Possible Couche-Tard and 7-Eleven Collaboration: What Does It Mean for the Industry?

Terry Monroe, founder and president of American Business Brokers & Advisors, rates the odds of the deal at 60/40. “I was surprised, but not completely surprised,” he said. Convenience Store News“I’ve always had the same thing. There are 152,000 convenience stores in the United States. It’s not one national player, not one. There’s no McDonald’s in the c-store business, where one company has a store in every state. We’ll get here eventually; something like this will get us there.”

He added that 7-Eleven was close to acquiring the Speedway chain from Marathon Petroleum Corp. for $21 billion in 2021; however, 7-Eleven kept the Speedway name after the deal was completed.

What tips the scales in favor of a deal, Monroe said, is the use of the word “friendly” in reference to Couche-Tard’s proposal for Seven & i. “That tells me they’ve been talking,” he added.

Mark Radosevich, president of PetroActive Real Estate Services LLC, was similarly surprised by the news earlier this week because it was “not in my realm of vision,” he said. CS News. “If it closes, I think it will be a long time. … Maybe this time next year at the earliest.”

One national player missing

Comparing the big merger to its previous, growing U.S. business, Monroe said Blockbuster’s entry into the video rental market created a national player and brought credibility to the small, family-owned operations already in the market. A national convenience store brand would have the same impact on a channel that remains highly fragmented and composed largely of independent and single-store owners.

“It will help consumers because they will have some consistency,” Monroe said, adding that if Couche-Tard completes the deal, it would bring consistency to its national offering.

“It’s a bold goal for them, but it has to be done. Something like this has to happen eventually. There has to be a national player,” he said. And why not Couche-Tard and 7-Eleven, which have similar business models: one has a large network of franchisees, the other a large network of dealers. “I don’t think there’s a better competitor than Couche-Tard, and they’re good at acquisitions.”

Potential shocks

As for what will happen with the potential deal and the Federal Trade Commission (FTC), Monroe said he hasn’t had a chance to overlay 7-Eleven’s U.S. footprint with Circle K’s U.S. footprint to see where — or how — they overlap. By comparison, the FTC ordered 7-Eleven to divest about 290 stores as part of the Speedway deal, because CS News reported earlier.

Still in the early stages of talks, Ken Shriber, managing director and CEO of Petroleum Equity Group, said it was difficult to tell how Seven & ii’s shareholders would react, especially given the company has “bold growth initiatives” of its own.

“If approved, I don’t think it would change the competitive landscape because it would be a combination of two of the largest players,” he said. “The food service offering and the 7-Eleven commissaries would be a big benefit to Circle K.”

He stressed that Couche-Tard is likely to face FTC scrutiny in the U.S., especially where both companies have significant store presence, such as in Texas, California, Florida and other Mid-Atlantic and Northeastern states.

According to Radosevich, a strategic rationalization of the network will follow any deal based on competitive considerations and brand redundancy in the retail space. “Some locations will be designated for continued direct business operations, while others may be sold to marketers for dealer leases or dealer-direct sales, and fuel supplies will be sold or retained,” he said. “It will be a mix of scenarios that will take months to decide and execute.”

From a purely macroeconomic perspective, he explained, acquisitions of existing stores — many of which are older in style and size — may indicate that retailers/owners are hedging their bets and monetizing their investments, as the ever-increasing and widespread stable of large, modern stores with sophisticated operators will ultimately make many of these stores highly vulnerable and significantly less valuable in the future.

“The current size of the property, the size of the facility, the offerings, and the inability to tear down and rebuild or upgrade the facility versus a new competitor in the industry that will ultimately eat lunch from the vulnerable assets in the trade area. That, plus the political uncertainty and the ongoing rumors (about electric vehicles) make it an optimal and pragmatic decision to dump chips,” Radosevich said, adding that “strategic cash raising now versus slow, inevitable value erosion in the future (without a silver bullet buyer) makes management seem like heroes. They’ll sleep better at night.”