In 2008 and 2009, US convenience store sales grew 3.2% and 4.9% per year, respectively. Even during a deep recession, same-store-sales are resilient at c-stores.

Source: ATD CMDSource: ATD CMD

Sales resilience combined with a fragmented base of smaller mom-and-pop stores to acquire has driven Couche-Tard (ATD) to ~20%+ EPS CAGR for decades.

Source: ATD CMDSource: ATD CMD

ATD’s investment thesis is built around market consolidation as smaller players are pressured by higher cost and regulation. Consolidation will drive higher fuel margins to rational players, even in the face of declining market volumes due to growth in electric vehicles. The free cash flow generated whilst EV penetration increases can be used to repurpose stores and buyback stock. In short, it’s squeezing FCF from a steadily declining asset in a favourable market structure.

Part of this thesis is playing out nicely: since 2019, fuel margin per gallon (CPG) has doubled to ~49c and fuel volumes are down ~17%. In 4 years, US fuel and merchandise gross profit per store has grown 59% and 34%, respectively. The stock has trebled.

We interviewed a Former M&A executive at Circle K, who reported to Alain Bouchard for over 20 years, to explore the quality of ATD’s network and the outlook on unit growth and profitability.

How much consolidation is actually possible in the US c-store market? How many mom-and-pops and larger operators can ATD acquire? And how could the cash flow per store evolve?

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