Couche-Tard Evaluating Fuel-Brand Portfolio

Also seeing positive results with new foodservice, coffee, private-label initiatives

LAVAL, Quebec -- Along with the decision to "harmonize" its U.S. convenience-store brands by converting the 1,500 Kangaroo Express locations it acquired from The Pantry in early 2015 to the Circle K brand, Alimentation Couche-Tard Inc. is also evaluating its fuel-brand portfolio.

Pantry Kangaroo Express Alimentation Couche-Tard

"We’re currently looking at our portfolio brands that we have in place. This work is well advanced, and we’ll implement our go-forward strategies in the first half of calendar 2016," president and CEO Brian Hannasch said during the company's latest earnings call.

The Pantry had sold a mix of fuel brands, from its own Kangaroo to BP, CITGO, ConocoPhillips, ExxonMobil, Marathon, Shell and Valero.

The convenience-store branding transition arrives as Couche-Tard’s same-store fuel volumes rose 9.4% in the United States, compared to 2.7% growth in its European network and a 1.4% increase at its Canadian sites.

“The U.S. fuel results continue to be very solid in both the legacy and Pantry networks,” said Hannasch. Couche-Tard’s heritage U.S. stores outperformed typical industry demand growth of 2% to 3% during the first quarter, while The Pantry network was accretive to the overall results, he said.

Business conditions in the United States are especially strong compared to Couche-Tard’s international markets and providing a nice tailwind to the company’s performance. Same-store merchandise sales in the United States rose 5.1%, compared to a 2.3% increase in Canada and 1.3% growth in Europe.

“Certainly globally we’re benefitting from lower fuel prices, and it’s effectively a tax refund for our customers,” said Hannasch. “More so in the U.S. than other markets, we’re seeing them being willing to spend it.”

Thanks to the strong performance of fresh food, prepared foodservice, coffee and private-label initiatives, Couche-Tard is also seeing less pressure to promote to drive traffic to stores than in recent years, and it is seeing more traffic on the forecourt. This, in turn, is driving more customers into the stores, creating yet another shopping occasion.

Couche-Tard has introduced Circle K’s Polar Pop fountain brand to 100 of the newly acquired sites over the last 45 days, and plans to roll it out to an additional 900 sites in this fiscal year, in advance of the store brand change.

Couche-Tard launched its most recent prepared-on-site concept in three stores in the Houston market about 90 days ago, and plans to roll it out to two other pilot markets over the coming months. Its Fresh Food Initiative (FFI), which harnesses third-party commissaries to deliver fresh food items multiple times per week to stores, has similarly proven promising, the company said.

The program, which delivers items such as pastries, salads, sandwiches and fruit cups, has yielded improvements in logistics, cost and spoilage—so much so that Couche-Tard is rolling it out to an additional 300 stores this fiscal year.

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. And it has launched 120 private-label SKUs over the last year in the candy, snacks and beverages categories. Across the Couche-Tard business units, private label has already achieved 2% to 5% penetration.

“These types of results help inspire and motivate our teams to continue their great work,” said Hannasch, "The road ahead is full of opportunities that we will and must take advantage of.”

As of July 19, 2015, Laval, Quebec-based Couche-Tard’s network included 7,987 convenience stores throughout North America, including 6,556 stores offering fuel. Its North American network consists of 15 business units, including 11 in the United States covering 41 states (under the Circle K and Kangaroo Express flags) and four in Canada covering all 10 provinces (under the Mac’s and Couche-Tard flags).

In Europe, Couche-Tard operates a broad retail network across Scandinavia (Norway, Sweden and Denmark), Poland, the Baltics (Estonia, Latvia and Lithuania) and Russia. In addition, about 4,700 stores are operated by independent operators under the Circle K banner in 12 other countries or regions worldwide (China, Guam, Honduras, Hong Kong, Indonesia, Japan, Macau, Malaysia, Mexico, the Philippines, the United Arab Emirates and Vietnam), which brings to more than 14,900 the number of sites in Couche-Tard’s network.

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