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Mona Ødegård

You head out of town on a wide-open highway that cuts through picturesque pine-covered hills. After about 80 kilometres, there's a turnoff near a small town. You pull in to what, at first blush, looks like a typical gas station. As always, you want to get the dreary business of the pit stop over as quickly as humanly possible.

But wait. A hot-food counter beckons, offering complete breakfast, lunch and dinner menus, prepared on site by a chef. Next to a full salad bar is a rack of fresh bread, chocolate buns and muffins. Along a giant window there's seating for up to a dozen people, with free WiFi and a microwave. Nearby there's a kids' playroom, a shower, even a washer and dryer.

As unfamiliar as this convenience store seems, it belongs to Canada's king of the business, Alimentation Couche-Tard. But don't count on enjoying its offerings so long as you're on Canadian pavement. The model location just described is north of Oslo, the Norwegian capital. It represents the future of Couche-Tard, a company that has enjoyed a nearly unblemished 30-year run as a leading consolidator in the North American C-store business, boasting banners such as Mac's, Becker's and Circle K.

The station outside Oslo is one of 2,300 across Northern Europe that Couche-Tard owns thanks to its $2.6-billion purchase last year of Statoil Fuel and Retail, an arm of Norway's giant state oil company, Statoil ASA. The deal has turned Couche-Tard into one of Canada's largest companies, on track to earn $37 billion in revenues annually.

But as Couche-Tard begins its march across the Old World, another seismic shift is taking place back home. The company is going through its first ever generational shift, prompted by the retirement of the band of friends that created this self-defining company three decades ago. Alain Bouchard—Couche-Tard's chief executive officer, top shareholder and driving force—turned 64 earlier this year. He is the last of four co-founders, who together control the company, to retain an active daily role. Within the next two years, he too plans to step back, relinquishing the CEO title. Thus begins a hand-off from a close-knit all-Québécois management group to a new crop of leaders spread across two continents. "I'm a strong believer in new blood and having younger people at the helm," Bouchard says. "I think it would be good for the company that I move to a different role."


Couche-Tard might never have been had Bouchard not received a cold shoulder in the 1970s.

Back then, he was a mid-level executive with grocer Provigo's convenience store operation, Provi-Soir—and, at one point, a franchisee himself, with two stores.

While Provi-Soir had opened nearly 100 stores in Quebec and was growing fast, Bouchard figured it should be growing a lot faster—not just by opening stores, but also by buying out family-owned shops that were little more than converted grocery stores, lacking the wherewithal to become focused convenience retailers. Brimming with ambition, Bouchard presented a binder of his ideas to a Provigo executive.

The boss wasn't interested. So Bouchard set out on his own with a single store in Laval. In short order, he put the consolidation plan tucked in his binder—the foundation for his life's work—into action.

Bouchard started to buy up other operations, including the one that gives his company its name (which roughly translates as "Night Owl Foods"). By the time he filed to take his 34-store chain public in 1986, Bouchard's core team was in place. Richard Fortin, a banker friend, handled the finances; Jacques D'Amours, a former employee of Bouchard's, took care of real estate. Réal Plourde was an engineer whom Bouchard had met while running a side venture refurbishing phones; he was the operations expert. "I discovered early in my career as an entrepreneur that I'm not good at many things, and I said 'I need help,'" Bouchard says. With his friends at his side, he was able to focus on development and store-level operations.

Convenience retailing was—and is— about catering to instant gratification, and more particularly to satisfying two unshakeable consumer addictions: driving and smoking. Fuel accounts for about two-thirds of overall industry sales in North America. Tobacco drives in-store traffic, generating a fairly stable $2 of every $5 in revenue inside the store. Impulse consumables like chips, chocolate, pop and pizza slices account for close to a third of in-store sales, while alcohol, staple groceries like milk and eggs, lottery tickets and magazines make up most of the rest.

Tobacco, in fact, accounted for the company's only real crisis. In the early 1990s, a spike in smuggling of Canadian cigarettes from the United States hit sales hard, exacerbating the effect of a recession and the recently introduced GST. The partners each took a 30% pay cut, and froze hiring and salaries. On the political front, Bouchard played a key role in persuading the federal and Quebec governments to slash tobacco taxes.

The company survived but some competitors didn't fare as well—and they became more takeover fodder. By the end of the 1990s, Couche-Tard owned all of the major Quebec chains (including Bouchard's old employers, Perrette and Provi-Soir), and in 1999 it expanded nationally by buying Silcorp, owner of Becker's and Mac's. Couche-Tard largely kept Silcorp leadership in place and adopted a decentralized management style that has been a hallmark ever since.

The model makes it easier to cater to local tastes. For example, the company sells slushy drinks very differently in Quebec than in the rest of Canada. In Quebec, Sloche is slyly marketed to teens with gross-out names in franglais (the turquoise Winchire Wacheur, for instance) that establish the brand as a badass version of Slush Puppie, which is hugely popular in Quebec. The Froster that's sold in the rest of Canada, by comparison, is marketed more conservatively around the big-name soft drinks that are the main ingredient.

The other leg of the company's success is a relentless focus on maximizing performance. The Couche-Tard playbook includes evicting slow-moving dust collectors, stocking checkouts with impulse items, squeezing efficiencies from scale and adding prepared foods, which carry higher margins. The company's store-renovation program typically involves an investment of $150,000 to $200,000 per outlet and results in a 15% bump in store sales; it has been a key driver of Couche-Tard's industry-leading financial performance. So has its aggressive culling of underachieving stores.

The disciplined approach gets a thumbs-up from GMP analyst Martin Landry. "Competition comes from left, right and centre—even dollar stores in the U.S. are selling cigarettes. You have to ensure your customer-facing employees are always serving customers in the best fashion, and that stores are fresh and appealing and that your offering is relevant. Couche-Tard has been able to do that."

The model works almost too well. When Couche-Tard unveiled the Silcorp deal, the first question from analysts was "What's next?" It remains the key question quarter after quarter. The timing of the stateside expansion, starting in 2001, was perfect: Oil companies wanted out of retail. Couche-Tard went buying and brought its merchant smarts to the oil companies' convenience stores. The marquee deal was the purchase of the 2,000-store Circle K chain in 2003. Through it all, Couche-Tard management stayed disciplined: Rather than overpay, it walked away from many potential acquisitions where the numbers weren't right.

But investors grew impatient during the nine years between the Circle K and Statoil Fuel and Retail acquisitions. Sure, the company kept expanding and growing profits. But as the 2008-'09 recession dragged on and the oil majors neared the end of their retail sell-off, the market started to lose interest. TD Securities analyst Michael Van Aelst has written that so long as Couche-Tard was consummating big deals, its stock tended to trade for 17 to 18 times earnings. When acquisitions slowed, the multiple sagged to an average of 13.2 times earnings.

Bouchard had been considering expansion abroad for years. In fact, he'd inherited a network of thousands of licensees in Asia from the Circle K deal (Couche-Tard still has licensing agreements for about 4,000 stores abroad). So he looked to Asia first, but was wary of operating in markets where government connections seemed as important as retail acumen. South America was dominated by family businesses. Europe, particularly the more economically resilient nations where Statoil Fuel and Retail operated, crystallized as the ideal target—all the more so as buying opportunities in North America dried up and Couche-Tard failed in its hostile bid for the Midwestern Casey's General Stores chain in 2010. After touring scores of SFR stores, Bouchard and his fellow founders knew they had found their European springboard.


The head of the company is staring at a hot dog.

It's early afternoon on a mild mid-February day, and Alain Bouchard is standing in an SFR station in an Oslo suburb, considering his purchase. It's on sale for 10 kroner, or about $2.

The sausage is encased in a popular flat Norwegian potato bread called lompe. "This is good," the gravelly voiced Bouchard says to chief operating officer Brian Hannasch. "I think we should try it in some of our [stores] in Western Canada." California, too. Hannasch nods in agreement.

Bouchard is an operator at heart, more comfortable on a store floor than in an office. He hates even having a head office (Couche-Tard's, in Laval, doubles as a regional office), and what it stands for in his mind—a place full of self-important busybodies far removed from the action. Here, in his element, he chats with the staffer at the food counter and scrutinizes the offerings on the menu and the shelves. He frets about the prices, expressing amazement that pit-stop coffee costs the equivalent of $3.50 a cup. He wonders aloud about staff salaries, narrowing his brow as he notes that workers make around $25 an hour—an unheard-of sum in Canada but typical here. Bouchard gets so caught up talking about the store that he almost misses the train to the airport and his flight to Montreal.

With SFR, Couche-Tard has bought a well-functioning chain that requires little capital investment. It stretches across Scandinavia, the Baltics, Poland and Russia, boasting $13 billion in annual sales and more than 18,000 employees. But as Bouchard's reactions show, there are differences in the business here that management are still wrapping their heads around.

For instance, SFR is test-marketing washroom fees, an idea that strikes some of the Couche-Tard team as just plain wrong. "As an American, I reel back a little bit and say it's a pain in the ass," says Hannasch. But he acknowledges that pay toilets in gas stations are common in Europe and he isn't about to prejudge SFR's experiment.

Local management rules, after all—which puts a lot of pressure on Jacob Schram, the head of SFR. Truth be told, Schram did not take the news of the takeover well. At the first meeting with Couche-Tard management, things were a little frosty. "We were professional, they were professional, but it was kind of like two dogs looking at each other," says Schram.

But he warmed to the new owners once he twigged to the Couche-Tard philosophy of leaving local management in place, not to mention its desire to expand on Schram's vision for SFR. "The strategy we had was concentrating on Central and Eastern Europe," he says. Now, it's all of Europe, a goal Schram says "was important for me and for the company." That said, not every market appeals: Germany is high on Bouchard's list. At the bottom are France, where regulations prohibit tobacco sales in convenience stores, and Italy, Spain and Portugal, which have few chain stores large enough to be worth acquiring. Attaining critical mass in any country is important. And, of course, the price must be right.

While Couche-Tard executives praise SFR's stores, and particularly their success with fresh food, they do see room for improvement. The centres of stores are sparsely merchandised, and dominated by too much product from too few big brands. So SFR stores will add more brand choices in areas like soft drinks and snacks. Schram is on board, asking for—and getting—a North American executive to help him with benchmarking, ensuring SFR's performance metrics keep apace with North America's.

Canadian analysts who have toured the stores say SFR could scale back on the huge wall space devoted to an overly broad assortment of motor oils, and add fountain-drink dispensers, while removing slow-moving items like spectacles, DVDs and auto parts. "That is simply wasted space screaming for greater productivity," TD's Van Aelst said in a recent note.

But Couche-Tard must proceed with its customary sensitivity to local differences. Take coffee: Pricing is not the only difference. Java comes out of a machine in Norway, unlike North America, where it is often dispensed in pots that have to be constantly refilled. Bouchard insists the machine-made coffee is better. Indeed, the evidence suggests this is no caffeine of last resort: Through its "Breakfast Club" program, roughly one in 10 Norwegians own an SFR mug that, for just 199 kroner (roughly $34 Canadian), gets them unlimited refills for a year. That makes SFR not only the Circle K of Norway, but its Tim Hortons as well.

Indeed, beverages seem to draw out cultural differences. Hannasch recalls driving through Poland and noticing that SFR stores didn't put soft drinks in a cooler. A store manager explained that Poles liked their drinks warm but Hannasch scoffed in disbelief. Later that day, he met about 100 local SFR staff and he asked how many agreed with the manager. "Everybody's hands went up," he says. "You have to be careful what you assume in your paradigms."

Those paradigms are changing constantly, even in Norway. While SFR has a dominant market share and scores high on customer satisfaction surveys, stiff competition is emerging from an alliance between Shell, 7-Eleven and local entrepreneurs that has produced some impressive new stores. The leading supplier to convenience stores in Norway, NorgesGruppen, is expanding its own retail presence. There is talk the government may allow supermarkets to open on Sundays.

Running a gas station is also a tough business in Norway. Dozens of franchisees have gone bankrupt, and some have left the big players over contract disputes and formed their own chain. "It tells us that the margins are very low and so you have to be very efficient running a gasoline station," says Odd Gisholt, associate dean of retail management at the BI Norwegian Business School.

Given its steadfast opposition to union drives in Quebec, another potential concern is Couche-Tard's ability to handle SFR's heavily unionized workforce. Bouchard claims he's not anti-union per se and is fine with the situation in Norway—because virtually all retail employees are unionized. But "if all of a sudden you become the one [in Quebec] that is unionized, and you have highest cost to deliver the same product to your customer, it doesn't make sense," he says. "Three hundred hours a week at $1 more, it's $300 more, $15,000 a year [per store]. Our 20% of stores that are marginal, you add a couple of dollars per hour per employee, boom! They go down the drain, day one."

Whether the courts buy his argument is another matter, so just in case, Couche-Tard has been franchising out several company-owned stores in Quebec, including some of those that have unionized. This is one strategy Couche-Tard seems unlikely to export to Europe.


Two men represent the future of Couche-Tard. Schram is the point man on the company's new growth path. And Hannasch, who spearheaded Couche-Tard's U.S. expansion, is the CEO-in-waiting.

But Hannasch would not likely move to Montreal for the job. The Iowa native gave up on executive transfers when he worked for oil giant Amoco in the '90s—"I just said, 'Enough is enough. I'm not going to do this'"—and settled in Columbus, Indiana, where he's been ever since.

Change caught up with him when Couche-Tard kicked off its U.S. foray by buying Bigfoot convenience stores, where he was an executive, in 2001. Hannasch had no interest in sticking around, joking that he couldn't even pronounce Couche-Tard. But then he met some executives who had come from Silcorp and persuaded him to stay.

"They said [joining Couche-Tard] was the best thing that had ever happened to them," Hannasch said. "The bureaucracy went away and they had the freedom to do what they thought was right. I quickly got to know the four founders and they were just great people, good businessmen—they just try to do the right thing every day."

For three decades, the company was tightly run by four friends who worked seamlessly together and also dined, fished and vacationed together. And together, they maintained control over the company with approximately 60% of voting rights, despite owning just 22.4% of the total equity. "This company has been based on friendship first," says Richard Fortin, who retired as CFO four years ago but remains on the board's executive committee.

Jacques D'Amours, the vice-president of administration, was the first partner to leave the daily fray, nine years ago when his wife took ill. Around the same time, Fortin, then 55, told the group he planned to retire in five years. "Alain thought maybe 60 was very young [to leave], but he accepted it," Fortin recalls." He was probably disappointed I didn't change my mind." Fortin hand-picked his successor, the smoother, more corporate Raymond Paré, who had previously worked at Bombardier and Ernst & Young. Hannasch became COO when Réal Plourde retired in 2010.

The retired founders still make their mark—Plourde and Fortin visited a slew of SFR stores before the acquisition, and Fortin provided financing advice. But all four founders are mindful of the next generation.

Bouchard has recently sought advice from some of Quebec's establishment families on how to ensure the clan can survive the generational shift without the fractiousness that typically accompanies it. Each founder now brings one adult child to board meetings. "I wouldn't like the first reflex of one of these children to be to sell their stake because they don't know about it or they're scared," says Fortin. Adds Bouchard: "I think they would love to keep it the way it is, under our control. We don't want a fire sale if something happens to one of us. We want to make sure they understand, [and that] they don't fall into the hands of attorneys who will try to convince them that the remaining owners tried to screw them."

Still, the dynamic at the top of the company is destined to change. The concept of head office will become even more abstract if Hannasch stays in Indiana. Maintaining Couche-Tard's winning culture may be more difficult for such disparately located executives of widely varying backgrounds.

The ownership dynamic will not change so quickly. Under a long-standing agreement, the partners' multiple voting shares will convert to common stock when the youngest of the four—D'Amours—turns 65 in 2022. The privileged share structure, a thorn for investors elsewhere, has caused little consternation because of Couche-Tard's strong share performance and the exit clause. If there comes a day when outside shareholders become disenchanted with the company's strategy or execution, the challenge will fall not to the company's builders, but to its inheritors, who will no longer enjoy the protection of a dual-class share structure.

But that's still a long ways away. Bouchard may be relinquishing the CEO title, but his retirement plan sounds a lot like his current circumstance—retain an executive title, stay actively involved, hunt for acquisitions and work on new stores. Not that anyone will mind. "I think you can come back in 10 years, he will be there," says Paré, laughing. "It doesn't matter the title."