The news of 7-Eleven’s potential sale prompted some distant memories of my personal interaction with the brand. Back in the late 70’s, one of my college jobs was driving a yellow cab in Orlando. While waiting for a fare, I used to park outside various 7-Elevens, since they were pervasive throughout the areas I used to drive. This was a time before the widespread convergence of food and fuel, when most 7-Elevens were standalone c-stores. That summer the chain was running a Slurpee promotion that featured a free Marvel Comics plastic character cup. Don’t ask me why, but I made it my mission to collect an entire set of Howard the Duck cups, no matter how many brain-freezes I had to endure. It must have been a great promotion because I still remember it after 47 years.
This also demonstrates what a pervasive brand 7-Eleven is in American life. It’s right up there with McDonalds or Frosted Flakes, all reliable and highly recognized brands that have been with us for most of our lives. Without consulting a Central Florida site map, I wouldn’t be surprised if several current 7-Eleven stores still reside at the same locations where I used to park my cab.
In today’s evolving retail petroleum landscape, the divestiture of a chain as significant and widespread as 7-Eleven, coupled with the constant churn of established c-stores being bought and sold, needs to be weighed against the relentless spread of New to Industry (NTI) sophisticated, multi-faceted c-store iterations. These super c-stores have become the new norm and their growing presence can no longer be downplayed or ignored by those seeking to grow through acquisitions.
Based on recent NACS data, the top ten chains make up 20% of stores throughout the country, with single site operators still holding the majority at 60%, numbering over 64,000 stores. Were Circle K to successfully acquire 7-Eleven, the combined market share would be around 12%, which would surely result in anti-trust concerns, prompting store divestitures. These established cast-off sites would join other stores being sold in traditional chain divestitures.
Motor fuel demand in a given trade area is generally fixed and stable. When a new super c-store arrives, incremental volume does not magically appear, it comes at the expense of existing sites, rendering the economic relevance of many untenable, as the new entrants’ business seasons and matures. No better example of this situation is when WAWA entered Central Florida or QT came to South Carolina’s upstate, resulting in numerous shuttered stores.
The zeal for acquisitions must be moderated with the systemic risk of the unknown also being weighed. Whether it’s the cast-offs from mega acquisitions or standard marketer divestitures, enhanced scrutiny of featured stores is essential when formulating purchase offers. Long term site viability in light of the increasing sophistication of the c-store landscape must be weighed when assigning a cashflow purchase multiple. For each site in a package, this would include the following questions:
· Is the trade area ripe for the arrival of one or more super c-stores?
· If so, can the featured site be reconfigured in the future to adequately compete?
· If not, are there viable alternative use options available to preserve the investment?
The eventual impairment of long term viability and value, logically implies that there will be a steady reduction in the number of older established stores, as the gulf between super c-stores and business-as-usual sites widens. This will shift the focus for both small and large chain operators to EBITDA growth, versus increasing store count, which will further propel the expansion of NTI super c-stores, as acquisition dollars are redirected. Optimization versus maximization will be the primary consideration for the winning chains of the future.
Possessing over thirty five years of downstream petroleum experience, Mark Radosevich is a strong industry advocate. He is president of PetroActive Real Estate Services, LLC, offering confidential mergers & acquisition representation and financing services exclusively to petroleum wholesalers. He can be reached by email at mark@petroactive.net and by phone at 423-442-1327.
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