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Jan 3, 2019

A move to gas for Amazon could trouble Couche-Tard: Analyst

Why Amazon should move into gas stations next


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If Amazon gets into the gas station business, it could spell trouble for Quebec-based Alimentation Couche-Tard Inc., according to an outspoken U.S. analyst. 

“To the extent that [Couche-Tard] could partner with a Google Pay or some other provider to make it as easy an experience, or partner with some other provider as it pertains to rewards then maybe they could withstand an Amazon barrage,” D.A. Davidson managing director and senior analyst Tom Forte told BNN Bloomberg on Thursday.

Couche-Tard currently operates nearly 10,000 convenience stores throughout North America and more than 8,600 of those locations include gas stations.

Earlier this week Forte - one of Wall Street’s biggest bulls - issued a letter to clients recommending Amazon to target gas stations to deepen its ability to disrupt bricks-and-mortar retail.

If Amazon were to enter the space, it could force incumbent players to adapt quickly, said Forte. He added that investors who think the potential move would see the tech giant target Couche-Tard for a merger should think twice.

“Historically Amazon’s M&A strategy is build first and buy second. You saw that in grocery with years of toiling with Amazon Fresh before they bought Whole Foods,” he said.

Despite the entrenched competition, the move into the gas station sector would make strategic sense for Amazon, says Forte. The convenience stores attached to most gas stations could also serve as local depots for package delivery.

“The opportunity for Amazon is essentially to have thousands of retail locations to advance their delivery efforts, to take advantage of the lower cost of delivering to a commercial address rather than residential,” Forte said.

The Wall Street Journal reported on Monday that Amazon is planning to expand Whole Foods’ physical retail footprint in the U.S., specifically in suburban areas.

Amazon shares traded as high as US$1,552.69 on Wednesday, but closed down 2.52 per cent - or US$38.85 - to US$1,500.28 on Thursday. The company’s shares hit all-time highs last fall, breaking US$2,000 in September and October.

Forte also said the move could also allow the company to expand its cashier-less technology and give Amazon more expansive data on their customers’ physical whereabouts.

As for the gas itself? Well, that’s not bad business, either.

“It could be a boost to sales,” Forte added, noting that 10 per cent of Costco’s sales come at the pumps. “Additionally – to the extent that you offer a Prime discount on gas – it could help them add Prime members or improve customer retention.”

“When you think about the opportunity for Amazon, it checks a lot of boxes.”