Couche-Tard to Push Private-Label Cigarettes?

Circle K retailer frustrated by “deflationary” MLP program

LAVAL, Quebec -- Highlighting the noticeable detrimental effect Philip Morris USA’s Marlboro Leadership Program has had on its same-store sales in the United States, Alimentation Couche-Tard executives this past week hinted that they may unveil a private-label program or other action to drive its cigarette sales and margins.

During its second-quarter earnings call on Tuesday, Couche-Tard reported an average same-store sales increase in its U.S. stores of 2.5%. The Circle K retailer would have liked to see that statistic higher and pointed squarely at one product category for holding it back: cigarettes.

“In the United States, a cigarette manufacturer modified its supply terms and price structure at the beginning of the first quarter of fiscal 2012 in order to encourage retailers to decrease or maintain low unit prices on certain of its products,” the company said in its earnings report, “which has put a deflationary pressure on the corporation’s cigarettes sales.”

With that in mind, Couche-Tard executives estimated that excluding tobacco product sales, its same-store merchandise sales in the United States increased by 5.3%.

And so with Altria/Philip Morris USA announcing recently that it is revising, but keeping, its controversial Marlboro Leadership Price option for the first half of next year, analysts anxiously asked: Will the adjustments made to the program starting in January make it any more appealing to Couche-Tard?

“We saw the change announced recently and we will work to maximize the outcome of it,”said Raymond Paré, vice president and chief financial officer. “But this program is not more interesting or appealing for us because of these changes. … We don't like to see these kind of programs that basically affect our capacity to price our product in our store.”

He added, “You will see soon one of the steps that we will take basically in order to … work around this program, and we are very excited by this.” No details of the steps were provided beyond referring to a desire to protect margins via private-label cigarettes.

Laval, Quebec-based Alimentation Couche-Tard Inc. is the leader in the Canadian convenience store industry. In North America, Couche-Tard is the largest independent convenience store operator (whether integrated with a petroleum Corporation or not) in terms of number of company-operated stores. As of Oct. 9, 2011, Couche-Tard had a network of 5,715 convenience stores, 4,107 of which include motor fuel dispensing. The network consists of 13 business units, including nine in the United States covering 42 states and the District of Columbia, and four in Canada covering all 10 provinces.

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