Alimentation Couche-Tard to test European private label coffee program in Canada

MONTREAL – Alimentation Couche-Tard, touting the successful rollout of its Simply Great Coffee program in Europe, says it has begun to test marketing the concept in Canada as the convenience store chain seeks to expand sales of high-margin fresh food.

Quebec-based Couche-Tard said Tuesday that it began to sell its own private brand of coffee this summer in Sherbrooke, Que., and will add some 20 locations in two different Canadian test markets in the coming months.

Details of the Canadian coffee program, including its name and the location of the test market sites in Quebec and elsewhere, were not disclosed.

The rollout of the Simply Great Coffee program at 20 per cent of its locations in Europe boosted coffee sales in those stores by more than 10 per cent, new CEO Brian Hannasch said Wednesday during a conference call to discuss the company’s fiscal second-quarter results.

“It’s one of the highest margins we have in our stores…It’s a great routine driver of customers to our stores,” Hannasch said.

Couche-Tard (TSX:ATD.B) has been trying to expand its fresh food offering across North America after examining the success of such offerings at the Statoil Fuel & Retail locations it acquired in Europe.

The company delivers bakery products and sandwiches to about 400 stores in five pilot markets in Canada and the United States. The retailer also prepares food such as chicken, pizza and hamburgers at some 200 locations.

Hannash said he’s pleased with the results, particularly in the U.S., but is working to better manage spoilage and reduce logistics costs.

“Canada is still in more pilot mode. We don’t think we’ve got the right recipe yet here in Canada but there’s a lot of work being done to make that happen,” he told analysts.

Meanwhile, Couche-Tard said it has launched a program in Europe, Statoil Extra, in which customers who sign up receive notifications on their cellphones of discounts on things like coffee, car washes and the like.

The program, developed in collaboration with Montreal IT company CGI Group (TSX:GIB.A) has helped to drive repeat traffic and the company said it may be expanded to North America.

Chief financial officer Raymond Pare said the company already offers loyalty programs in North America with grocery and other partners, but using its own mobile system is very powerful and easier to adapt various offers.

“We’re at the stage where we did roll out this tool in Europe and we will evaluate the performance but we always had in mind loyalty wherever we are,” he said in an interview.

Couche-Tard said its net income surged 25 per cent to US$286.4 million in the second quarter of its fiscal year despite a dip in revenues blamed largely on a higher U.S. dollar.

The company, which reports in U.S. currency, says profits excluding one-time charges were $313 million or 55 cents per diluted share, a penny below analyst expectations. The adjusted profits were up from $249 million or 44 cents per share a year earlier.

Revenues for the period ended Oct. 12 were $8.94 billion, down from more than $9 billion last year. The decrease was the largely the result of currency fluctuations and lower average fuel prices.

Couche-Tard also attributed the stronger results to acquisitions as well a $457-million decrease in long-term debt to $2.15 billion.

Hannasch said various efforts, including the coffee program in Europe, have helped improve the company’s organic sales growth, while strong fuel margins and debt reduction were improving the bottom line.

Meanwhile, the CEO said a decision by U.S. pharmacy retailer CVS to stop selling cigarettes has started to help sales at nearby Circle K stores. And he expects falling oil prices will help to stimulate sales and traffic to its stores.

Derek Dley of Canaccord Genuity said the lower net debt to earnings ratios and about $1.2 billion in available liquidity leaves Couche-Tard “very well-positioned to pursue accretive acquisitions.”

“Ownership of Couche-Tard shares offer investors an attractive hedge within a declining oil price environment,” he wrote in a report.

Same-store merchandise revenue increases slowed in the U.S. and Canada from the prior year, but were still up 2.8 and three per cent respectively in the quarter, while in Europe same-store revenue was up 2.1 per cent.

Fuel volume sales for stores open at least a year decreased 1.1 per cent in Canada, but were up 2.1 per cent in the U.S. and 2.2 per cent in Europe, while gasoline margins in the United States increased 12 per cent and were up slightly in Europe and Canada.

Fuel profits increased 8.8 per cent to $538 million even though revenues decreased 1.4 per cent to $6.36 billion. Merchandise profits were up 1.8 per cent to $659.1 million on $1.94 billion of revenues.

The company said it realized about $22 million in pre-tax cost savings in the quarter at its European Statoil Fuel & Retail operations, an acceleration from $12 million in the first quarter. Total annual savings are about $119 million. Couche-Tard expects to end up with $150 million to $200 million of annualized savings before the end of December 2015.

Couche-Tard has more than 8,500 stores, including nearly 6,300 company-operated locations and 1,100 franchised outlets.

On the Toronto Stock Exchange, its shares closed up nearly four per cent, gaining $1.52 to $39.70 on Tuesday.

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