Circle K’s 10 levers for growth

Stewart Samuel
Program Director - Canada
@RetailAnalysis

Date : 28 November 2019

We review Couche-Tard’s second quarter performance and the range of programmes and pilots underway which could underpin future growth for the Circle K operator.

Strong Q2 performance

Total Q2 merchandise and service revenue increased by 2.3% to $3.5bn, with same-store merchandise revenues up 3.3% in Europe, 3.2% in the US and 2.1% in Canada. Net earnings increased 22.3% to $578.6m. These represent another strong set of results for the business, as it continues to benefit from several growth initiatives underway across its global operations.

1. European store remodels

Building on the strengths of the acquired Statoil and Topaz businesses, the retailer has been rolling-out a new store format in Europe. The concept has been extended to 200 locations across nine markets. Sales and traffic have improved in the remodelled stores. Adopting a pan-European approach to format development is a new approach for the business but is helping to lower development costs.

2. Digital upsell platform

The retailer has rolled-out its real-time digital up-selling platform, Lift, to 7,000 stores in North America. The retailer is seeing strong results from the programme. Over the coming months, it plans to extend its use further in Canada.

3. Home delivery

Couche-Tard recently expanded its home delivery pilot in Texas from 160 stores to more than 550. The retailer has partnered with HEB-owned, Favor, enabling customers to order a range of snacks and drinks for delivery within 30 minutes. A second pilot programme has also been launched in Florida with Uber Eats. While customer response has been favourable, the retailer is focused on ensuring that the service drives value for the business.

4. Loyalty programmes

The retailer has started to roll-out a new loyalty and discount programme for fuel, Easy Pay. Although it remains early days for the initiative, it is helping to drive increased trip frequency and grow transaction size. Couche-Tard is also piloting carwash subscription programmes in Denmark and the US with a view to building stronger customer loyalty.

5. Foodservice development

This is the most significant opportunity which the company is currently progressing. The acquisition of Holiday Stationstores has provided it with new learnings and insights which are forming the basis of several pilot programmes. Around 200 stores are involved in the initiative which has seen the retailer optimise its menu and packaging and identify production partners and a scalable supply chain model. This will be expanded to a further 200 stores by the end of January, with the company expected to start forming wider roll-out plans by Q1 of the next financial year.

Source: IGD Research

6. Beverage programmes

Couche-Tard has deployed its successful ‘Froster’ frozen-beverage programme to around 90 locations in Ireland. This has been a mainstay of its operations in North America. Early success in Ireland has prompted the retailer to expand the pilot to other European markets. The company has also installed over 12,000 bean-to-cup coffee machines in around 5,500 stores in the US. Couche-Tard has seen strong volume and margin growth, with the installation on-track to be completed by the end of the year.

7. Labour optimisation

One of the key programmes which the company has optimised from the acquisition of Holiday Stationstores is its labour model. The company has identified the time taken to complete almost every task within the store. Couche-Tard has scaled this on a new platform, enabling it to be rolled-out across its entire network. Combining this with its labour scheduling tool, the retailer believes it can enhance customer service within its stores.

8. Smart Value

Also, drawing on the acquisition of Holiday Stationstores the retailer is rolling-out a multi-product promotional pricing strategy, Smart Value. Following its successful introduction into the US business, enabling the company to increase basket size when executed well, it is being expanded into Canada and piloted in Europe.

9. Circle K brand roll-out

Having completed the European roll-out of the new Circle K brand, most stores in North America will be completed by the end of the current financial year. This is helping to drive brand awareness and the ability of the company to optimise its scale in procurement, private label development and national marketing campaigns. Couche-Tard is also piloting locations where major fuel brands have been converted to the Circle K brand and others where the Circle K and fuel brands have equal representation.

10. Global expansion

The retailer also shared details of its proposal to acquire Caltex, a leading convenience store retailer in Australia. The deal would provide Couche-Tard with a platform to expand its presence in the Asia-Pacific region, a key target for the business. Acquisitions have played a significant role in enabling Couche-Tard to expand over the last 20 years.

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