Canadian Chain Is ACT-ing Up

by Matthew Enis

Imost cases, convenience store operators would run from a market that already includes retail powerhouses such as Wal-Mart, Costco, Speedway SuperAmerica and Clark Retail Enterprises. But for Alimentation Couche-Tard Inc. (ACT), Canada's largest convenience store retailer with 1,631 locations, the American Midwest is the ideal market to initiate a U.S. expansion.

The Laval, Quebec-based retail chain fulfilled a long-standing goal in May when it signed a letter of intent to acquire Columbus, Ind.-based Johnson Oil Co. Inc. The deal, if approved by the Federal Trade Commission, would give ACT control of Johnson Oil's 172 Bigfoot Food Stores and Johnson's distribution network, consisting of 35 dealer locations and 18 commission retailer sites in Indiana, Illinois and Kentucky. The deal, valued at $65.8 million, includes equipment and leasehold improvements, the companies said. All real estate will remain the property of third parties. ACT plans to keep Johnson Oil's management team intact and leave the stores branded as Bigfoot.

"It's a strategic acquisition and a platform for growth for us," said Alain Bouchard, chairman, president and CEO of ACT. "Johnson Oil has always been a profitable operation with an experienced management team. These were the criteria that we have always said were required for our initial U.S. acquisition.

"It provides the critical mass needed to expand into the Midwest U.S. market," he continued, adding that the company is eager to expand its Midwest network to more than 600 stores over the next three years.

The Johnson Oil deal is the latest in a series of sales by mid-sized retailers in the region. Earlier this year, Merrillville, Ind.-based Welsh Inc. sold its 58 c-stores to Enon, Ohio-based Speedway SuperAmerica LLC, and Bowling Green, Ky.-based Minit-Mart Foods LLC's 86 units were purchased by Oak Brook, Ill.-based Clark Retail Enterprises Inc.

The sales of these companies mirror the larger trend toward consolidation in the industry; Johnson Oil, however, is a particularly interesting case. During the past five years, the company invested $110 million in new stores, reimaging and new technology. Also, the company, which has never failed to turn an annual profit since Chairman Richard Johnson founded the business in 1958, had $509 million in revenue last year, and has enjoyed at least 20-percent growth rate each year for the past decade.

But the convenience store market has undergone a radical change. With competition mounting from high-volume retailers and grocers and razor-thin gasoline margins raising the bar to achieve even moderate economies of scale, successful operators now seem willing to cash in their chips.

Johnson Oil found an eager buyer in Bouchard, who was impressed with the company's investments in reimaging, along with its strong position in the Midwest market.

Image is important to ACT, which increased same-store sales in its Canadian units by 5.2 percent during the first nine months of this fiscal year. This increase is partially due to its Strategy 2000/Store 2000 initiative, which utilizes an internal team to create highly localized store concepts based on targeted research of each market's specific socioeconomic and cultural character. The strategy will likely play a pivotal role as the company begins to compete with chains such as Clark Retail and Speedway SuperAmerica in key markets.

"Store 2000 is a micromarket approach," Bouchard told CSNews. "We are beginning discussions with the Johnson Oil management team; we want to understand this market, and I plan to visit the stores myself to understand the customers and their reactions."