ARKO Corp., a Fortune 500 company based in Richmond, Va., that owns GPM Investments, had a strong year in 2022 and is fresh off a string of acquisitions. It now represents the sixth largest convenience store operator in the U.S.
In late February, ARKO reported record profitability for fiscal 2022, with operating income of $167 million compared to $142.1 million in 2021, and net income of $72 million compared to $59.4 million for the prior year.
In 2022, which marked ARKO’s second year as a public company, ARKO was named to the 2022 Fortune 500 list, which ranks the largest companies by total revenue in the U.S. ARKO ranked at No. 498. The company also secured a $1.15 billion real property commitment from Oak Street Real Estate Capital and announced four planned acquisitions. These are Quarles Petroleum and Pride Convenience Holdings (which both closed in 2022), WTG Fuel Holdings and Transit Energy Group (TEG).
Last month, ARKO closed on its acquisition of TEG, which added approximately 135 convenience stores and 190 wholesale sites, among other assets, for $370 million. The acquisition increased ARKO’s store count to more than 1,500 c-stores in 33 states. TEG brings to ARKO well-known banners such as Corner Mart, Dixie Mart, Flash Market, Market Express and Rose Mart.
Last year, ARKO fully remodeled six stores and began the planning and engineering of a new-to-industry store in Atlanta, Texas, which is expected to be completed in 2024. ARKO also installed 548 bean-to-cup coffee machines across its retail locations.
CStore Decisions spoke with ARKO Corp. Founder and CEO Arie Kotler to learn more about the chain’s recent acquisitions and its plans for the year ahead.
CStore Decisions (CSD): Why was the time right for these four acquisitions and why did these chains appeal to ARKO?
Arie Kotler (AK): Capital allocation is one of our many strengths, and we always think about the best areas to deploy capital. The company’s return on invested capital across our many acquisitions underscores that continued mergers and acquisitions (M&A) is an effective use of capital.
We announced four highly accretive acquisitions in 2022, of which we already closed three — Quarles Petroleum, Pride Convenience Holdings and Transit Energy Group (TEG). The fourth, WTG Fuel Holdings, is expected to close in the second quarter of 2023.
Quarles added a fleet fueling segment to our company, which is an excellent business. The timing of the Quarles acquisition and our rapid integration could not have been better. We realized strong cash flow because of fuel price volatility in the second half of 2022 since closing, and the segment contributed incremental adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in 2022 of $20 million.
Pride expanded our New England territory into Massachusetts. The TEG acquisition added approximately 135 convenience stores and expanded our southern retail territory into Alabama and Mississippi. And WTG would significantly enhance the company’s footprint in the attractive Permian Basin market, with 24 company-operated Uncle’s Convenience Stores across western Texas. We add value to these stores with a larger assortment and new promotions that we believe resonate with our customers.
CSD: Will the newly acquired convenience stores retain their banner names or will they be converted to another banner?
AK: We acquire brands with histories in their communities and brand equity. We like to retain these banner names, which are familiar and have meaning to their customer base. Our teams have been very effective at improving marketing, in-store mix and offerings to drive sales at our newly acquired stores while maintaining brand equity. We create value by expanding merchandise mix in these stores. For example, after we acquired Handy Mart in 2021, we added over 700 items into the stores.
CSD: We’re seeing a lot of consolidation in the c-store industry today. What does it mean for the industry as a whole?
AK: Our industry continues to be highly fragmented. As a result, the overall deal pipeline is still strong, and we expect to expand our core convenience store business through our acquisition strategy. ARKO has closed 23 acquisitions since 2013, with our 24th expected to close in the second quarter. We believe there will be continued consolidation in the industry.
CSD: What are ARKO’s 2023 goals?
AK: We have many goals for the year. We are in the process of rolling out our new fas REWARDS loyalty app, which has many exciting and new high-value features for the benefit of our existing and new loyalty customers.
We also are working to expand our food offerings, including pizza, chicken, prepared sandwiches and many other options. We are making progress identifying food offerings at a price point that will resonate with our customers and that we can use across our stores.
And, of course, the M&A pipeline continues to be strong, with potential opportunities to make accretive deals. We believe we will continue to grow through acquisitions.