Active convenience store consolidation expected to continue, with focus on Florida and Southeast US - analysis13 March 2007

Active consolidation efforts are expected to continue this year in the highly fragmented US convenience store industry, with a particular focus on the Southeast, said an investment banker and two industry representatives.
For several years, the segment’s heaviest M&A activity has been in the Southeast, and recently the focus has narrowed even more specifically onto Florida, the banker said. He added that the space’s most active buyers continue to be The Pantry of North Carolina; Alimentation Couche-Tard of Canada through its subsidiary Circle K; and Delek US Holdings of Tennessee, along with its subsidiary MAPCO Express.
One industry representative said his company has noticed but is trying to stay out of the heavy consolidation in the Southeast, as it prefers organic growth. A second industry representative observed that small mom-and-pop businesses often feel like they “have to get larger or we’re going to get run over.”
The banker noted that many of those mom-and-pops find it more profitable to sell their retail operations for an influx of cash and devote themselves to fuel wholesale and distribution. Buyers such as Couche-Tard, Delek and Pantry are happy to oblige, he added, saying their aggressive consolidation efforts are “like a race,” with each company constantly sending representatives to “knock on doors” in search of small- to medium-size convenience store chains looking to sell.
The broad fragmentation of the industry is a key reason for the M&A activity, the banker said. For example, the National Association of Convenience Stores reports that about 60% of US convenience stores, or about 84,500 stores, are held by an owner or franchisee who has only a single store location. The association also reports that the largest companies, which are those with 500 or more locations, own only about 13% of the stores in the nation.
The Southeast is such a hotbed for consolidation because of its growing population, a cultural climate in which people tend to shop more in convenience stores, and the relatively low price of real estate, which makes convenience stores more profitable to operate, the banker said. He added that Florida, especially its Panhandle and Gulf Coast, saw a large amount of activity last year and predicted that would continue through 2007.
Over the past three months, this news service has reported on the purchases of more than 100 convenience stores by The Pantry, more than 100 stores by Delek and more than 60 stores by Couche-Tard. The purchases were of chains ranging in revenues from USD 38m to USD 629m.

by Chris Marr in Atlanta

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