We see a long pathway of growth in front of us: Parkland CEO
Two of Canada’s largest convenience store operators are taking opposing strategies when it comes to expanding their food services.
Parkland Corp., which owns hundreds of On The Run, Ultramar and Husky gas station locations across the country, made a $322 million bet on frozen foods earlier this week when it agreed to acquire M&M Food Market. Alimentation Couche-Tard, meanwhile, has embraced a concept it calls “Fresh Food, Fast” for its network of Circle K stores.
Couche-Tard “does not need to respond at all” to Parkland’s acquisition, one analyst that covers the Montreal-based company’s stock who asked not to be named said via email, as “they do not need the likes of M&M to remain competitive.”
Couche-Tard “has been putting an immense amount of effort into its food business for several years already,” said another analyst that covers the company, who also asked not to be attributed directly. “Their focus is what they call 'Fresh Food, Fast,' so obviously a different approach than frozen.”
As fuel retailers adapt to the rise of electric vehicles, food services are becoming an increasingly important aspect of their business models as average customer dwell time - how long drivers spend at a refueling station - grows dramatically from just a few minutes for drivers of gasoline-powered vehicles to a minimum of 20 to 30 minutes for EV drivers.
“Hot food will also be an attraction as more customers charge their electric vehicles” at refueling stations, Kathleen Wong, who covers Couche-Tard for Veritas Investment Research Corporation, said via email. Parkland’s acquisition of M&M, she said, “affirms the attractiveness of the food service strategy for Couche-Tard.”
Food services also happen to have a “very high gross profit margin” of roughly 60 per cent, Wong said, “so we expect Couche-Tard to improve its merchandise [gross processing margin] going forward.”
According to its latest investor presentation, Couche-Tard offers some data to support its focus on fresh over frozen: 80 per cent of food items purchased from its stores are consumed within one hour of purchase. The company also has the benefit of scale: it boasts thousands of stores collectively selling an average of 500,000 hot dogs and 750,000 cups of coffee every day.
Couche-Tard is also hedging its bet on fresh food to some extent, with several Circle K locations already hosting “M&M Express” outlets consisting of a dedicated freezer. Parkland intends to maintain that supply relationship, Parkland CEO Bob Espey said in an interview this week, though he added “one of the advantages” of buying M&M was so his company “can start to develop some of our own proprietary offers that would only be available at our sites.”
Calgary-based Parkland, much like its Montreal-based rival, is also keenly aware of the need to offer an increasingly diverse set of food items as their refueling business shifts further and further toward EV charging stations.
In the future, Espey said, “you could expect to pull up and purchase your energy, whether that is in the form of hydrocarbons or electricity and then come into one of our sites where we would have an integrated restaurant with a fresh offering [and] there would also be an area where you could buy frozen M&M products and another section in the store where items that came in frozen are warmed up and served to customers that are in a hurry.”
Ultimately, the paths taken by the two convenience store giants reflect the different ways to achieve fundamental corporate growth.
“Couche-Tard has an organic strategy to expand its food service offerings in its convenience stores,” Wong said, “while Parkland has chosen an acquisition strategy.”