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Couche-Tard's fresh-food strategy is paying off

Higher U.S. gasoline prices, positive results from a recent acquisition and a stronger Canadian dollar are all expected to have helped boost profits at convenience-store giant Alimentation Couche-Tard Inc.

Andre Pichette/The Globe and Mail/Andre Pichette/The Globe and Mail

Higher U.S. gasoline prices, positive results from a recent acquisition and a stronger Canadian dollar are all expected to have helped boost profits at convenience-store giant Alimentation Couche-Tard Inc. when it reports third-quarter results Tuesday.

The Laval, Que.-based company has been coping well with the fallout from the economic slump, which has not been all that tough on the North American convenience-store sector generally. Add to that the recent lift from higher gas margins in the U.S., a stronger dollar, and the 322 southern California stores recently bought from Exxon Mobil Corp., and Couche-Tard investors can expect better-than-expected Q3 results of 71 cents (U.S.) per share, said GMP Securities analyst Martin Landry.

Beyond Q2, he anticipates that Couche-Tard will continue to post healthy earnings growth in the high single to double digits "for the foreseeable future" as it expands its fresh-food program, continues to trim costs, and makes more acquisitions.

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On Tuesday, Couche-Tard president and chief executive officer Alain Bouchard and his team will likely provide a progress report on the higher-margin fresh food strategy.

It's a key area for the North American convenience-store giant, whose U.S. stores operate under the Circle K banner and whose Canadian brands include Mac's in Ontario. Competition from direct rivals and from chains like Wal-Mart is heating up and it makes sense to shift into a higher-growth, higher-margin segment to offset shrinking cigarette sales and low-margin gasoline returns.

Fresh food accounts for about 18 per cent of gross margins at Couche-Tard but Mr. Bouchard wants to eventually take that to 25 per cent. Earlier this year, Couche-Tard hired Joseph Chiovera – the senior fresh-foods executive at Dallas-base 7-Eleven – to head its foodservice unit, indicating it is serious about moving aggressively on this front.

Besides organic growth, shareholders will no doubt be eager to know more about any acquisition plans, especially after last year's failed attempt to take over a major U.S. chain, Casey's General Stores Inc.

Mr. Bouchard recently signalled there might be acquisition opportunities in Europe, where oil-and-gas companies have begun to unload their gas-bar stores following the U.S. trend.

Couche-Tard has a network of about 5,800 outlets, most of which are in the United States.

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About the Author
Quebec Business Correspondent

Bertrand has been covering Quebec business and finance since 2000. Before joining The Globe and Mail in 2000, he was the Toronto-based national business correspondent for Southam News. He has a B.A. from McGill University and a Bachelor of Applied Arts from Ryerson. More

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