ARKO Corp., the parent company of c-store behemoth GPM Investments LLC, has been on a mergers and acquisitions (M&A) roll, aggressively growing its fleet of c-stores from 200 sites to nearly 1,550 locations over the past 10 years.

At the end of June, the company closed on its 24th acquisition since 2013. In 2023 alone, ARKO has added 159 company-operated c-stores to its portfolio through two major acquisitions.

Now, ARKO has its sights set on future growth as it folds its latest acquisitions into its portfolio. As it brings new chains under its umbrella, ARKO is focused on three key pillars: 1.) Focusing on core destination categories, such as candy, packaged beverages, salty snacks, packaged sweet snacks and beer; 2.) Leveraging its fas REWARDS loyalty program; and 3.) Expanding the foodservice and beverage offerings in its stores.

A Decade Of Rapid Growth

ARKO’s wholly owned subsidiary GPM Investments, the sixth-largest c-store chain in the U.S., operates in 33 states and Washington, D.C. Its more than 1,500 company-operated stores are comprised of more than 25 regional brands that have existed in their markets for an average of about 50 years. The company also supplies fuel to more than 1,800 dealer locations and operates 293 cardlock locations.

GPM, based in Richmond, Va., was founded in 2002 with 169 company-operated stores.

ARKO Holdings Ltd., under the leadership of Chairman, President and CEO Arie Kotler, acquired control of GPM in 2011. By 2013, GPM operated more than 200 Fas Mart and Shore Stop locations in Connecticut, Delaware, Maryland, North Carolina, Pennsylvania, Tennessee and Virginia.

In August 2013, ARKO Holdings began spearheading GPM’s growth path through acquisitions, starting with the purchase of 263 stores from VPS Convenience Store Group. The stores were located in North Carolina, South Carolina, Tennessee and Virginia, and included the brand names Scotchman, Young’s, Li’l Cricket, Quick & Easy Everyday Shop & Café, BreadBox and Cigarette City. The company continued to expand through acquisitions from there.

In 2020, ARKO Holdings Ltd. combined with Haymaker Acquisition Corp., a special purpose acquisition company, to become ARKO Corp., a publicly traded company on the Nasdaq Stock Market.

The company operates in four reportable segments: 1.) retail, which includes fuel and merchandise sales to retail consumers; 2.) wholesale, which includes supplying fuel to third-party dealers and consignment agents; 3.) GPM Petroleum, which sells and supplies fuel to GPM’s retail and wholesale sites; and 4.) Fleet fueling, which operates proprietary and third-party cardlock locations (unstaffed fuel locations) and issues proprietary fuel cards to provide customers access to a nationwide network of fueling sites.

In 2022, which marked ARKO’s second year as a public company, ARKO ranked 498 on the 2022 Fortune 500 list, which lists the largest companies by total revenue in the U.S. In 2023, ARKO again ranked on the Fortune 500 list at No. 460, moving up 38 places.

Acquisition Strategy

In 2022, ARKO secured a real property program agreement with Oak Street Real Estate Capital and announced four planned acquisitions: Quarles Petroleum and Pride Convenience Holdings, which both closed in 2022; Transit Energy Group (TEG), which closed in March 2023; and WTG Fuel Holdings, which closed in June 2023.

The purchase price for all four acquisitions totaled approximately $906 million, for which ARKO contributed just over $200 million.

In 2023, the company amended the Oak Street agreement, which extended the term through September 2024 and provided up to $1.5 billion in new funding.

“This was a very active 12 months. I think 2022 was the first year that we did four acquisitions in such a short order,” said ARKO’s CEO Arie Kotler. “We have a great team of people. In all of the acquisitions, we hired most of the people who worked for those companies, and I’m very proud about that. We are adding more people. Today, all together, we have approximately 14,000 employees.”

The acquisition of Fredericksburg, Va.-based Quarles’ fleet fueling business closed in July 2022 and both complemented and grew ARKO’s core wholesale strategy, adding a mature fleet fueling platform and adding to its supply and distribution capabilities. Quarles represents the largest fleet fueling cardlock operator on the East Coast, with operations in Virginia, North Carolina, Maryland, Pennsylvania and Washington, D.C. The purchase included 121 proprietary and 64 third-party cardlock sites, which are unmanned fuel sites where customers buy fuel using fleet cards. The sites are situated on high-traffic corridors in the Mid-Atlantic region.

“Quarles was a very unique acquisition. It was a (nearly) 85-year-old company with an excellent operation,” Kotler said. “Quarles is one of the best operators, I will say, probably in the country, that I met. … And given their expertise, we felt that this was a great add-on to our company.”

Next, ARKO acquired Pride, with 31 c-stores in Connecticut and Massachusetts, for approximately $230 million, including the value of cash and inventory, in December 2022. Pride is known regionally for its fresh foodservice program and features many large-format stores, including two high-volume travel centers. At the time of the acquisition, Pride had recently broken ground on a new-to-industry (NTI) travel center in South Windsor, Conn.

The NTI Pride Travel Center measures 4,860 square feet and opened on June 30, 2023. It features a Chester’s Chicken, a proprietary food offering, a drive-through, 12 fuel pumps, four diesel pumps and 10 high-flow diesel pumps.

The TEG acquisition, which closed in March 2023, added approximately 135 company-operated convenience stores and 181 wholesale sites, among other assets, to ARKO’s portfolio for $370 million, plus the value of inventory, and expanded the chain’s southern retail territory into Alabama and Mississippi. TEG brought new banners to ARKO such as Corner Mart, Dixie Mart, Flash Market, Market Express and Rose Mart. It also brought a transportation business with 58 trucks and 78 tanker trailers that supports the retail and wholesale business in the Southeastern U.S.

“TEG is another add-on in markets where we do business and in markets that are very close to markets where we do business. From an economy of scale standpoint, it was a great opportunity for us,” Kotler said.

ARKO closed the WTG acquisition in June 2023 for approximately $140 million, plus the value of inventory. The acquisition enhanced the company’s footprint in the Permian Basin market, with 24 company-operated Uncle’s Convenience Stores across western Texas. The acquisition also included 68 proprietary GASCARD-branded fleet fueling cardlock sites and 43 private cardlock sites — one of the biggest fleet fueling operations in West Texas — as well as three parcels of land and nine independent dealer locations.

“This is another opportunity for us to expose ourselves to the customers that are visiting cardlocks,” Kotler added.

As ARKO’s c-store business grows, its strategy is to acquire local, usually family-owned chains with long histories in their communities and substantial brand equity.

“We are in a lot of small towns,” Kotler said. “We are in a lot of rural markets, secondary markets. If you’re looking at our demographic, 40% of our retail stores are in towns that have 20,000 people or less.”

Especially in these small towns, the c-stores might be the go-to place for groceries and other products and are well known.

When ARKO acquires chains, it retains the banner names, which are familiar to the community and have meaning to their customer base.

However, when closing on particularly small acquisitions in areas where it has strong brands already entrenched, ARKO might convert the brand name to one of its well-known brands in the area.

“For example, we did a small acquisition in the Carolinas that included eight stores,” Kotler said. “One of the brands … that we have over there is called Scotchman — an over 50-year-old brand. And what we did, we converted some of those stores that we bought to the Scotchman brand because it’s a brand that customers recognize in this market.”

And make no mistake, ARKO isn’t about to pause its acquisition streak. It’s targeting continued expansion for the foreseeable future.

“Our plan is to continue to grow. We have a highly experienced team that works in-house on mergers and acquisitions,” Kotler said.

Meanwhile, ARKO is also focused on resetting its newly acquired stores, adding a larger product assortment and new promotions, and integrating the sites with its fas REWARDS loyalty program.

Functional Remodels

As ARKO integrates stores, it’s completing what it calls functional remodels of the locations, bringing the stores into alignment from a merchandising and marketing standpoint.

The move marks a shift in strategy for the chain, which in 2021 announced plans to invest $360 million over three to five years to bring 360 stores under a unified design. But when construction and supply costs skyrocketed some 40-50% post-pandemic, rather than wait for prices to come down, ARKO decided to focus on unifying the core offerings inside the stores through functional remodels.

“The idea is really what can we do inside the box, inside the store, for our customers versus just sit and wait just for a full remodel,” Kotler said.

Because ARKO usually leaves store banner names in place, it doesn’t change the façade of most stores.

“We usually go inside and try to planogram them in a way that most of our stores are being planogrammed,” Kotler said.

After the Pride acquisition, for example, it added more than 1,000 items to the stores.

“Given our size, economy of scale and our team behind the scenes, we use data and understand what exactly the customer is looking for,” Kotler said. “When I say, ‘added 1,000 items,’ it’s not that the store didn’t have any items, it’s just a matter of we added the right items. We are really trying to make sure we have the right assortment and the right product that the customers are looking for.”

As ARKO tweaks store assortment, it’s focused on its core destination categories, including candy, packaged beverages, salty snacks, packaged sweet snacks and beer. ARKO has been working to increase merchandise gross profit while decreasing its reliance on cigarettes. Since 2020, ARKO reduced its cigarette concentration from 38% to 29%, Kotler noted. The change meant it was able to offer other products to customers.

As ARKO has executed this strategy, its core destination categories, as a percentage of total merchandise sales, have increased from 38.4% in Q2 2020 to 44.6% in Q2 2023, according to the company’s 2023 Second Quarter Earnings Report. Same-store sales excluding cigarettes saw a 3.8% increase in Q2 2023 over Q2 2022.

“We grew our same-store sales excluding cigarettes almost 4.6% on average over the past three years,” Kotler said. “And the reason I mention sales excluding cigarettes is because at the end of the day, the core business, it’s not cigarettes.”

Instead, ARKO sees its core business shifting to its destination categories and foodservice.

Another key change ARKO makes to stores is updating the pricing on all products to better appeal to shoppers.

“Our attractive pricing attracts the customers in the markets where we do business,” Kotler said.

ARKO is also making big investments in equipment upgrades to help sites put their best foot forward on foodservice.
By the end of Q2 2023, ARKO had added bean-to-cup coffee machines to more than 700 stores. So far bean-to-cup machines have already rolled out to the Pride locations, and ARKO is in the process of finalizing the bean-to-cup rollout at the TEG sites. WTG is set to follow. As it completes these rollouts it plans to add another 230 bean-to-cup machines by the end of 2023, for a total of 930 machines.

The company also has 160-plus hot grab-and-go units, 1,200 cold grab-and-go units, 700 freezers and 370-plus roller grills at the stores, with plans to add another 120 roller grills by the end of the year.

With ARKO’s model and expertise it can operate between 1,000- and 6,000-square-foot stores, Kotler explained. On average its sites measure between 2,500 to 3,000 square feet.

When it comes to the forecourt, ARKO is the third-largest Valero distributor in the country and has a relationship with all major gas brands.

“Different geographies have different supply dynamics. Having strong agreements with all of the major oil companies allows us to be very competitive,” Kotler said.

ARKO is investing in electric vehicle (EV) charging in areas where it sees an increase in EV penetration. Today, ARKO operates 15 EV charging locations totaling 62 charging ports across nine states and is set to launch another 24 EV charging sites by the end of 2024.

“We are moving with the market,” he said. ARKO plans to pursue any grants or subsidies available. “Any market that we see an increase in EV penetration, we will assess the feasibility of adding a charging location,” Kotler said. ARKO is also working to ensure it features robust foodservice offerings at locations that feature EV charging.

While the core of ARKO’s strategy is acquisitions, it’s also taking advantage of opportunities to build NTI stores. In addition to the Pride Travel Center that opened in June, in 2021 ARKO razed and rebuilt a Scotchman store in Rock Hill, S.C., that now measures nearly 5,700 square feet.

The company has other NTI stores “in the works right now in different stages of planning,” Kotler said.

Foodservice Expansion

ARKO is focused on growing its proprietary foodservice offerings, including pizza, chicken and prepared sandwiches, roller grill and dispensed beverages, identifying the price points that resonate with customers across the menu. It’s also expanding its frozen food offering.

“There’s a lot of effort being put together into the foodservice category right now,” Kotler said. “This is probably one of our biggest opportunities.”

After scaling the company rapidly over the past 10 years, ARKO is now turning its focus to developing a food offering that resonates with customers.

“We are actually peeling the onion right now. The opportunity for us is to spend more time in the stores, bring more fresh food offerings into our stores,” Kotler said.

Today, some 160-plus sites feature full-service delis that feature chicken, pizza and vegetables. ARKO also features 150-plus branded food franchise programs, including Dunkin’ and Subway. It offers a combination of proprietary and co-branded pizza programs in 200 stores.

The addition of the bean-to-cup coffee machines allows ARKO to sell fresh coffee 24/7.

“Since we did that, we have grown our coffee business substantially, especially with loyal customers. Loyal customers can come to the store today and they can buy coffee for 99 cents,” he said.

The company’s efforts are paying off. ARKO has seen a 13.4% year-over-year increase in retail grab-and-go sales in Q2 2023 as compared to Q2 2022 on a same-store basis.

Drive-through has not been a focus for ARKO, since it mainly focuses on acquisitions and hasn’t built NTI stores until recently. However, its most recent NTI site — the Pride Travel Center in South Windsor — features a drive-through, and many of the company’s Dunkin’ locations offer drive-throughs.

ARKO’s fleet of c-stores provides delivery through DoorDash as well as through its recently upgraded fas REWARDS app that offers various third-party delivery options.

fas REWARDS

ARKO relaunched its fas REWARDS program in 2020, and this past March it upgraded its fas REWARDS app.

The upgraded app includes member-only “HOT deals” that aren’t available in stores, order and delivery, age-verified offers on tobacco and alcohol, a store locator with current gas prices, and a fas REWARDS dashboard where customers can monitor their rewards balance.

Today, ARKO boasts approximately 1.5 million enrolled fas REWARDS loyalty members and, as of July 31, had seen an increase of 205,234 enrolled, marketable members since relaunching the app in March.

ARKO’s 100 Days of Summer promotion, which kicked off on May 17, helped fuel the membership increase by giving customers $10 in “fas BUCKS” when they enrolled with their telephone number and correct email address. The program featured 16 unique deals on top of existing seasonal offerings — all for different limited times.

“You always need to figure out a way to engage more and more with your customers,” Kotler said. “We upgraded the app to make sure that we are communicating with our customers and providing them the different items they’re looking for.”

“For example, if you come to a store and you don’t buy fuel, we want to make sure that in the next purchase we are going to offer you some discount on fuel, so you become a fuel customer and vice versa,” he added.

ARKO found its loyalty members took about six times more trips per month than non-loyalty members and spent on average about $60 more per month during Q2 2023.

Future Goals

Looking ahead, ARKO has its sights set on continued expansion through acquisitions.

“Our DNA is M&A,” Kotler said. Still, ARKO is selective in the acquisition opportunities it pursues, he said.

As ARKO plans for continued growth, it reported as of June 30 more than $2 billion available for continued M&A funding, including $220 million cash on hand, approximately $602 million available under its credit lines, and up to $1.5 billion available from its amended Oak Street program agreement through September 2024.

“We are always looking to grow our base state by state by state. When we started, we started in seven states, and today we are in more than 30 states. We want to be consistent. We want to make sure that we are going to continue to grow through acquisitions,” Kotler said.

Kotler pointed out that ARKO has seen nearly 700% growth in company-operated store count over the past decade.

“We believe 2023 will be another year of strong performance and growth,” Kotler said. “We have a long runway for growth, and I am very proud of our continual progress as a company, executing our strategy of creating long-term shareholder value.”

Focusing on the three pillars — core destination categories, fas REWARDS, and food and beverage service — is a central part of the company’s expansion plans.

“The goal is to continue to grow, continue to invest money in our stores, continue to make sure we have the right offering within our stores and add more and more food and beverage offerings because … that is the No. 1 priority for us,” Kotler said.

“We are here to work with different chains, smaller chains, family chains. We are very unique,” Kotler said. “We usually not only keep their brand, we also keep their employees. We make sure that the chain that we are purchasing, that we’re keeping their legacy alive for many, many years.”