The announcement today that the largest U.S. c-store chain, Irving, Texas-based 7-Eleven, will grow to 14,000 North American locations with the $21 billion acquisition of Speedway, the No. 3 chain, has prompted many questions as to how the combination of the two will affect the rest of the industry.
Convenience industry consultant Frank Beard said that, while this is a big acquisition, it’s also part of a trend that has been reshaping the industry for some time. The buying power and operational efficiency of larger chains will continue to give them a competitive edge.
“We’re just going to continue to see consolidation in the industry, and anyone who’s running a very traditional convenience store operation is going to face increased competition from these consolidators,” said Beard.
He said that there will probably be some regulatory issues to work out, but probably not many because 7-Eleven’s footprint doesn’t have a lot of overlap with Speedway, especially in the Midwest. This could be an important aspect of the deal.
According to Beard, the consolidation of buying power may provide 7-Eleven an edge at the gas pump, giving it “just a little bit more room to compete on fuel.”
But even more significantly, the fact that the Speedway is coming from the Ohio-based Marathon Petroleum Corp. could act as a wedge against another large company entering the Midwest c-store market.
The deal gives 7-Eleven significant advantages in fuel supply and pricing on the economy of scale side, according to independent fuel industry consultant Brandon Lawrence.
“Especially on the supply side and it’s also basically from a consolidation perspective,” Lawrence said. “They basically boxed Couche-Tard out of the Midwest from making a major play, because at this point, (Couche-Tard) were going to have to cobble together multiple chains to even come to a fraction of the size of the Speedway footprint.”
Depending on the structure of the acquisition deal, Couche-Tard’s Circle K stores may find it difficult to match 7-Eleven’s volume. Lawrence said that when 7-Eleven purchased Sunoco c-stores, it contained a 10-year “take or pay” agreement.
“And I would imagine it would be a similar one here,” Lawrence said, meaning that if that were the case, the higher volume of 7-Eleven’s buying power guarantees it first dibs on fuel at a lower cost. “An advantage of that gives 7-Eleven and the acquisition is that when all of the racks (wholesale fuel supply points) are out, (7-Eleven is ) still going to have supply. And that’s going to be hard to compete when the rack volatility that you see in the Midwest.”
Lawrence pointed out that this won’t affect the smaller operators because that system is already in place, so their fuel costs and access probably won’t change much if at all.
Competing on fuel by smaller chains will be out of the question, according to Beard. There’s a huge segment of the industry with a very fuel-forward offer, he said. As the big get bigger, those smaller operations won’t have the room in their margins to compete.
PERSONALIZE OR BE MARGINALIZED
The deal, he said, is another instance that forces smaller c-store chains to rethink their offering and differentiate themselves from the largest chains. Something that, while difficult, is not impossible.
“You go to a Buc-ee’s, they don’t even put the price of fuel on a pylon,” Beard pointed out about the 48-store, Lake Jackson, Texas-based chain. “You have to go up to the actual fuel pumps to read it, and the fact is, I don’t think anyone really cares.”
Why is that? Because, Beard said, Buc-ee’s has worked hard at uniquely defining itself and its offering.
“Buc-ee’s is a retail theme park,” said Beard. “There’s no way that you can visit that store and not come away absolutely delighted.”
He added that other chains have defined themselves, as well. “The same goes for Sheetz, Wawa, Maverik – brands like that,” he said. “They’ve got their value proposition. Consolidators have their value proposition. I think the rest of these retailers need to decide who and what they are and how they’re going to be different.”
SPEEDWAY TO DISAPPEAR?
Don’t assume that 7-Eleven will rebrand the Speedway label, either. While it’s probable, it’s not a foregone conclusion. Beard advised not to underestimate the value of the Speedway name.
One chain rumored to be in the Speedway purchase mix was UK-based EG Group, with 1,679 stores in North America. It’s U.S. subsidiary, EG America, has been on a buying spree the past few years and has left many of its purchased c-store chain flags flying after acquisition.
“As far as a consolidator, EG Group’s kind of interesting because they seem willing to think a little bit more outside the box of the typical convenience store format and try some different things,” said Beard.
EG, he said, felt the 566-store Cumberland Farms chain that it purchased in 2019, known for its private label branding, was strong enough to leave in place.
But don’t underestimate 7-Eleven’s ability to adapt. It may be big, but it’s proven that it can be nimble, too. As Beard pointed out, 7-Eleven has been a leader in innovation.
“They’ve always been really good about really pressing the envelope and testing some of the most out there and creative ideas, which I think is awesome,” said Beard. “People forget that they actually beat Amazon to the first drone delivery.”