Master Plan

Alain Bouchard talks to CSP Daily News about M&A in a tough economy

Published in CSP Daily News

By  Angel Abcede, Senior Editor/Content Development Coordinator

LAVAL, Quebec -- In the wake of a new partnership deal with Irving Oil Ltd., St. John, New Brunswick (see related story in this issue of CSP Daily News), Alain Bouchard, chairman, president and CEO of the c-store juggernaut Alimentation Couche-Tard Inc., spoke to CSP Daily News about holding firm to its aggressive acquisition strategy, despite economic hardship in several of its U.S. divisions. Bouchard spoke candidly about everything from regional challenges to survival tactics, recent managerial changes to cross-channel competitors.

CSP: Thank you, Mr. Bouchard, for speaking with us [image-nocss] today. To start, can you give us more insight into the Irving Oil deal and what it means for Couche-Tard overall?

Bouchard: I told shareholders with confidence that before the end of the fiscal year, we 'd achieve our acquisition goal of 200-300 stores. Before now, we did buy about 120 stores, so I was short a couple of hundred. But I 'm happy to say we 've now been able to deliver over 350 stores in the last fiscal year. With regards to Canada, Irving Oil finally makes us a coast-to-coast chain here. It means something with national promotions and exposure. On top of that, we 're in many of these provinces now as the market leader. In the U.S., we see room for expansion in New England in general. We see it as the beginning of a new division, with about 120 stores to start. The Northeast deserves to have a full 500-store division down the road.

CSP: Could the expansion you talk about in New England be with major oil companies?

Bouchard: When we start to map out a market, my goal is to try to have these top-to-top meetings with regional players or the big, integrated oil companies. We start to discuss the possibilities, but it 's always a very long process with these guys, so we 're patient. We start there and with local entrepreneurs; … there 's enough available.

CSP: Do current economic times help or hurt your position as a buyer?

Bouchard: Sellers are becoming more reasonable, and the prices are more aligned with the return. Remember, what was driving high prices on assets in last few years was real estate. People were saying, “My store is worth $2 million for land and building and the business is worth $2.5 next year, so I want $3 million,” … when the bottom line was that it was making $100,000 a year. That was the situation we were facing. But it 's evolving.

CSP: What 's your take on the U.S. economy in general and what has been its impact on U.S. gasoline and c-store sales and margins for Couche-Tard?

Bouchard: Let me refer to January 2007, when we started to get word from Arizona and Florida telling us, “Hey guys, it 's getting tougher here and we 're seeing some slowdown.” This was not the case in Canada and elsewhere in the U.S. So we got our wake-up call in advance. We believe Arizona is flattening out, with the housing inventory getting more stable. Curiously, I 've met people in Arizona who are now reinvesting in real estate there. People are moving into the state and the population is growing. As for Florida, it 's going to take some time there. I don 't think they 've hit bottom. In California, we don 't have enough stores to validate the situation, but I know we 're suffering—not as bad there as in Florida. Then in our Great Lakes and Midwest regions, we 're doing well. I don 't think it 's a reflection of what 's happening in the market overall, it 's with us.

CSP: What does Couche-Tard and Circle K do as a chain to respond to tough economic times?

Bouchard: Well, take the Midwest, for example. Our success comes in part because of our rationalization of the Clark and Dairy Mart stores and our closures over time. Today, our average merchandise sales per store as well as our gallons per store have increased a half-a-million dollars a year. That 's big.

CSP: Are there other tactics you employ when things slow down?

Bouchard: When we face that kind of challenge, we accelerate some decisions. Using benchmarking, we compare in an apples-to-apples way and find places where our divisions ' expenses differ. There 's a lot of savings we can create, and we accelerate those decisions when facing bigger economic challenges. But what we don 't want to do is cut at the store level where customer service is concerned. Another important metric is customer count. It 's always on our watch list. If you see something happening, you may have to sacrifice margin to make sure you 're not losing customers. Maybe there 's a decline in consumption for a period of time, so you might have to be more aggressive on beer or something else—not for the long term, but for that time.

CSP: With supermarket chain Albertsons selling its gasoline operations to Valero (as reported earlier this week in CSP Daily News) and other big-boxes seeming to back away from convenience retailing, what 's your take on cross-channel competition today?

Bouchard: It 's not the same story everywhere, but in general, the competition is easing up. Over the years, we 've seen different boxes enter our channel. For Albertsons, it 's a wake-up call. There 's not that much money you can make with that kind of offer. To succeed in retail, you have to be focused, dedicated and have the expertise on your side.

CSP: Speaking of expertise, we at CSP have covered some of the changes you 've made recently, further breaking up your business divisions and changing leadership positions. Can you comment?

Bouchard: We 've always said to the market that we think the best division size, where you can get efficiencies needed, is that 500-store division. When we exceed that, such as in Arizona and in the Florida-Gulf Coast, we realign. On top of that, you see in some areas more stores coming and the potential for more growth, more acquisition. That 's the second reason. Regarding management, we think succession planning is a very serious matter. We train managers to take over new divisions. That 's what 's happening.

CSP: So despite tough economic times here in the U.S., you envision more acquisitions?Bouchard: We are in good shape. With our balance sheet, we can make a $2 billion acquisition tomorrow. But we 're still working at improving our current store base with our IMPACT concept. We have a long-term goal for the industry, where customers have a better perception of c-stores overall.

By Angel Abcede, Senior Editor/Content Development Coordinator
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