Convenience Store News

JUL 2015

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38 Convenience Store News | JULY 2015 | WWW.CSNEWS.COM COVER STORY No. 1 No More? 7-Eleven still holds the top spot, but other chains' growth puts its dominance into question A s it sits atop the Top 100 list for yet anoth- er year, 7-Eleven Inc. remains a dominant force in the convenience store industry that is capable of setting trends and serving as serious competition to other stores in its markets. While it still holds a lead of several thousand stores, the industry has seen a number of changes that prompt a new question: Could this be 7-Eleven's last year in the No. 1 spot? At first glance, the Dallas-based company has noth- ing to worry about — 7-Eleven's store count of 8,144 locations puts it more than 2,700 units ahead of No. 2 Alimentation Couche-Tard Inc., and it is twice as large and then some compared to most other companies in the top 10. However, other chains boosted their store counts by incredible figures year over year. Couche-Tard is up 1,047 stores compared to this time last year, while Marathon Petroleum Corp. is up by 1,263 units and CST Brands Inc. by 973. 7-Eleven added just 395 stores year over year. According to some industry experts, the disparity in growth is just a matter of perspective, as a net gain of nearly 400 stores would be viewed as more than accept- able growth in a year without the landmark acquisitions that Couche-Tard, Marathon and CST made. "I don't think anybody is concerned about who is biggest," said Dennis Ruben, managing director of NRC Realty & Capital Advisors LLC. "7-Eleven has decided it is better off selling non-strategic assets that are either too small or not in core markets." Ben Brownlow, equity research analyst with Raymond James & Associates Inc., also dismissed seri- ous concern about a shift in ranking. "7-Eleven always has the scale and capital to compete," he said. "It is on the same footing." Others view 7-Eleven's smaller addition as a calcu- lated choice rather than it lagging behind. "7-Eleven has slowed its growth because it appears to have changed its business plan," said Terry Monroe, president of American Business Brokers. Instead of expanding through acquisitions, such as its deal to purchase the 182-store Tedeschi Food Shops chain, 7-Eleven is putting more effort into converting company-operated stores into franchise stores. This strategy discourages acquisitions unless 7-Eleven can immediately convert purchased stores into franchises, Monroe said. By having more franchi- sees, it can focus on selling a greater amount of propri- etary food items. "Other chains are expanding and they should, with all of the cheap money that is available to them," Monroe added. "Which in turn has made store valu- ations higher than they have been in years. So, it is a great time to be a buyer and a great time to be a seller." What ComEs NExt The current climate of growth is likely to continue while it is feasible, according to experts, as there will unlikely be such a promising opportunity for expan- sion for a long while. But major acquisitions like Couche-Tard's purchase of The Pantry Inc. aren't likely to happen regularly. Most predict 7-Eleven will retain its crown in 2016, but the gap between it and the runner-up may narrow, and it is likely to be challenged in the future as indus- try consolidation continues. "It will put more pressure on the chain to be flexi- ble, more controlled from a centralized perspective and hopefully it will realize just being the largest doesn't mean they are the c-store leader," said Tim Powell, principal and owner of Think Research & Consulting. For the moment, 7-Eleven does not need to chase growth for its own sake. "It is obvious 7-Eleven is more concerned about profitability than they are number of stores. They like to focus their stores in large metropolitan areas where they have commissaries and they can supply their stores, which enables them to offer their proprietary food offerings to their customers," Monroe said, not- ing foodservice offers a high gross profit. "7-Eleven has done a very good job of executing the food side of the business and will continue to as they grow." Ultimately, while 7-Eleven may not always be the country's largest c-store chain, it may just be business as usual for the longtime leader. — Angela Hanson

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