Seldom does a week go by without someone asking me why the convenience and gas mergers and acquisitions (M&A) environment is still so dynamic when everything else is in utter chaos.
We seem to be floating along in an insulated bubble of reality. Whether its divestitures of c-stores or dealer or commercial fuels and lubes businesses, a stable of well-heeled buyers are ready, willing and able to compete for these deals.
Despite all of the current and future economic and regulatory headwinds, this petro lovefest seems destined to continue into 2023. As such, following are some personal observations as well as some thoughts and recommendations by various store operators and fuel marketers related to both M&A and current business operations. Hopefully, you will find value in some of these tips as you navigate your respective businesses in an ever-challenging environment.
Oil companies get back into retail. In an apparent effort to ensure future brand relevance, various oil companies are getting back into store operations after divesting their sites only 15 years ago. This trend will increase buyer diversity and help maintain heightened deal valuation levels.
There is a dichotomy between the embrace of electric vehicles (EV) and the strength of the M&A environment. Why are so many chain operators now embracing EV charging, while still intent on acquiring traditional retail petroleum store packages? The answer suggests that EV is really about garnering brownie points and government handouts, versus a conviction that petroleum is in significant decline and that EV is the future of automotive transportation.
Mergers will yield store buying opportunities. The Federal Trade Commission (FTC) scrutiny will yield unexpected buying opportunities as blocks of sites will have to be divested from larger multi-store deals. This will present some unexpected buying opportunities for smaller operators that have been on the M&A sidelines over the past few years.
Prepare for the arrival of unexpected big competitors. Many parts of the country have seen their competitive landscape irreparably altered by the unexpected arrival of large format chain operators or Texas-based retail monstrosities. This expansion will continue, making it imperative that local marketers be prepared to decisively respond if the need arises. This includes pragmatic store viability assessments, followed by the development of divestiture response plans. The old standby option of flipping a vulnerable site to a dealer may only forestall a site’s ultimate demise, making alternate-use property considerations an integral part of the plan.
Considerations From Fellow Marketers
Top considerations by a Tennessee-based chain operator stressed the necessity for foodservice, followed by facility size for its acquisitions. All of its sites have foodservice that features all three dayparts. Any targeted store package needs to have meaningful foodservices or be of a size and configuration for it to be added.
A north Florida marketer described the challenges of finding and retaining qualified store and quick-service restaurant (QSR) personnel. His situation is so acute that his Huddle House restaurant is still open only half the normal hours of operation, and labor expense has gone through the roof. He highlighted that even his dishwashers are earning $14 per hour, when he can find them. His key tip is that despite this labor situation, don’t take short cuts in doing background screening, including pre-employment drug testing. His experience shows that cutting hiring corners places a company in an elevated risk for future workers compensation lawsuits or other expensive avoidable problems.
A Texas-based chain operator listed a stable workforce as being one of its top considerations in guiding the chain’s interest in a deal. Criteria include full employment, limited operational disruptions due to staffing issues and a positive work environment. Facility and operational defects can be readily addressed post-closing, but staffing and labor problems are much harder to overcome.
Another marketer offered an operational tip that wasn’t even on his radar a couple of weeks before we spoke. It seems that the previous week, a semi pulled in front of one of his loaded transports causing a fiery accident and the incineration of the trucks and his driver. Having forward-facing cameras on the unit allowed the authorities to witness the accident in real time, thus expediting their investigation and exonerating his company of any fault. This saved his company years of time-consuming litigation and expense. He was emphatic to stress that despite the upfront cost, it is a big mistake for marketers in the fuel transportation business not to deploy forward-facing cameras in all their units.
Hopefully, some of these tips will prove helpful as you navigate your respective businesses through the troubled economic and political waters through the end of the year and into next.
Given all the legislative, regulatory and green challenges that are stacked against our industry, I want to reiterate the importance of being an active member in your state petroleum marketer and convenience store association.
Together, as a unified voice, we can help blunt some of these assaults and better protect our common business interests.