SANFORD, N.C. -- Over the past decade, The Pantry's merger-and-acquisition growth strategy has stretched the chain's market from its home base in North Carolina to northern Virginia, south Florida and as far west as Shreveport, La. So once the company's self-imposed ban on acquisitions is lifted, where will the chain look to grow?
"We have heavy concentrations [of stores] in north Florida, North Carolina, South Carolina, Alabama and Tennessee," said CFO Frank Paci during the Morgan Keegan 2008 Equity Conference last week. "A lot of these markets are forecast to have long-term growth higher [image-nocss] than the U.S. averages, so we think we 're positioned well from a geographic standpoint."
"Even though we have high concentrations of stores in these markets, we have a relatively low share in those markets, and more than 50% of all those stores are operated by single-store operators," he added. "So we believe there are still significant opportunities for consolidation within our geography. So we don't have to go outside of our geography to consolidate, and within the geography, there 's over 42,000 convenience stores between these 11 states."
Since imposing the ban, which will conclude at the end of the calendar year, on store acquisitions in May, the Pantry has focused on store operations and keeping costs down, enacting such initiatives as:
Increasing vendor-supported promotional activity. Focusing on promotions of high-velocity, high-return categories. Accelerating its ethanol rollout. Adopting a fuel-pricing strategy that maximizes total gross profit dollars. Meaningfully reducing store level and corporate overhead. Bolstering liquidity by assessing delayed draw on term loans. Substantially reducing non-essential capital expenditures. Temporarily suspending share repurchases.Ironically, however, store acquisition has been one of the driving factors in improving merchandise sales for the public company, according to Paci.
"We've been able to increase our merchandise sales per store for a combination of reasons: improvements in our offerings to customers, as well as improvement in our store portfolio," he said. "Part of what we 've done is as we've acquired store, we 've acquired stores that are on average better than our portfolio has been, and then you're always weeding out the under-performing stores."But Paci believes the changes being made during this pause in purchasing will set the stage for a stronger Pantry moving forward.
"Collectively, we believe these actions have better positioned us to leverage our operating model and drive top-line and earnings growth when the market environment improves," he said. "We believe that the business will continue to benefit from consumer trends toward purchases in convenience formats. We've looked at how we can leverage our infrastructure to drive our profitability and future growth, and we believe that we are in an attractive sector for growth and long-term consolidation potential."
Based in Sanford, N.C., The Pantry is one of the largest independently operated c-store chains in the country, with revenues for fiscal 2007 of approximately $6.9 billion. As of July 24, 2008, the company operated 1,660 stores in 11 states under select banners, including Kangaroo Express, its primary operating banner.
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