COVER STORY THE DISAPPEARING Several midsize chains are gobbled up by this year's Top 20 Growth Chains MIDDLE A Convenience Store News Staff Report HOLIDAY STATIONSTORES, WESTERN REFINING, ROADRUNNER MARKETS, PDQ FOOD STORES, JET- PEP, HONEY FARMS, FLYERS ENERGY, MAD MAX, PIC QUIK, JIFFY STOP, SAV-O-MAT, WES-T-GO. These are just some of the midsize con• venience store chains that were sold and acquired in the past year, gobbled up by the 2018 Convenience Store News Top 20 Growth Chains. Led by Alimentation Couche-Tard Inc. — which alone grew its U.S. store count by 23.4 percent between January 2017 and January 2018 by adding 1,253 net new stores — this year's top growth chains combined added 2,573 stores, equating to an 11.5-percent increase. What's more, they added nearly 1,200 more stores year over year than 2017's top growers. The 2017 Top 20 Growth Chains added 1,396 stores combined, equating to a 5.9-percent increase. "Consolidate, then fragment. Consolidate, then fragment again. It seems like it's been going on for many years," Jeff Miller, president of Norfolk, Va.-based Miller Oil Co., said in reference to the past 40 years of mergers, acquisitions and breakups in the convenience store industry. Lately, interest rates for buyers have been so low and EBITDA multiples (earnings before interest, taxes, depreciation and amortization) for sellers have been so high that a midsize retailer who's even thinking of selling, or has no family succession plan, is greatly tempted to sell, according to Miller, who himself is a mid• size retailer, operating 20 c-stores in Virginia. "One thing that's changed from the past is that technology has advanced to the point where an acquirer can scale up pretty efficiently. In the past, it was much more difficult to absorb large groups of stores because of all the infrastructure changes they'd have to make," he added. With many midsize convenience store chains being private, family-owned and operated businesses, Dennis Ruben, exec• utive managing director of NRC Realty & Capital Advisors LLC, also sees succession planning, or rather lack thereof, contributing to the disappearing middle. "We've seen a lot of instances with these companies where the guy who started MAR 2018 Convenience Store News 41 COVER STORY and is running the business wants to retire and there's nobody to run it. So, a lot of times, [these businesses] Andeavor a 3,000-station are selling just because they have no one to take them TOP 20 company and on the con• over," Ruben explained. venience store side, gave GROWTH it locations in Arizona, He also believes midsize retailers are selling — or, In other Colorado, Minnesota, New cases, buying other midsize retailers — because of the CHAINS Mexico, Texas and Wis• Increasing difficulty of competing in a marketplace with a lot consin, operating primarily of bigger players. Going up against the Circle Ks and NO. 1 ALIMENTATION under the Giant, Howdy's 7-Elevens of the industry is especially challenging on account COUCHE-TARD INC. and SuperAmerica brands. of their greater buying power and lower overhead costs. Tempe, Ariz. (U.S. headquarters) Before the summer was 2018 Store Count: 6,597 over, Andeavor also pur• "I think a lot of them have figured out that they need to 2017 Store Count: 5,344 chased and added the 39 grow or they need to get out," Ruben said of those conve• Increase: 1,253 (23.4%) c-stores and gas stations nience channel players currently sandwiched in the middle. of Auburn, Calif.-based Fly• About the company's ers Energy to its portfolio. To stay competitive, smaller operators must Invest in growth: Alimentation larger-format stores, but may be limited by property size, Couche-Tard had a big financial constraints, overall scale, and continuous com• year in 2017, adding more NO. 3 petitive pressure, noted Mark Radosevich, president of than 1,200 stores through GPM INVESTMENTS LLC PetroActive Real Estate Services LLC. three key acquisitions. Richmond, Va. In June, the retailer 2018 Store Count: 933 "The overall timing Is right for a strategic exit, and many completed a $4.4-billion 2017 Store Count: 849 have finally realized that there Is life after the c-store purchase deal for CST Increase: 84 (9.9%) business," Radosevich said. "Purchase multiples continue Brands Inc., the San Anto• to hold at historic levels. The large guys have an insatia• nio-based parent company About the company's ble desire to grow and can finance said growth through of Corner Store. Couche- growth: GPM Investments sale-leaseback and debt financing. New international Tard closed out the year has been on a shopping players continue to enter and explore the viability of the by tying up its purchase spree for several years, U.S. c-store business." of Holiday Stationstores, and 2017 was no differ• a chain of 522 Midwest ent. In the spring, the Other factors contributing to the exodus of the middle convenience stores. Both retailer began operating men, according to John Schaninger, marketing guru and transactions required 92 Roadrunner Markets owner of The Schaninger Group LLC, are: some divestures as part of in North Carolina, South their regulatory approv• Carolina, Virginia and • Channel-blurring, with convenience products now avail• als. In between, Circle K Tennessee. GPM acquired able in many outlets; Stores Inc., a subsidiary of these stores from Johnson Couche-Tard, acquired 18 City, Tenn.-based Moun• • Escalating wage costs; retail sites, a fuel terminal tain Empire Oil Co. The and associated trucking company then grew in • Uncertainty around the fuel needs of the future; and equipment from Alabama- Missouri with the addition based Jet-Pep for an of seven stores from Jiffy • A decline in fuel and c-store trips being caused by remote undisclosed amount. Stop Food Mart, based in working, online ordering and delivery services. Lake of the Ozarks. Look• ing ahead, GPM is already Given the staying power of these factors, and the continuing NO. 2 ANDEAVOR CORP. poised to appear on next desire among convenience channel growers to expand their San Antonio year's Top 20 Growth brands and efficiencies, Schaninger — a former top market• 2018 Store Count: 815 Chains ranking as the com• ing executive for New Jersey-based QuickChek Corp. — 2017 Store Count: 277 pany is in the process of expects the trend of small and midsize chains being acquired Increase: acquiring 273 stores from to continue for the foreseeable future. 538 (194.2%) Texarkana, Texas-based About the company's E-Z Mart Stores Inc. This In fact, the acquisition of midsize chains is so appealing to growth: Formerly known move will expand its foot• the market right now that some smaller retailers are grow• as Tesoro Corp., Andeavor print into the Southwest. ing just to become a midsize chain and go up for sale. saw most of its growth in the past year come from "I am presently representing a private equity group that is a June 1 acquisition of El NO. 4 KWIKTRIP INC. consolidating small chains of stores, from five to 50 stores Paso, Texas-based West• La Crosse, Wis. in size, in hopes of getting to the 200-plus-store size. When ern Refining Inc. — last 2018 Store Count: 607 I asked them why they wanted to be a 200-store chain, year's No. 1 growth chain. 2017 Store Count: 525 they said it makes them an easier acquisition target by a The $4.1-billion deal made Increase: 82 (15.6%) larger chain," Terry Monroe, a professional mergers and 42 Convenience Store News CSNEWS.com COVER STORY acquisitions expert in the convenience store and petro• leum properties industry, shared with CSNews. About the company's the-year acquisition of growth: A mix of acquisi• assets from Holly Pond, Meanwhile, on the buyers' side, In addition to low inter• tions and organic growth Ala.-based Jet-Pep for est rates and low cost of capital, the timing is right to landed Kwik Trip at No. 4 $72 million, plus working acquire midsize retailers because of the economies of on this year's ranking. In capital and closing costs. scale gained In both store operations and the purchasing early October, the retailer The purchase consisted of of fuel; the trend in the market to diversify income given took ownership of the 101 commission-operated changes in the fuels landscape; and the fact that It takes PDQ Food Stores chain in retail sites. CrossAmerica almost the same amount of work to buy a large package Middleton, Wis., with 34 Partners' general partner, of stores as it does a small package of stores, explained c-stores across the state. In CrossAmerica GP LLC, John C. Flippen Jr., a managing director of Petroleum addition, new stores under is indirectly owned and Capital & Real Estate LLC (PetroCapRE). construction in 2017 totaled controlled by Alimentation 56, including 36 in its home Couche-Tard Inc. What's a Midsize Retailer to Do? state. Kwik Trip is now Although the past year saw the disappearance of multiple undertaking a $300-million midsize chains in the convenience store industry, many capital investment project NO. 7 YESWAY remain. This beckons the question: What's a midsize to meet the needs of the Des Moines, Iowa retailer to do? growing company. 2018 Store Count: 77 2017 Store Count: 31 Step one is to have a professional assessment (network Increase: 46 (148.4%) rationalization process) done on the chain and each site NO. 5 CASEY'S GENERAL within the chain, Including facility, financial, operational STORES INC.