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Grocers step on the gas

Food retailers are going gaga for gas stations. But one big player wants out

Sobeys-IGA Express-duplicate

Ever since the first Model-T backfired down a muddy road, fuel and food have gone hand in hand. For many, stopping to get gas also means topping up on snacks and drinks. It’s no wonder grocers look to gas stations to bolster their business.

Recent selloffs by oil giants and other companies have opened up further opportunities. The biggest trade happened earlier this year when Imperial Oil got out of the gas station business by selling its last 497 filling stations and the On the Run/Marche Express c-store network.

Of the five buyers, convenience giant Alimentation Couche-Tard picked up the largest number: 279 stations in Quebec and Ontario, including prime spots in Greater Toronto and Montreal that BMO analyst Peter Sklar described as the “jewels” of the Esso fleet.

Jean Bernier, Couche-Tard’s group president of global fuels and northeast operations, says the deal “adds not only to our convenience store business but significantly adds to our fuel business, particularly in Ontario, where we were quite a small player.”

Aside from gas many of Couche-Tard’s new outlets will have Timbit tie-ins with Tim Hortons outlets.

Couche-Tard’s rival 7-Eleven also took a share of Esso stations: 148 in Alberta and British Columbia. Another successful bidder was Calgary’s Parkland Fuel, which picked up 17 stations in Saskatchewan and Manitoba as well as On the Run/Marche Express countrywide (though it’s unclear how many of these Parkland will end up with).

Parkland already has 113 c-stores in Western Canada under brands such as Fas Gas and Short Stop.

Then there’s Sobeys. Its tank has gone from virtually empty to full in five years. In the summer of 2011 it owned about a dozen gas bars in Atlantic Canada, but a buyout of Shell outlets that year gave it another 250 in Quebec and the Atlantic region.

Today it has more than 350 east of Ontario. That includes several added in its last fiscal year:

12 Shell sites in Quebec and 24 in the Atlantic provinces that were part of the Co-op Atlantic network acquired by Sobeys. Fifty-seven gas stations at Safeway stores in Western Canada are also now part of Sobeys.

Sobeys has been developing its Sobeys Express c-store out- lets in Atlantic Canada and IGA Express outlets in Quebec. They serve fast but healthy food—everything from rotisserie chickens to freshly-made salads—to go along with Shell gas.

South of the border, Walmart said in February it would build and operate its own gas stations at new stores after allowing Murphy Oil to build and operate more than 1,000 stations in Walmart parking lots for the last 20 years. By running its own stations, Walmart “can probably get a little more margin,” selling gasoline and cigarettes coupled with more profitable items like small bags of chips or fountain drinks, says Brian Yarbrough, an analyst at Edward Jones.

The popularity of gas bars among food retailers comes at a time when gas stations themselves are on the decline. A May 2014 survey by London, Ont.-based consulting firm Kent Group found there were fewer than 11,850 gas stations in Canada, down more than 40% from the more than 20,000 in 1989. Consumer packaged goods sales at c-stores also face the same challenges as in supermarkets: low unit growth with dollars driven by inflation. In the 52 weeks to April 2, unit sales rose 1%, and dollar sales rose 4% at national convenience and gas banners, according to Nielsen Convenience Track.

Meanwhile, Loblaw is going against the tide. In May, the company put up for sale its network of 212 filling stations, established along about 20% of its banners such as Real Canadian Superstore and No Frills. Loblaw’s chief operating officer Grant Froese says gas bars deliver strong, stable cash flows, but that the right partner would “elevate” the business and let Loblaw concentrate on grocery.

David Hartley, an analyst with Credit Suisse, says the driving idea is for Loblaw to work with a gas-bar partner to increase the business, similar to the collaboration between Murphy Oil and Walmart. Hartley doesn’t think Loblaw makes money on fuel and that it’s “ultimately a traffic driver into its big stores.”

He added that it’s plausible Walmart could try to replicate its fuel success in the U.S. in this country. (Walmart and Murphy Oil did try to expand their gas stations into Canada in 2002 but the venture failed after eight stations were opened.)

Loblaw says that whether it sells the gas stations or not, it intends to keep its loyalty program at the pumps.

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