Calgary-based Parkland, which operates On the Run convenience stores and sells gas under the Esso, Chevron and Fas Gas Plus banners, is in the midst of an effort to diversify its retail business as customers gradually shift toward more electric vehicles. The company has announced plans to open more standalone convenience stores and to expand the food items it sells.
M&M currently has roughly 315 standalone food shops across Canada, but also partners with other retailers such as Rexall, PharmaChoice, Circle K and OnRoute to sell its products at roughly 2,000 locations. The existing partnership between M&M and Parkland to sell products in On the Run locations led to discussions about the potential for a deal.
Parkland plans to sell M&M products in more of its convenience store locations – including eventually at locations in the U.S. and internationally – as well as opening more standalone M&M stores.
“A big part of the broader diversification strategy for Parkland is to recognize there is an energy transition, to sell energy ... but also creating other opportunities for our customers to engage with us,” Ian White, the company’s senior vice-president of strategic marketing and innovation, said in an interview.
M&M has undergone significant changes since being acquired by private equity firm Searchlight Capital Partners in 2014. Searchlight brought in new management, including chief executive officer Andy O’Brien and chief financial officer Sam Florio, both of whom had worked for then-restaurant operator Cara Operations Ltd. (Mr. O’Brien was president of Kelsey’s and Montana’s restaurants at Cara, and before joining M&M was president and CEO of burger chain The Works.)
After that deal, M&M changed its name from M&M Meats, closed some out-of-date stores while renovating others, and made changes to its frozen-food products, including removing artificial flavours and colours and adding new items to the assortment. The company also used years of customer data to build a loyalty program, which Parkland now plans to combine with its own Journie rewards program. Combined, the company estimates it will have roughly 4.5 million active users. M&M’s management team will remain with Parkland, leading both M&M and the company’s wider food strategy, Mr. White said.
“We have signalled about a $1.5-billion investment over the next number of years in retail diversification, and a lot of that is on the food side of the business,” he said. “So we’re continuing to look at partnerships that allow us to advance our convenience-as-a-destination theme.”
As Parkland builds more standalone convenience stores, the company plans to open co-locations for On the Run and M&M stores together. At Parkland convenience stores that currently carry M&M products, customers who buy those items have significantly higher average transaction sizes, and typically buy more adjacent products such as beverages and snacks, Mr. White said.
The brand will also appear at more of the company’s fuel locations. As more customers transition to electric vehicles in the coming years, the installation of charging stations will mean that gas-station operators will need to make their locations more appealing for customers who have to wait longer for a charge. For Parkland, that plan includes expanding food options beyond typical convenience-store fare.
Mr. White also envisions a scenario where M&M prepared meals could be consumed on-site.
“Our view is that the definition of convenience is changing,” Mr. White said. “...Over time, with the energy transition, that dwell time at our facilities will go up. And we need to find opportunities to engage with customers for that 20 to 30 minutes dwell time and provide them opportunities to be efficient.”
However, the company is facing some concern from investors about that energy transition, even as the company executes “near flawlessly” on growth targets, Bank of Nova Scotia analyst Ben Isaacson wrote in a research note on Tuesday, before the transaction was announced. “Following a week of discussions with current, former and prospective Parkland shareholders, the feedback is clear: investor uncertainty is increasing with respect to the sustainability of the business model,” he wrote, adding that investors are worried about the economics of Parkland’s transition from serving primarily internal-combustion-engine vehicles to electric vehicles. “Simply put, investors are concerned the transition from ICEs [internal combustion engines] to EVs may not occur on a one-for-one basis, at least as it relates to Parkland’s economics.”
Currently, Parkland has roughly 350 On the Run convenience stores, but plans to build the network to roughly 1,000 stores in the next few years, including a larger presence in the U.S.
“They’re the perfect partner, given their scale and scope and international outlook, to continue growing this business with their resources,” Searchlight Capital co-founder Erol Uzumeri said in an interview. “We certainly had aspirations in the U.S. and internationally. Now with Parkland, that’s certainly a much higher probability to happen.”
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