Convenience Store News

JUL 2015

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40 Convenience Store News | JULY 2015 | WWW.CSNEWS.COM COVER STORY Sliding Into Second New No. 2 Couche-tard boosts its powerhouse status with the Pantry I t can be said that 2014 was a rollercoaster year for The Pantry Inc. The Cary, N.C.-based operator of Kangaroo Express convenience stores began the year challenged by an investor group called Concerned Pantry Shareholders (CPS). Spurred by an underperforming stock price, CPS proposed the election of three independent board of director candidates. CPS argued that the current board had presided over a "prolonged under- performance," noting "The Pantry has had four CEOs in the past five years and continues to lack a strategically coherent plan to stop the value destruction." The group's concerns were heard and in March 2014 The Pantry's sharehold- ers voted for change, electing three new members proposed by CPS to the board of directors. The Pantry again grabbed headlines late in 2014 with news that it had qui- etly put itself up for sale. Alimentation Couche-Tard Inc. emerged as the win- ning suitor. The roughly $1.7-billion acquisition agreement closed March 16 of this year — almost a year to the day that The Pantry's shareholders cast their votes for new blood on the board. What's emerged now is a bigger, stronger Couche- Tard that added approximately 1,500 convenience stores to its Circle K Southeast division. As a result, the Canada-based retailer operates a total of 7,800- plus stores in North America. So, what happens now? According to industry insiders, Couche-Tard embarks on a journey of com- bining the best of Circle K and The Pantry's Kangaroo Express and further stakes its claim as a convenience retailing powerhouse to be reckoned with. "From within the store, when you think about the aspects of Circle K's strategy, Circle K in my view was further along with supply chain efficiency," said Ben Brownlow, equity research analyst at Raymond James & Associates Inc., noting the retailer is utilizing Core- Mark, the second-largest distributor behind McLane Co. Inc. "Core-Mark is well known for spearheading foodservice offerings that you don't typically expect at a c-store." For its part, The Pantry maintains a supply agree- ment with McLane. "I think you'll see some improved execution on the foodservice side at Kangaroo sites, possibly some more con- sistent product offering that is also bet- ter tailored to regional demographics," Brownlow said. On the fuel side, the deal brings an improved purchasing scale and mutual shared data on fuel pricing between the two companies. "Consumers could possibly see more competitive pricing at the pump. But ultimately, I think the savings, if any, that consumers see will depend on how much Couche-Tard management balances com- petitive pricing vs. reinvesting cost savings for future growth," Brownlow explained. Looking at what The Pantry brings to the table, he points to the retailer's success with promotional activity. "The Pantry, before it was bought out, had undertaken a multi-year initiative to deliver more relevant in-store product offerings and improve its promotional execution, like the Roo Cup promotion. The Pantry was very successful with that promotion and they are still running that promotion," he said. "While I think Circle K is further along in the product offerings, I think the company still can benefit from that promotional data and even some of the demo - graphic data that The Pantry has harvested." Tim Powell, founder and principal of Think Research & Consulting, believes that Circle K brings "excellent national recognition and is also adept at branding, particularly beverages. We may see some merging of proprietary brands, but I expect Kangaroo Express to keep to its brand to maintain a loyal base." Strategies of The Pantry that may survive the transi- tion include its foodservice execution and its ability to

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