LAVAL, Quebec -- With its global footprint, Alimentation Couche-Tard Inc. has been busy not only growing its U.S. fuel business but also testing new opportunities across the Atlantic.
In the convenience-store company’s third-quarter 2017 earnings call, president and CEO Brian Hannasch provided an update on fuel volume and margin trends, weighed in on Renewable Identification Numbers (RINs) and gave an update on electric-vehicle (EV) charging.
- Click here for 7 Highlights From Couche-Tard’s Third-Quarter 2017.
Read on for fuel news highlights from the chain’s recent earnings call ...
Couche-Tard’s same-store fuel volumes rose 2.8% in the United States and 1.8% in Europe. Same-store volumes fell 0.8% in Canada. The company has more than 6,700 fueling sites in North America.
Executives cited a positive response from customers to the Circle K rebranding initiative, micro-market strategies and a growing contribution from premium-grade gasoline, as well as a bump from acquisitions for the quarter’s volume growth.
This is all despite challenging weather, which for the three months ending Jan. 29, 2017, has included Hurricane Matthew, heavy rains on the West Coast and an unusually mild winter in Europe.
Gross margins on fuel for Couche-Tard’s U.S. sites fell 1.57 cents per gallon (CPG) during the third quarter to reach 18.33 CPG. The retailer pointed to rising crude oil prices and some connected volatility for the drop in margins.
For the first three quarters of fiscal 2017, fuel gross margin has averaged 19.57 CPG for the U.S. locations.
In March 2016, Couche-Tard announced it was cutting ties with its four previous fuel suppliers—Marathon, Valero, CITGO and Kangaroo, the brand for The Pantry c-store chain, which it acquired early that year. In doing so, it would rebrand more than 1,000 Southeastern sites to its own Circle K banner, BP, Shell or Exxon.
The company has so far rebranded fuel at about 1,000 Southeastern stores and expects the process to be complete by the end of the fiscal year. Hannasch noted that sites that have been fully rebranded in terms of both fuel and the store “are showing very strong trends.”
In the United States, Couche-Tard buys fuel under several structures, including some where it benefits from the selling of Renewable Identification Numbers (RINs), credits that obligated parties such as refiners under the Renewable Fuel Standard (RFS) use to show compliance with biofuel blending volumes.
Hannasch said it was “impossible to quantify” the value of RINs to Couche-Tard. “With our scale, we believe we buy fuel very well, and there are markets where the RINs do bring us an advantage,” he said, although in the context of Couche-Tard’s total fuel business the revenue has not been “overly material.”
Concerning reports that the Environmental Protection Agency (EPA) under the Trump administration may soon revisit whether to change the point of obligation under the RFS, Hannasch said it would not have a great effect overall on Couche-Tard’s fuel business.
“In many of our relationships, if the point of obligation were changed to the terminal, we don't see [it] materially impacting whatever advantages we may have in the market,” said Hannasch.
Furthermore, shifting the point of obligation downstream would be a long process, “so we don't anticipate any near-term impacts around the RINs.”
5. EV charging
In Europe, where Couche-Tard has more than 2,700 sites in eight countries, alternative fuels have been a developing business opportunity.
Couche-Tard currently has more than 95 sites with EV charging stations in Scandinavia, mostly in Norway and Sweden, as well as 17 in Denmark. In Norway, which has committed to having 100% of new vehicles sold as zero-emission by 2025, plug-in EVs have nearly 40% market share thanks to strong government incentives.
Hannasch said most customers are using the charging stations to top off their battery’s charge, with the visit taking between 15 and 20 minutes.
During that time, the customer usually comes inside the store, perhaps to buy coffee. “We have seen the impact in our stores of those customers spending a bit more time in our stations, but it's still early days for us to draw a definitive conclusion,” said Hannasch. “We're monitoring it closely though, and we are trying to see how we could make those stops at our service station a benefit to our business model.”
Claude Tessier, CFO, added that for a typical site seeing 1,000 in-store customers, the penetration of those using the charging stations “is still so small,” making it difficult to measure any specific effect on store sales thus far.