Deal Brewing for Couche-Tard?

Alimentation Couche-Tard Inc., Convenience Store Decisions 2007 Convenience Store Chain of the Year, locked up a $131.4-million sale and leaseback deal with Cole Capital related to 83 properties of Circle K Stores Inc. and Mac’s Convenience Stores throughout the U.S. The Laval, Quebec-based convenience store operator said it would use the proceeds to reduce its revolving unsecured operating credit.

The properties are in several U.S. states. The leases have an initial average term of 20 years, with renewal options for an additional 45 years.

"I am very satisfied with this transaction, which is part of our long-term financing plan and improves our short-term financial leverage," said Richard Fortin, chief financial officer.

The company plans to add 200 to 300 stores by the end of the fiscal year. Last month, Couche-Tard President and CEO Alain Bouchard told Convenience Store Decisions the chain owns 1,400 properties valued at $1.5 billion that it could tap into at any time to fund an acquisition.

Along with Real Plourde, executive vice president and chief operating officer, the duo is relentless in its pursuit of acquisitions and new store sites. The pair estimates that over the past year they spent more than half of their time touring the regions, stores and potential acquisitions, either together or individually.

"We both really enjoy getting out and meeting the people who are pulling the wagon," Bouchard said. "I have never doubted that the single most important ingredient in our success is people. Especially the store managers, dealers and customer service employees but also the market and regional directors, the talented and motivated support teams, and the industry’s most accomplished group of leaders."

The company is also not afraid to take chances. For example, Couche-Tard is managed through a decentralized management structure, which includes nine regional offices in the U.S. and Canada, each run by what Bouchard calls terms "CEOs" that have full decision-making power and support from the parent company.

"I get used to the comments when visitors realize my office looks out on the parking lot, but the message here is we don’t have a head office," Bouchard said. "At our executive offices [in Laval, Quebec], we propose management strategies to the board of directors and steer the direction the company takes. Each of our now divisions is run by a vice president who is essentially a CEO of his own multi-million dollar company. Responsibility is delegated generously at the base of the pyramid where each store manager has wide discretionary powers.

Despite the strong retail network and financial portfolio, Couche-Tard operates as a lean and very cost conscious group that puts a lot of emphasis on the feedback it receives from employees. "Back in 2003, we nearly gave up on the Circle K stores we had acquired in El Paso, Texas which were in very poor shape. But the store managers persuaded me to give it a trial," Bouchard said. "Last year, those stores returned operating income of approximately $7 million and doubled projections. This not only showed the mettle of the team in El Paso, it also validated for me our whole philosophy of empowerment. Circle K had been very centrally run and it was a big test of our values when we took it over."

Couche-Tard is now the main consolidator in the North American c-store market and its methodology doesn’t vary. "We adhere to a very disciplined program to buy strategically and well, to integrate new assets effectively and to rapidly pay down any debt encountered in the process," Bouchard said.

The chain is North America’s second-largest independent convenience store operator. Its network includes 5,637 outlets, 3,434 of which offer fuel in nine large geographic markets–three in Canada covering six provinces and nine in the U.S. serving 29 states. The company, which had 2007 revenues of almost $12.1 billion and a net profit of more than $196 million, employs about 45,000.


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