For 40 years, shoppers and investors have thought about Alimentation Couche-Tard Inc. as a convenience store chain that sells soda pop and cigarettes. Now, they’re waking to the realization that it wants to be much more.
Couche-Tard executives, forced to the defensive over the company’s aborted US$20-billion takeover play for French grocer Carrefour SA, explained their rationale for the deal on a conference call Monday. But they also sketched the broad outlines of a growth strategy for the company that goes beyond what even its closest followers had previously imagined.
Couche-Tard leaders said that although owning supermarkets is outside the company’s core competency, combining the two businesses would have yielded significant opportunities and positive returns for shareholders. And they said they’re exploring moves into other “adjacent retail spaces” to the corner-store sector, including quick-service restaurants and dollar stores, where markets outside North America are less dominated by big chains.
“First and foremost, I think we’re a retailer. That fact gets lost a little bit,” Couche-Tard chief executive Brian Hannasch said. “As we see the retail landscape changing, channels continue to blur at an even faster pace … We consider it important to look at related growth platforms and how we can add to our core capabilities.”
That management of the Laval, Que.-based company held a conference call to answer questions on Carrefour speaks to the extent of investor confusion that was hanging over a potential agreement. But the new details given about its thinking on growth underscores that Couche-Tard’s field of vision is much broader than previously believed and that this company will likely not be the same one in the years to come.
Shares of Couche-Tard, which means night owl in French, gained 1.1 per cent to close at $38.40 Monday on the Toronto Stock Exchange. The company controls the Circle K chain of convenience stores, with more than 14,000 retail locations in 26 countries.
Couche-Tard shocked stakeholders and observers last Tuesday when the company confirmed a Bloomberg News report it was in early stage discussions on a deal to take over Carrefour. By Friday the deal was dead, the victim of a French government that was blindsided and subsequently nixed the idea on the grounds that it would harm the security of the country’s food supply.
“What we had unfortunately was a leak that allowed this overnight to show up in the papers. And it caught all key stakeholders by surprise and put them quite honestly on the defensive,” Mr. Hannasch said in an interview. “[It] really cut off the opportunity for us to engage and share our plans.”
French political leaders were “a bit frustrated that we didn’t contact them in advance,” Couche-Tard founder and chairman Alain Bouchard said in the interview. He said normally Couche-Tard would engage political stakeholders after a letter of intent is signed between the companies, which hadn’t yet occurred in this case.
Couche-Tard had planned to meet with the French government a few days after that initial agreement was reached. In the end, Mr. Bouchard flew to Paris Thursday in a last-ditch effort to try to salvage the friendly deal.
The chairman went to the headquarters of the French Ministry of Finance and Economy, which extends over the Seine River in the city’s 12th arrondissement, and tried to make a case to Finance Minister Bruno Le Maire that included a commitment to preserve jobs and satisfy food-supply concerns. To no avail. The whole exercise was over in about 20 minutes, Mr. Bouchard said.
“It was a cordial discussion but very firm on his part,” Mr. Bouchard said. “We didn’t think, and Carrefour didn’t think, [food security] could be at risk. I mean they’re a retailer. We’re buying food from the locals.” The government was “probably concerned with the reaction of the farmers and the fishermen and others,” he said.
The COVID-19 pandemic appears to have heightened France’s watch over its retailers, Couche-Tard finance chief Claude Tessier said. After the sight of bare store shelves and global shortages of staples such as baby formula last year, “the government was probably expecting to be in the loop a bit sooner,” he said.
Couche-Tard respects France’s decision and would welcome the opportunity to re-engage the government in talks to demonstrate that a tie-up with Carrefour could be good for France and for consumers, Mr. Hannasch said. “We’ll see what happens but for now [the file is] definitively closed.”
Instead, the two companies said they will begin exploratory discussions on how they can collaborate on operations. That includes partnering on private-label development and evaluating ways to improve product distribution in markets where they overlap.
Quebec Economy Minister Pierre Fitzgibbon also spoke to Mr. Le Maire Friday to try to provide reassurance that Couche-Tard could be a good owner for Carrefour but his counterpart’s mind was “already made up,” Mr. Fitzgibbon said in an interview Monday. Still, he said he believes the seeds have now been planted for a potential future rapprochement.
The denouement marks the second major takeover attempt by Couche-Tard that has petered out in less than a year. Last April, the company suspended efforts to acquire Caltex Australia Ltd., now known as Ampol Ltd., saying the target’s business prospects had become clouded by the pandemic.
Couche-Tard hasn’t made a major acquisition since buying Texas-based CST Brands Inc. for US$4.4-billion in 2017. It was also in the running for Marathon Petroleum Corp.’s Speedway chain this past summer but bowed out after the price became too rich, losing the contest to Japan’s Seven & i Holdings Co.
Mr. Bouchard has turned Couche-Tard into one of the industry’s leading consolidators and the company has continued to expand its store count and revenue dramatically, doubling in size several times through acquisitions in the United States and Europe. In 2019, he set a goal to double net earnings again over five years. To get there, Couche-Tard has to increase sales of existing stores while making further acquisitions, Mr. Hannasch has said.
It’s in that context that Couche-Tard executives began analyzing the broader retail industry for takeover and partnership opportunities and looking at related sectors such as supermarkets, dollar stores and quick-service restaurants, Mr. Hannasch said. He said the company narrowed that analysis to two specific retail types into which it could expand, including grocery. He declined to name the other.
“Food is the common theme there across everything that we’ve looked at,” the CEO said, adding that the company has no plans to stop selling gasoline and is adding to its fuel-sourcing capability so new acquisitions would need to mesh with that as well.
The COVID-19 pandemic has crushed international travel but starting in November, 2020, Couche-Tard’s executives managed to visit five countries and about 500 retail outlets run by Carrefour and key rivals as they began their typical “on the ground” due diligence. They’re also actively working on other acquisition opportunities.
“This is not about ego. It’s not about being big for big’s sake,” Mr. Hannasch said. “We do think scale will matter. We think being able to be part of a customer’s life in an omni-channel way is going to be more important than ever in the future. But we’re going to do a deal if we think it’s something that brings value first and foremost.”
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