Merger and Acquisition Activity Heating Up

Chains shedding underperforming stores in order to focus on core retail assets.

A  number of top quartile convenience store chains announced plans to shed underperforming stores over the past six weeks in an effort to raise capital to reinvest in core markets.

The Pantry Inc. said it would sell 114 locations in nine states throughout the Southeast. “These are sites that don’t fit our current strategy, but they can be excellent locations for the right buyers,” said Jim Bosworth, vice president of real estate for The Pantry, which operates 1,659 stores in 13 states, the majority under the Kangaroo Express brand.

Kum & Go, meanwhile, sold 22 stores in Iowa to Ankeny, Iowa-based Casey’s General Stores. Kum & Go President and CEO Kyle Krause, said that the proceeds of the divestment are being reinvested in Kum & Go’s 410 remaining stores in order to support the company’s long-term growth strategies.

For its part, Casey’s found the Kum & Go stores were a perfect fit for its operation. “These stores are predominantly in rural Iowa locations,” said company President and CEO Robert Myers. “These types of communities have proven to be an excellent fit for our business model.”

Maximizing Profitability
The flurry of recent divestments is a natural part of the industry’s ebb and flow, said industry veteran Dick Meyer, president of Meyer & Associates, a consulting firm specializing in the financial and strategic needs of c-store and petroleum retailers.

“These chains are finding strategic buyers who have more interest in that site and who can make more profits on that site than they can,” Meyer said. “So the buyers pay a higher value for the site. Then the sellers can redeploy those proceeds into more focused sites in their primary places of operation.”

For example, in the case of Kum & Go, which operates in 11 states, it comes down to a matter of logistics. “You can make more money by having a higher concentration of stores from a supervisory and distribution view point,” Meyer said. “As you spread out into smaller towns, the reach becomes more difficult and the profitability typically goes down.”

The Pantry, meanwhile, was a big consolidator. “It bought various chains with the intent of using a fill-in strategy through additional acquisitions, but in areas where those additional acquisitions didn’t happen, it’s wise to now refocus its strategy and say, ‘Does it make sense to have a limited amount of stores in this area?’” Meyer said.

Like The Pantry, Framingham, Mass.-based Cumberland Farms Inc. sold off 29 stores to multiple buyers that consisted of regional jobbers, individual store buyers and individual store operators. The sites had been owned by Cumberland Farms, a sister company of Gulf, but operated by independent operators. Cumberland also supplied fuel to 28 of the stores.

Cumberland Farms plans to use the capital raised from the divestitures to its fund store upgrades and build new-to-industry, company-operated retail units. Cumberland operates more than 500 stores in 10 Northeastern states and Florida.  

“The repositioning of capital within our market area is an important part of our strategy to acquire new sites, renovate existing sites, and own and operate sites consistent with our brand identity,” said Joe Petrowski, CEO of the Cumberland Gulf Group of Cos.

Because of today’s tough retail environment, chains need to focus more on profitability than ever before. “It isn’t about the number of stores, it’s about the profitability per store,” Meyer said. He cited QuikTrip of Tulsa, Okla., as a prime example of a c-store chain at the top of its class when it comes to maximizing profitability. “They pride themselves on having (divested) as many stores as they have opened. If stores don’t meet their volume and other standards, QuikTrip wisely dispenses of the underperforming stores and redeploys its funding and resources elsewhere.”


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