Friday , January 15 2021

Couche-Tard: the misunderstood

This week we learned that Alimentation Couche-Tard (ACT) plans to acquire European company Carrefour, the seventh largest food retailer in the world. A friendly, non-binding offer was sent to Carrefour, which is currently worth around $ 13 billion. Buying a chain of grocery stores would be a big change from what is known about ACT, which knows all about the convenience industry. She became who she is simply by building a massive business out of a well-forgotten, never-taken-seriously element of the retail landscape: convenience stores. Other than 7-Eleven, no other company in the world has ever been so committed to the art of troubleshooting. But running supermarkets is another story.

Now valued at around $ 46 billion, ACT has grown by making acquisitions, but more importantly by buying companies that have vastly underestimated how stores can generate business by being in the right place, at the right time, and offering quality products. Carrefour would be the largest acquisition in its illustrious history, a big bite for ACT. The company’s largest transaction to date involved Texas-based CST Brands and was worth around $ 6 billion in 2017. Investors may not see how the fundamentals of such a transaction are business could benefit ACT, but the strategic impact for the company is considerable.

What can motivate Couche-Tard to acquire a company like Carrefour is the slow transition to electric vehicles. Couche-Tard is a master at converting gasoline sales into food and other dollars. With fewer gas stations, many outlets belonging to it will have to disappear.

In addition, Carrefour is in a reconstruction situation that ACT would like to exploit. The Carrefour network and brand must be revitalized. For the past decade, despite decent numbers, shareholders have been wondering if the grocer can do better. Unlike convenience stores, grocery stores still offer limited margins with little prospect of growth. But ACT has a reputation for generating value by polishing hidden treasures at companies like Carrefour.

What we also know very little about ACT is its highly efficient supply chain. The company has been able to deliver above average quantities of product to its stores simply because of the way it deals with suppliers and the attention to in-store merchandising. ACT practices are very transposable to an environment such as food distribution.

An agreement between ACT and Carrefour could also represent a unique opportunity for Canadian and Quebec food products. The food manufacturing industry in Canada and Quebec offers some of the best products in the world, some of the safest as well. By having access to a portal like Carrefour in Europe, as well as the favorable terms provided by the Comprehensive European Trade Agreement, an ACT-owned Carrefour could become the food ambassador that Canadian businesses need to generate more business on the old continent. Things could get interesting.

In essence, ACT is arguably one of the least understood and least popular Canadian companies. Most investors would understand her, however, since she has had great financial results time and time again. But most Canadians never took the time to appreciate how an empire can be built by selling fuel, chips, slush, and soda. Because of the unglamorous side of the business, many have forgotten the genius of Alain Bouchard and his team. Yet this is such an impressive legacy.

Retailing of food products does not exceed ACT’s capabilities. On the contrary. The purchase of Carrefour would allow this iconic company to spread the risks associated with fossil fuels and the electrification of the automotive industry as well as to become more efficient in the future. The French government was quick to declare that an acquisition would pose a threat to French food security. Such an assertion does not make sense, given that Carrefour carries out the majority of its activities outside of France and that the food distribution market in the country is very fragmented, unlike that of Canada.

There are so many intriguing elements surrounding this possible transaction that it would be unfortunate if it did not happen.

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