What Advances Will Holiday Bring to Couche-Tard?

LAVAL, Quebec -- With the acquisition of more than 500 convenience stores in the upper-Midwest and West from Holiday Cos., Alimentation Couche-Tard Inc. will significantly expand its already large geographic footprint in the United States. How else will the deal affect the retail leviathan? And will Couche-Tard rebrand the locations to Circle K?

On July 10, Laval, Quebec-based Couche-Tard signed the agreement with Bloomington, Minn.-based Holiday to acquire Holiday Stationstores Inc. and related assets, including 522 company-operated and franchised convenience stores, a food commissary and a fuel terminal, for an undisclosed price.

Here are some insights into what Couche-Tard’s acquisition of Holiday will mean for both companies …

Holiday has a presence in 10 states—Minnesota (315 stores), Wisconsin (84), Michigan (26), Alaska (26), Montana (25), North Dakota (21), South Dakota (18), Washington (3), Idaho (2) and Wyoming (2). Six of these states—Alaska, Idaho, Montana, North Dakota, South Dakota and Wyoming—are new to Couche-Tard, giving it a presence in 48 U.S. states, the widest-spread c-store footprint in the United States.

Couche-Tard's network currently includes nearly 9,500 c-stores throughout North America, including more than 7,550 stores under the Circle K, Couche-Tard, Corner Store and other banners. Its North American network consists of 16 business units, including 12 in the United States covering 42 states and four in Canada covering all 10 provinces.

In Europe, Couche-Tard operates a broad retail network of approximately 2,750 stores across Scandinavia, Ireland, Poland, the Baltic States and Russia. In addition, licensees operate close to 1,700 c-stores under the Circle K banner in 17 other countries and territories.

Couche-Tard, with 7,232 sites, is No. 2 in CSP’s Top 202 c-store ranking for 2017, second only to Irving, Texas-based 7-Eleven Inc., with 8,303 sites, in terms of number of U.S. locations.

“These [Holiday] sites are very unique assets,” Brian Hannasch, president and CEO of Couche-Tard, said during the conference call about the deal. “I would put these in the same league as the Esso network that we purchased in Canada—very much top-quartile assets [based on NACS data] in both fuel and convenience volumes that are almost double the industry average.

“As much as any stores we’ve ever purchased, they are in really good shape [and] very well run,” Hannasch, above, said.

The acquisition gives Couche-Tard a strong position in the greater Twin Cities market, said Alex Miller, senior vice president of global fuels for Couche-Tard. “Holiday has 205 locations in the Twin Cities that are primarily fee-owned, on valuable real estate that has been built over decades. It would be extremely difficult to impossible to replicate this portfolio due to density, lack of available land and zoning challenges.

“The Holiday network has been very well-maintained with consistent investment and maintenance and upgrading,” he said. “The large majority of the sites are on large parcels of land, have large, modern convenience stores with full offers in place, have multiple fueling locations with good access and have very good ingress and egress.”

Most of the stores are more than 2,700 square feet in size, and more than half of them are larger than 4,000 square feet.

All of the sites sell fuel under the Holiday brand, and the company has a strong car-wash business with 221 locations.

“It’s a chain I’ve known literally my entire life,” Hannasch said. “I grew up in a small town in Iowa, and this chain had a store in my town. I’ve watched it as I grew up in the industry, and in my [early] career, I competed with them in Minneapolis. They were a very formidable competitor. They continued to grow share in that market for the last 20 years to north of 30% today. It’s a very strong, winning model.”

Couche-Tard launched a global initiative in late 2015 to refresh and consolidate most of its store brands under the Circle K brand. What does this mean for the Holiday Stationstores brand?

“The Holiday brand is very strong, with high brand awareness in its geography,” said Miller. “Our focus right now is to understand that brand and leverage that brand and grow the business. Beyond that, no decisions have been made.”

Hannasch said, “That decision is somewhat in the future. Our focus is on getting the transaction done and understanding what goes into this brand, which is a very strong brand in the marketplace, winning in the marketplace. And once we understand that better, we’ll certainly have dialog with the management team and make a decision about that going forward. For today, we’re committed to the Holiday brand.”

Couche-Tard said it intends to keep Holiday's corporate headquarters in Bloomington, Minn., as the chain’s base of operations.

The scale of the Holiday network “is very similar to one of our business units,” said Hannasch. “So we anticipate creating a business unit that maintains a headquarters in the Minneapolis market, and we would retain the majority if not all of the management team there. So it really will be a new business unit for us and will keep responsibility for the existing geography.”

Miller did hint at some changes to some of the Holiday sites. “Holiday has many smaller but attractive positions in multiple areas outside of the greater Twin Cities in Minnesota. These areas are performing very well, [but] we believe these positions can be scaled to realize additional value.”

Holiday’s commissary in Brooklyn Center, Minn., is a large-scale operation making fresh and frozen food, including 50,000 sandwiches a day. The chain offers the Holiday Pantry sandwich and salad line sourced from the commissary.

“That’s something we think we can leverage back into our system,” said Miller.

“They’re supplying a very large geography out of this commissary with high-quality [sandwiches and baked goods] that they’ve done very well with and has become a big part of their foodservice business with a very low labor model,” said Hannasch. “We think we can leverage the existing facility out into our geography to some degree, and then if we like the model and have some success, it’s something we think we could replicate … something we can leverage through our existing network.”

Miller said that Couche-Tard will explore leveraging Holiday’s systems and technology for use across the entire Couche-Tard retail network.

“Holiday uses many like systems today, specifically NCR Radiant for point-of-sale and PDI back office, that will enable ease of integration into our core-systems infrastructure. We have identified significant synergies in multiple areas that are consistent with our synergy realization in past acquisitions,” said Miller.

“Holiday is a very well-run company with significant unit talent, as well as unique programs and marketing,” he said. “Many of these areas are core to our current focus areas. We are looking to expand private-label penetration. Two of our core-focus categories of foods and car wash rely on commissaries, distribution options and technology to be more efficient and grow both revenue and margins and use data and analytics to improve category management and promotional activity. We believe we can bring existing practices, knowledge and tools that Holiday has today back into our broader network to add value.”

Another intriguing Holiday offer is its subscription car-wash program. Customers can purchase a membership as opposed to paying for each wash. “It’s got significant penetration,” said Hannasch.

And Holiday has partnerships with local retailers, such as home-improvement retailers, local grocers and car dealerships. Couche-Tard is interested in “partnering to create an ecosystem around growing loyalty for both partners,” he said. “They’re doing a lot of things to connect with customers that we’re interested in learning more about.”