Alain Bouchard, the perpetually smiling founder and CEO of Quebec-based convenience retailer Alimentation Couche-Tard Inc., is the ultimate kid in a candy store. He owns the candy store—lots of stores, actually—and they make lots of money. From 2011 to 2013, his company delivered net earnings of $370 million, $460 million and $575 million respectively, tripling its share price in the process and vaulting its name into the top ranks of corporate Canada. Since 2005, Couche-Tard’s earnings per share have gone up every year except one, rising from 12¢ to $1.20 over that period. “Find me another business that’s been able to grow through the recession like that,” says Greg Dean, analyst and fund manager at Toronto-based Cambridge Asset Management.
In fact, Couche-Tard has managed to keep growing through the past three recessions. Beginning in 1980 with a single dépanneur—as convenience stores are called in Quebec (the word basically means “re-up”)—Bouchard has built Couche-Tard’s network to more than 6,000 stores across North America, another 2,300 in Europe and 3,000-plus licensees in Asia and Latin America. With major banners such as Couche-Tard, Mac’s and Winks in Canada, Statoil in Europe, and Circle K in the United States and beyond, Couche-Tard is one of the planet’s most ubiquitous retailers. Bouchard has turned convenience retailing, once a forgotten mom-and-pop corner of the economy, into a Canadian-based global profit behemoth, a juggernaut slaking monstrous thirsts and gratifying corporeal cravings. Fat, sugar, salt, caffeine, nicotine, alcohol, melted American cheese: Couche-Tard’s omnipresent night owl knows what your nervous system wants before you do. That’s why it’s winking at you.
If Couche-Tard has demonstrated a record of consistency and profitability few businesses can match, it’s because few businesses can match the relationship Couche-Tard has with its customers. The local corner store is the place we spend our first allowance on our first Popsicle—not our first Popsicle ever, but the first one we pay for with our own money, and it’s the tastiest, most satisfying Popsicle of our lives. But convenience stores are also places where North Americans do as much as 40% of their food shopping, making them lucrative profit centres when run with the lean efficiency that Couche-Tard brings to the business.
That’s why grocery stores have been fighting lately to reclaim territory they believe is rightfully theirs: Loblaws recently purchased Shoppers Drug Mart, keen to add its network of locations and its expanding array of foods. Wal-Mart has opened its own pilot convenience store, Walmart To Go. And Sobeys, which purchased some 200 convenience stores from Shell in Quebec, is trying out a new concept in them called IGA Express, a mini-grocery gas bar that offers supermarket-quality fresh produce, bakery and specialty products, as well as easy-to-prepare meal options such as salads, sandwiches and cut vegetables. All of which means that as Bouchard prepares to hand over the reins of the company to a new CEO later this year, the empire he’s built could face some daunting new challenges.
Convenience stores enjoyed their first gilded age in the 1970s and 1980s, as chains proliferated, many with kid-friendly logos and products. Ontario had Becker’s and Mac’s, whose signs featured a cat in a tam-o’-shanter. Quebec featured Perrette (inventor of the much-beloved and now-obsolete “sip sack,” an early beta version of the drink box) and Provi-Soir, whose logo was a droopy-eared owl with both eyes wide open. Then there was Couche-Tard, an 11-store chain in the Quebec City area with a sleepwalking fella in striped pajamas for a logo. In 1985, Bouchard, a former Provi-Soir executive who’d opened his own store, purchased Couche-Tard. It tasted just like that first Popsicle. He has yet to stop eating.
Couche-Tard went public in 1985, then spent the next 15 years swallowing Quebec-based stores and chains whole, including Provi-Soir, repatriating the owl logo and putting that dependable wink in its eye. In 1999 it gobbled up Silcorp, owner of Mac’s and Becker’s, and two years later, the 225-store Bigfoot chain in the U.S. Midwest. Couche-Tard then opened wide and ate Circle K—the chain made famous by the 1989 Keanu Reeves movie Bill & Ted’s Excellent Adventure—adding some 2,000 stores, and one globally recognized brand, to its inventory. In 2012 it made its biggest acquisition yet: Statoil Fuel & Retail, the convenience subsidiary of Norway’s crown petroleum company, with more than 2,300 stores across Scandinavia, the Baltics and Russia.
By all accounts, Bouchard has yet to sate his own appetite, which is good news for investors because there’s lots left to eat. The convenience landscape in the United States today looks like Canada’s did back in 1990: dotted with regional chains numbering between 50 and 300 stores, some larger networks owned by Big Oil, and industry leader 7-Eleven. All of them (except 7-Eleven) are potential acquisitions, and according to Cambridge’s Greg Dean, Couche-Tard always buys at a bargain price. “They don’t just grow for the sake of growing,” he says. He points to 2010, when the company attempted to purchase Iowa-based Casey’s General Stores: when the deal became too expensive, they walked away. (Casey’s shareholders figured they’d get a better offer elsewhere. They’re still waiting.) “When Couche-Tard makes an acquisition, investors are confident they’ve purchased at the right price.” In an industry known for its ruthless margins, Couche-Tard can’t afford to overpay for acquisitions any more than it can for the stock on store shelves.
Convenience retail is the ultimate discipline game, and few of Couche-Tard’s competitors share its laser-like focus on “the box,” what’s inside it and how it’s run—particularly at its more than 4,700 gas station outlets. Hugh Large, a Victoria-based convenience retail consultant, notes that whereas Big Oil views candy bars and coffee as just add-ons to pump sales, Couche-Tard sees the box as integral to the business: “People want one-stop convenience,” says Large. “The store can’t just have gas. It needs to offer coffee, lunch and an ATM.”
The pumps account for 70% of Couche-Tard’s total revenues, but they produce only 30% of gross profit. The box accounts for the rest, and it’s an efficient profit machine. Slow-moving merch is taking up less and less space in store displays—witness the incredible shrinking automotive shelf, once replete with spare windshield wipers and pressure gauges, now reduced to Armor All wipes and pine fresheners—and the company cuts costs rigorously. It recently reorganized its stores’ waste-management system, switching to larger collection bins that require less frequent pickup.
Vigilance pays: Dean says Couche-Tard manages to keep roughly 2.5¢ on every dollar of revenue, while others can average roughly a penny less. High-margin prepared foods—hotdogs, taquitos and microwaveable burgers—are the fastest growing category of merchandise sales. It makes up 15% of in-store sales, a figure Bouchard has said he wants to increase to 25%. To meet that target, the average Couche-Tard store keeps getting bigger, as the food-service area—once just a roller grill, a coffee pot and a Froster machine—grows to accommodate an ever-expanding array of on-the-go foods. Even the microwaveables now cater to discerning tastes. Got a hankering for pizza? Take your pick: a Pillsbury Pizza Pop or a gourmet calzone?
Come September, Bouchard will officially step down as Couche-Tard’s CEO. He’ll be replaced by COO Brian Hannasch, a native of the U.S. Midwest and himself a former store operator who joined the firm in the 2003 acquisition of Bigfoot. But Bouchard plans to stay on as executive chairman of the board, which will allow him to continue in his role as bargain-hunter-in-chief. His best opportunities likely lie in oil cos grown tired of convenience retail, which most of them have. Couche-Tard has been mentioned as a potential buyer for the 1,000 Hess Express stores operated by New York–based Hess Petroleum. ExxonMobil and Shell have stated their intentions to vacate a number of retail markets in Europe. Analysts say Bouchard may have trouble finding firms willing to sell at his price, particularly in the U.S., where the economy is back on the upswing. In the meantime, he’s keeping busy bringing North American–style merchandising to Europe. Over at Statoil, in-store sales account for only 30% of gross profit, which leaves lots of room to grow. Checkout counters across Europe are being retrofitted to encourage more impulse purchases.
Meanwhile, back in North America, Big Grocery is mounting an offensive to wrench market share away from Big Cornerstore. The grocers have the upper hand in this regard: they have experience with meats and produce that Couche-Tard doesn’t, which will allow them to expand their fresh offerings quickly. It’s likely just a matter of time before Shoppers Drug Mart sells rotisserie chickens. Still, Couche-Tard has responded by bringing its own array of fresh goods into its stores, including bananas, yogurt and sandwiches. Whether it manages to hang on to time-pressed shoppers who are increasingly motivated by healthy impulses remains to be seen. But the company’s night-owl mascot could turn out to be an apt symbol: Couche-Tard never gets caught sleeping.