Update 2025.3 - Alimentation Couche-Tard (ATD.TO)
Many Initiatives to Optimize Operations
This is the third Update post of 2025. This one was a bit tricky because I thought there would be more to write about the Seven & i Holdings transaction and better data around unit economics like there was with Casey’s. The conclusion on quality is mixed since the business initiatives are moving the company in the right direction, but execution has been mixed so far. It goes to show how difficult it is to sustain above industry average returns for an extended period of time.
The initial write-up on Couche-Tard is now posted under the No Paywall tab for all subscribers to read. Just as a reminder the financial model is attached in the last section of this post (not included in the original write-up).
The next two posts will be Updates on TransDigm and HEICO, the first of which will be posted towards the end of the month. The following post will likely be an initial write-up on Ecolab.
Alimentation Couche-Tard
Here is a quick recap of Couche-Tard’s business. You can read the initial write-up for a full overview of the business.
Couche-Tard is one the largest global convenience store operators (top 5 globally and #2 in the U.S. in 2024) with almost 17k total locations, of which 7k+ is in the U.S. The company services 8.5M customers daily and has 10M customers enrolled in their Inner Circle membership program. Couche-Tard offers prepared food at 6k stores and offers Circle K branded fuel at 9k locations. The company also operates car washes at 3.5k of its locations.
Couche-Tard has historically been very active in M&A, acquiring both large and small c-store operations around the world. Some of the more notable acquisitions are Total Energies (2023), CST Brands (2017), Holiday (2017), Pantry (2015) and and Statoil Fuel (2012). The company made an offer to acquire Seven & i Holdings (the owners of 7-Eleven and other c-store brands) in late 2024. Couche-Tard is currently conducting due diligence under an NDA signed in April and working through potential regulatory hurdles.
What happened since the initial write-up?
“There's no doubt retail is evolving and will continue to evolve over the next 5, 10 years and beyond. This is not your father's convenience store industry. The pace of innovation, the changes in behavior brought by the pandemic and the desire for a cleaner planet, we're seeing all these trends transform not only convenience, but the retail industries.” - Former CEO Brian Hannasch at the 2021 Investor Day
Since we first wrote about Couche-Tard in early 2021, there have been two main business level changes at the company: (1) the expansion into prepared food under the Fresh Food, Fast program, and (2) rebranding of the company’s fuel offerings to Circle K. Both of these initiatives were already underway at the time of the first write-up but the company pushed heavily to incorporate these programs into more of their North American stores.
Before we get into those business endeavors, it might be helpful to understand how the market has performed since 2020. The c-store industry has continued to grow inside sales (or merchandise sales) as many of the chain stores are improving their in-store offerings. Industry wide sales for merchandise has increased from $256B in 2020 to $335B in 2024 (or a CAGR of +7%). This has also contributed to higher margins. The c-store industry is projected to increase sales by a +2.6% CAGR in the U.S., +3% CAGR in Canada and +2.7% CAGR in Europe through 2027 according to NielsenIQ.
On a location basis, there has been minimal new unit growth in the U.S. at +0.3% CAGR from 2020 to 2024, but the chain stores are growing faster than the market due to consolidation. Single store operators still make up 60% of the industry, while the 500+ store operators make up 22%. The remaining 18% is controlled by operators in the 2-499 store range.
At the time of the initial write-up, Couche-Tard was just transitioning their food program from their Fast Food Initiative (FFI) to Fresh Food, Fast (FFF). The key difference is that the prior program had little standardization and faced quality and consistency issues due to the fact that many of the stores used third-party vendors. The idea was that the vendors would be established and familiar with the kinds of foods that did well in the region. It also meant that there was less upfront investment required from the company and less training necessary for Couche-Tard employees.
However, the results of FFI were lackluster and the company decided to take control of their food program in 2020. With Fresh Food, Fast, the company prepares food in-house and offers a generally standardized menu of hot foods like sandwiches, burgers, hot dogs and pizza as well as cold foods like deli subs and wraps. Menus are slightly varied depending on the region. The company is selling more than 500k meals per week in the U.S. and 300k in Canada.
For c-store operators, the main benefits to offering prepared food are: (1) higher conversion of traffic from the fuel pump to inside the store, especially during meal time, (2) higher non-fuel visits that are predominantly driven by age-restricted products like tobacco and alcohol and (3) a higher mix of margins. The downsides are that (1) food operations take more training and expertise (higher costs), (2) storage and handling of the food takes up space and requires refrigeration, and (3) investments into a kitchen and maintenance costs are high.
Couche-Tard has increased the number of stores that offered the Fresh Food, Fast program from 1.5k at the end of fiscal 2020 to 6k in 2025. With the rapid growth of Fresh Foods, Fast availability, Couche-Tard has moved from the expansion stage to the optimization and execution stage of the program.
In 2022 and 2023, the company mentioned during a few quarterly earnings reports that same store sales for its Fresh Food, Fast program were greater than +20%. However, Couche-Tard is still getting a handle on consistency, simplifying the process, SKU rationalization and optimization and controlling for spoilage. In the last quarter, Couche-Tard has seen spoilage decrease by 500bps vs. the prior year. SKU rationalization should help with margins going forward as the company found that 80% of the food sales come from just a few main SKUs. Couche-Tard has also gone through a lot of the growing pains with building out the supply chain for food. The company signed leases for 3 warehouses in 2024 with the goal of directly handling their own distribution, which at the time was mostly being handled by third parties.
Food preparation is something the company had to learn and iterate over the past few years. The concept had to be tweaked so that the increased capital investment, training of staff and supply chain additions that are required for selling food, would have a high ROI for the company. Here is COO Alex Miller at the company’s 2023 Investor Day:
“Some of you might be thinking, you guys have been talking about food for 15 or 20 years. What's different? What's different now? I think we've accomplished a great deal over the past three years. We developed and rolled out a concept that can be executed at most of our stores. And I would highlight that is a key difference versus our previous initiatives. Our program requires a minimum amount of space, is much simpler to execute, requires far less labor, it's a proven program in our legacy holiday stores for over 20 years, it's really similar in execution to Tim Hortons and Starbucks food programs. And our program is growing sales, it's growing margins and it is profitable today. And we did it all during the pandemic, which highlights the operational capability of our teams at Circle K.”
And this shows in the company’s financials. Couche-Tard has yet to realize any meaningful uplift in merchandise gross margins, which has very consistently ranged between 34%-35% over the past 5 years. This is also inline with pre-pandemic margins, when the Fresh Food, Fast program was just getting started. The company doesn’t specifically breakout how much the Fresh Food, Fast program contributes to revenues and margins each quarter so it’s difficult to monitor the the company’s progress. However, in 3Q 2025 Couche-Tard stated that food makes up roughly 12% of merchandise revenues in North America and 20%+ in Europe. As the company improves its prepared food operations and sees an uplift in contribution from food, we should see that reflected in merchandise margins trending higher.
The other major business development was the decision to rebrand fuel locations in North America to Circle K. This involved changing the branding of the fuel at the pumps and sometimes changing suppliers. There are two main benefits from rebranding under one company owned brand. First, is the ability to combine loyalty programs to include both merchandise and fuel sales. This results in higher awareness and increased loyalty from customers and gives the company the ability to drive increased demand with regional or nationwide promotions on fuel. Overtime, this should help drive more traffic to Couche-Tard owned stores, but it’s been difficult to parse out trends given the recent volatility in fuel prices and volumes.
The second benefit is the ability to offer services to B2B customers. With a unified brand across a large regional network, Couche-Tard can then sign contracts with business that have truck fleets that pass through that network. This is only possible if the network is large enough and the brand is visible to drivers. The company had the benefit of dealing with a large rebrand in Europe after the Statoil Fuel acquisition in 2012. The result of the rebrand in Denmark showed that volumes increased by 4%-8% due to B2B contributions.
At the start of 2021, 43% of fuel locations in North America were branded as Circle K. That quickly increased to 73% in 2024 and the company is projected to surpass 80%+ this year. The fuel rebrand has contributed to better margins on fuel in recent years. Fuel segment gross margins in North America prior to the pandemic ranged between 8%-9% and now is in the 12%-14% range in the U.S. and 9%-10% range in Canada. It is worth noting that fuel margins across the c-store industry have moved higher post covid, with Casey’s and Murphy Oil also experiencing similar uplifts.
Looking at Couche-Tard’s track record of meeting its financial growth targets, the company does meet them for the most part. At the time of the initial write-up, we were going off 2018 targets. Couche-Tard hit most of its EBITDA contribution targets aside from its food program. Looking forward, the company has a 2028 EBITDA target from its 2023 Investor Day. Couche-Tard is aiming to increase EBITDA to $10B by 2028 from $5.8B in 2023 or a +11.5% CAGR. It’s worth noting that included in this target is $1.1B in M&A, which the company is on track to achieve, even before considering the Seven & i Holdings acquisition.