BRAMPTON, Ontario -- Couche-Tard, 7-Eleven Canada and Parkland Fuel could be among potential buyers after supermarket retailer Loblaw Cos. Ltd. has completed a strategic review of its “gas bar” operations. It will engage potential buyers in considering a sale of the business, which could be worth as much as $400 million (Canadian; $306.25 million U.S.).
Loblaw’s fuel network is one of the largest in Canada, with 212 sites located adjacent to its grocery stores.
As reported in a McLane/CSP Daily News Flash, the fuel network continues to deliver strong and stable cash flows, the company said, and the company expects it to grow as Loblaw’s grocery-store network grows. Loblaw believes the right strategic partner would further elevate the business and its value to customers, it said.
“Our gas bars have contributed consistently to our bottom line and our offer to customers,” said Grant Froese, COO of Loblaw. “Customers appreciate the convenience of onsite fuel and the benefits of a loyalty program that links gas bar and grocery purchases. We anticipate that these benefits will continue regardless of whether the business is sold.”
Frequent acquirer Alimentation Couche-Tard Inc. may be a potential buyer, according to a report by the Globe and Mail; however, Peter Sklar, an analyst for BMO Nesbitt Burns, wrote in a research note that he isn’t sure whether the company “would have an interest due to the relatively small square footage of the store footprint vs. the average Couche-Tard store.”
Other major Canadian gas station owners that may be interested include 7-Eleven Canada Inc. and Parkland Fuel Corp., the report speculated.
Sabahat Khan of RBC Dominion Securities wrote in a research note that the sites could represent a good opportunity for Parkland, the Financial Post said in a separate report. “Loblaw’s sites outside of Ontario, Alberta and Saskatchewan, where Parkland operates retail gas bars, would have the highest appeal for Parkland," Khan wrote. "The Competition Bureau is likely to look at concentration within specific markets, so Parkland could look at select Loblaw sites in Ontario (where it has about 47 sites) and Alberta (where it has roughly 62 sites).”
“These sites would be a solid, complementary fit for Parkland, though it may have some competition from regional players looking to expand geographically (e.g., Global Fuels) and foreign operators like Murphy USA (which operates similar sites on Wal-Mart pads),” wrote Michael Van Aelst, analyst for TD Securities Inc., Montreal, in a research note. “Although we believe that Couche-Tard will look at these assets, we believe that the restrictions on the c-store, both in terms of size of the box and range of items that can be sold, would preclude it from bidding aggressively.”
He continued, “Despite the limitations we expect Loblaw to place on the range of in-store merchandise it would be able to sell, Parkland would arguably be able to bring material synergies to the table, particularly via the sourcing of Loblaw’s 1.7 billion liters of fuel through Parkland’s existing supply chain.”
He said that Parkland has a “solid track record of identifying, completing (on favorable terms) and integrating acquisitions. … Based on reasonable assumptions, we estimate that the sites … would fetch a price just shy of $400 million.”
Loblaw’s move to sell its fuel business would be at odds with competitors, the Globe and Mail said.
Michael Medline, CEO of Canadian Tire, Toronto, has said he wants to bolster the company’s fuel business because it helps drive customers to the retail and financial services divisions of the company.
“We really like this business,” Medline told analysts earlier this month. “Our plan is to ensconce the petroleum division even stronger into our group of businesses.”
Loblaw gas stations are branded under various names that respond to their adjacent stores, such as Gas Bar, At the Pumps and A Plein Gaz. The gas bars have loyalty systems that allow customers to earn rewards through the company’s PC Points cards, as well as a legacy rewards program called Superbucks.
Brampton, Ontario-based Loblaw provides Canadians with grocery, pharmacy, health and beauty, apparel, general merchandise, banking and wireless mobile products and services. It has more than 2,300 corporate, franchised and associate-owned locations: more than 1,050 grocery stores in several formats; full-service pharmacies at more than 1,250 Shoppers Drug Mart and Pharmaprix locations and more than 500 Loblaw locations; no-fee banking with PC Financial; Joe Fresh apparel; and Life Brand, no name and President’s Choice private-label brands.
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