American convenience retail industry leader Couche-Tard is an exciting opportunity for our company to create a greater platform for growth in the Northeast and to focus on our core business of providing clean fuels to our customers. This growth opportunity is in line with our company's focus, which has always been on processing and marketing fuels, along with providing various complementary products and services that have changed over time."

Laval, Quebec-based Alimentation Couche-Tard is the second largest independent convenience-store operator in North America in terms of number of stores. Couche-Tard's network is comprised of 5,690 convenience stores, 3,440 of which include motor fuel dispensing, located in 11 geographic markets, including eight in the United States covering 30 states and three in Canada covering six provinces.

Founded in 1924, Irving Oil, Saint John, New Brunswick, is a regional refining and marketing company with a history of long-term partnerships and relationships. The company serves retail, residential, commercial, industrial and wholesale customers in Eastern Canada, Quebec and New England with a range of finished energy products, including gasoline, diesel, home heating oil, jet fuel and complementary products and services. The company offers fuel at more than 700 locations in Atlantic Canada and New England, including company-operated, leased and independent sites.

[For a Q&A with Alimentation Couche-Tard's chairman, president and CEO Alain Bouchard, see related story in this issue of CSP Daily News.]

Steve Holtz, CSP/Winsight By Steve Holtz, Editor in Chief, CSP Daily News
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