GLGi: Convenience Retailing

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  • Next to warehouse clubs and superstore, convenience in-store has the next highest retail growth. Impressive! Let’s look at an overview of the industry.
  • Almost all of the 19.4 percent increase in motor fuel dollars is from an increase in gas costs. According to EIA (Energy Information Administration) motor fuel sales only increased by a little over one percent. Average store margins are next.
  • Review the slide. Let’s look at G&A expenses in our stores.
  • NACS data 79.2% all stores currently sell fuel NACS 2006 SOI – 87% of all new stores sold fuel
  • Based on NACS 200 SOI data Utilized monthly information annualized Avgr price of gasoline $2.57
  • C-store are not destinations most people are on their way somewhere else when they stop at a c-store. This slide shows why they stop. These can be referred to as destination at our locations. Slides illustrates why most new locations have both gasoline and convenience retail elements. Cigs - as other retail channels lessen their cig. Presence, we have become the channel of choice for smokers. The only one of our snack categories to reach 30% was candy.
  • Customers generally have three c-store/gasoline locations in mind when deciding where to make their gasoline and/or c-store purchases Not listed as two main convenience factors – convenient location and in and out quickly Customers generally have three c-store/gasoline locations in mind when deciding where to make their gasoline and/or c-store purchases
  • – where they have cost advantage
  • MSO only format where MOC retains fuel pricing
  • Cookie cutter approach limits success / built it and they will not come - IMST
  • Major Players have demonstrated that you can be off corners Size can be determined by trade area
  • Larger Stores (2001 – 2005 New Store Trends) Urban grew from 3,312 to 4,061 sq. feet Rural grew from 3,084 to 3,738 56% increase in urban locations – big part of the change is reported to be increase in Rural went up 24% Urban – 56% Big driver – Equip car wash up $300M / mdse $100M, land $165M. Bldg $258
  • 87% of all new stores will sell fuel – SOI 2006 (example BP – changed Amoco Crystal Clear to BP Ultimate Summer fuels – more boutique fuels by market
  • 12.7 N/A N/A 2002 13.7 N/A N/A 2003 12.7 N/A N/A 2004 16.3 N/A N/A 2005
  • Credit card impact Alternatives Discount for cash Debit Cards Automated CH Loyalty cards Driver's licenses
  • Credit card impact Alternatives Discount for cash Debit Cards Automated CH Loyalty cards Driver's licenses
  • Wal-Mart now looking to others than Murphy – want full c-store and gas
  • This includes the impact of significant price increase due to taxes Retailer reliance on cig actually declining
  • Cigarette consumption continues to decline from the standpoint of unit volume and the number of consumers. The category continues to grow in the convenience store. There is still approximately 18.5 million consumers purchasing cigarettes in a class of trade other than convenience/gas. Premium brands continue to grow in market share with most of that growth coming from the low end brands in 2006. Premium brand market share in convenience/gas is 77.6% and higher than any other class of trade.
  • Beer is industry number – greater in stores that carry beer
  • $7.25 over two years
  • Composition of part / full time employees will vary significantly based on foodservice offer Some chains believe their true cost for a manager is equal to their annual salary Customer loss, etc.
  • 62% of its stores are in markets with less than 5,000 – means may be only c-store or at worst one of a handful On 12% are in markets of 20,000 or more 15 of which are franchised Carries about 1,800 SKUS Saved .3 cent pet gallon nine Midwestern states: Iowa,  Illinois,  Indiana, Kansas, Minnesota, Missouri, Nebraska, South Dakota, and Wisconsin
  • 15 of which are franchised % gross margin based on information on page 9 of 2006 annual report nine Midwestern states: Iowa,  Illinois,  Indiana, Kansas, Minnesota, Missouri, Nebraska, South Dakota, and Wisconsin
  • Expect to finish re-branding all locations to Kangaroo by end of 2007
  • Expect to finish re-branding all locations to Kangaroo by end of 2007
  • Uses Sale Leaseback As Part Of Acquisition Strategy Some lease (at leased proposed – 5 years interest only)
  • 8 year cycle 2006 Annual report said ½ company network done
  • Depends on financial strength of lessee
  • According to the U.S. Department of Commerce, total retail sales are up 5%, but with the CPI the net gain is 1.8%. From our sample, for convenience in-store Sales, the net result is 5.1% (8.3% - 3.2%) How does this compare to other channels?
  • The industry as we know it is shrinking as there are more roll-ups. Size “A” firms make up 2/3 of the total store count. Single store operators include 89,957 of 96,639 stores or 93% of the “A” size universe. Without single store operators, this year’s SOI survey would account for 40% of all stores in the industry. The industry is bifurcating into the smallest and largest classifications. Our survey group is disproportionally influenced by E size chains.
  • The Motor Fuels Index questionnaire asks consumers to check what other services they used at the time of their last gasoline purchase. Consumers can check – No Other Service, Convenience Store, Car Wash, Fast Food, Cash Machine/ATM, Car Repair, Oil Change Shop/Quick Lube and Other (specify). The majority of consumers (77%) report using no other service – “Gas and Go” consumers and we’ve seen this increase over time – up 2.3 points from YE June 2005. Reversely, over time, we’ve seen a slow decline in consumers going into the c-store at the time of gasoline purchase (down 2 points from YE June 2005). Today, with high gas prices, consumers do not have the share of wallet. The challenge is in promoting the c-store offering to entice consumers into the store.
  • Penetration = Percentage of individuals who made a C&P purchase in an average 30 day period. Annual 2006 = 60.5% of population purchased items from a C-Store in the last 30 days. This is down 1.3% points from year ago.
  • Credit card impact Alternatives Discount for cash Debit Cards Automated CH Loyalty cards Driver's licenses
  • Visit Frequency = The average number of visits individuals make to a c-store in a 30 day period. Year Ending June 2006 = 7.0 visits per 30 days. This is down 1.7% from year ago. However, we did see positive increase during 2 nd Quarter 2006 – up 1.7% to 7.3 visits in a 30 day period. This can be attributed to… An increase in visit frequency for 2Q06 compared to 2Q05 during morning (up 3.2%) and mid-day (up 6.3%), which generally bring repeat business for breakfast and lunch. Looking at Visit Frequency regionally, we see the greatest increases from 2Q05 to 2Q06 in New England, E.N. Central, W.N. Central and S. Atlantic Census Regions. The warmer weather in these areas may have brought more people into the stores. CREST shows that consumers appear to be trading down from mid-scale/casual dining to QSRs. Some of this may also be trickling down to c-stores.
  • Beer constitute 16 of sales in stores that carry beer
  • 15 of which are franchised nine Midwestern states: Iowa,  Illinois,  Indiana, Kansas, Minnesota, Missouri, Nebraska, South Dakota, and Wisconsin
  • 15 of which are franchised nine Midwestern states: Iowa,  Illinois,  Indiana, Kansas, Minnesota, Missouri, Nebraska, South Dakota, and Wisconsin
  • GLGi: Convenience Retailing

    1. 1. GLGi: Convenience Retailing & Petroleum Marketing Industry Wednesday, July 11, 2007 New York
    2. 2. <ul><li>Council Member Biography </li></ul><ul><li>Steve Montgomery is currently the President of b2b Solutions, LLC, a premier c-store consulting team that has the capability and resources to provide total solutions to help retailers and suppliers understand and accomplish their goals in the c-store / petroleum channel. Mr. Montgomery has over 25 years of experience that spans top management positions in both entrepreneurial and large corporate business environments. He has served as President and Member of the Board of Directors for Dairy Mart Corporation, and as General Manager for Convenience Stores and Manager of Convenience Retail Strategies and Programs for Amoco Oil Company. Steve is a past member of the Board of Retailer Directors of the National Association of Convenience Stores (NACS) and is currently a Member of its Supplier Board. Steve is a frequent contributor to articles on the convenience / retail petroleum industry and is a frequent speaker at industry functions. He has worked with NACS as a Program Director and Program Moderator on topics ranging from Foodservice to Non-Traditional Competitors. </li></ul>
    3. 3. <ul><li>About GLG Institute </li></ul><ul><li>GLG Institute (GLGi SM ) is a professional organization focused on educating business and investment professionals through in-person meetings. It is designed to revolutionize the professional education market by putting the power of programming into the hands of the GLG community. </li></ul><ul><li>GLGi hosts hundreds of Seminars worldwide each year. </li></ul><ul><li>GLGi clients receive two seats to all Seminars in all Practice Areas. </li></ul><ul><li>GLGi’s website enables clients to: </li></ul><ul><ul><li>Propose Seminar topics, agenda items and locations </li></ul></ul><ul><ul><li>View and RSVP to scheduled and proposed Seminars </li></ul></ul><ul><ul><li>Receive a daily briefing with new posts on your favorite tickers, subject areas and from trusted Council Members </li></ul></ul><ul><ul><li>Share Seminar details with colleagues or friends </li></ul></ul>
    4. 4. <ul><li>Gerson Lehrman Group Contacts </li></ul><ul><li>Randi Culang </li></ul><ul><li>Consumer Goods & Services Global Research Head </li></ul><ul><li>Gerson Lehrman Group </li></ul><ul><li>850 Third Avenue, 9th Floor </li></ul><ul><li>New York, NY 10022 </li></ul><ul><li>212-750-1229 </li></ul><ul><li>[email_address] </li></ul><ul><li>Christine Ruane </li></ul><ul><li>Senior Product Manager </li></ul><ul><li>Gerson Lehrman Group </li></ul><ul><li>850 Third Avenue, 9th Floor </li></ul><ul><li>New York, NY 10022 </li></ul><ul><li>212-984-8505 </li></ul><ul><li>[email_address] </li></ul>
    5. 5. <ul><li>IMPORTANT GLG INSTITUTE DISCLAIMER – By making contact with this/these Council Members and participating in this event, you specifically acknowledge, understand and agree that you must not seek out material non-public or confidential information from Council Members. You understand and agree that the information and material provided by Council Members is provided for your own insight and educational purposes and may not be redistributed or displayed in any form without the prior written consent of Gerson Lehrman Group. You agree to keep the material provided by Council Members for this event and the business information of Gerson Lehrman Group, including information about Council Members, confidential until such information becomes known to the public generally and except to the extent that disclosure may be required by law, regulation or legal process. You must respect any agreements they may have and understand the Council Members may be constrained by obligations or agreements in their ability to consult on certain topics and answer certain questions. Please note that Council Members do not provide investment advice, nor do they provide professional opinions. Council Members who are lawyers do not provide legal advice and no attorney-client relationship is established from their participation in this project. </li></ul><ul><li>You acknowledge and agree that Gerson Lehrman Group does not screen and is not responsible for the content of materials produced by Council Members. You understand and agree that you will not hold Council Members or Gerson Lehrman Group liable for the accuracy or completeness of the information provided to you by the Council Members. You acknowledge and agree that Gerson Lehrman Group shall have no liability whatsoever arising from your attendance at the event or the actions or omissions of Council Members including, but not limited to claims by third parties relating to the actions or omissions of Council Members, and you agree to release Gerson Lehrman Group from any and all claims for lost profits and liabilities that result from your participation in this event or the information provided by Council Members, regardless of whether or not such liability arises is based in tort, contract, strict liability or otherwise. You acknowledge and agree that Gerson Lehrman Group shall not be liable for any incidental, consequential, punitive or special damages, or any other indirect damages, even if advised of the possibility of such damages arising from your attendance at the event or use of the information provided at this event. </li></ul>
    6. 6. Convenience Retailing & Petroleum Marketing Industry
    7. 7. Agenda <ul><li>Overview Of The C-store / Petroleum Industry </li></ul><ul><li>Current Structure Changes </li></ul><ul><li>Industry Challenges </li></ul><ul><li>Major Players </li></ul><ul><ul><li>Major Oil Companies (MOC’s) </li></ul></ul><ul><ul><li>The Publicly Traded Companies </li></ul></ul>
    8. 8. Industry Overview
    9. 9. Change in Retail Sales Source: US Department of Commerce 8.3% 14.4% 13.7% Convenience In-Store 0.9% 5.7% 1.6% 6.5% 12.1% 6.5% 2004 (1.1)% 4.2% 4.9% 6.0% 11.4% 7.0% 2005 0.5% Discount Department Stores 4.1% Grocery Stores 7.9% Drug Stores 8.0% Restaurants 10.3% Warehouse Clubs/Superstores 5.0% Total Retail Sales 2006
    10. 10. Average Industry Store Metrics Per Month Source: 2007 NACS State of the Industry Survey powered by CSX 19.4% 5.8% 2.4% 6.3% Change $213,333 $90,146 $10,688 $79,458 2005 $254,658 Motor Fuel $95,392 In-Store $10,942 Foodservice $84,450 Merchandise 2006 Sales
    11. 11. Average Industry Store Metrics Per Month * Fuel Stores Only Source: 2007 NACS State of the Industry Survey powered by CSX (20.9)% (10.4)% (23.0)% 0.3% Change $2,783 $3,516 Pretax Profit $8,250 $9,209 Operating Income $13,617 $17,675 Motor Fuels Gross Margin $ * $26,708 $26,623 In-Store Gross Margin $ 2006 2005
    12. 12. C-Store Industry Overview <ul><li>Number Of Stores – 145,119 </li></ul><ul><li>Number Selling Fuel – 114,974 </li></ul><ul><li>Avg. Gross Margin Per Gallon – 14.7 ¢ </li></ul><ul><li>Avg. Merchandise Sales – $1,144,704 </li></ul><ul><li>Avg. In-store Gross Margin – 28.0% </li></ul>NACS SOI 2007
    13. 13. Changing Business Model
    14. 14. Who Sells Fuel? <ul><li>Gasoline Is A Zero Sum Game </li></ul><ul><li>78% Of All Gasoline And Diesel Sold By C-stores (2005 NACS Estimate) </li></ul><ul><li>2.4%< Of Fuel Locations Owned And Operated By MOC’s (C-Store News, August 2006) </li></ul><ul><ul><li>BP North America: 1,131 stores </li></ul></ul><ul><ul><li>ExxonMobil Corp.: 896 stores </li></ul></ul><ul><ul><li>ChevronTexaco Corp: 373 stores </li></ul></ul><ul><ul><li>Shell Oil Products US: 168 stores </li></ul></ul><ul><ul><li>ConocoPhillips Inc.: 150 stores </li></ul></ul>
    15. 15. Revenue / Profit Streams Per Location / Per Year NACS 2007 SOI 100% $483,900 100% $4,200,600 Total 66% $320,496 27% $1,144,704 Store Sales 34% $163,404 73% $3,055,896 Gasoline % of Total Average $GP % of Total Average Sales
    16. 16. Consumer Insights
    17. 17. By The Numbers <ul><li>Percent Who Shop C-store At Least Once A Month </li></ul><ul><ul><li>Male 78% </li></ul></ul><ul><ul><li>Female 75% </li></ul></ul><ul><li>Frequent Shoppers (once a week or more) </li></ul><ul><ul><li>Male 65% </li></ul></ul><ul><ul><li>Female 55% (main difference in daily frequency – 14% vs. 8%) </li></ul></ul>
    18. 18. Reason For C-Store Trip b2b Solutions, LLC
    19. 19. Reason For Store Choice NPD Research
    20. 20. Current Structural Changes
    21. 21. Industry Structure b2b Solutions, LLC
    22. 22. Current Structure Changes <ul><li>Major Oil Companies Shedding Stores </li></ul><ul><ul><li>Big companies – not good at operating small boxes </li></ul></ul><ul><ul><li>Hard to get senior management attention </li></ul></ul><ul><ul><ul><li>SOTG / never make the rounding </li></ul></ul></ul><ul><ul><ul><li>ROI less than alternatives </li></ul></ul></ul><ul><ul><li>Network rationalization </li></ul></ul><ul><ul><ul><li>primarily going to jobber / franchise operations </li></ul></ul></ul><ul><ul><ul><li>recoup capital / retain fuel volume </li></ul></ul></ul>
    23. 23. MOC’s Disposition Formats <ul><li>Shell </li></ul><ul><ul><li>Multi-Site Operator (MSO) </li></ul></ul><ul><ul><li>Couche-Tard (236 sites) </li></ul></ul><ul><li>BP (Auction Process) </li></ul><ul><ul><li>ARCO am/pm franchise </li></ul></ul><ul><ul><li>BP am/pm franchise </li></ul></ul><ul><li>ExxonMobil (On The Run - Franchise) </li></ul><ul><li>Chevron (Extra Mile - Franchise) </li></ul>
    24. 24. Industry’s Economic Challenges
    25. 25. Industry’s Economic Challenges <ul><li>Increased Capital Cost </li></ul><ul><li>Changing Business Model A Challenge For Smaller Format Stores (Island Marketers) </li></ul><ul><li>Increasing Complexity </li></ul><ul><li>Dependence On Limited Number Of Product Categories </li></ul><ul><li>Increasing Operating Cost </li></ul><ul><ul><li>Employee turnover </li></ul></ul><ul><ul><li>Labor cost (min. wage increasing) </li></ul></ul>
    26. 26. Increasing Capital Requirements <ul><li>Convenience Based Business </li></ul><ul><ul><li>Easy access to traffic critical </li></ul></ul><ul><ul><li>Competition for corners driving up land cost (especially drugstores) </li></ul></ul><ul><li>Increased Size </li></ul><ul><ul><li>Stores </li></ul></ul><ul><ul><ul><li>more complex offering </li></ul></ul></ul><ul><ul><ul><li>changing expectations </li></ul></ul></ul><ul><ul><li>Land requirements increasing </li></ul></ul><ul><ul><ul><li>changing product mix requires more parking spaces </li></ul></ul></ul><ul><ul><ul><li>additional profit centers </li></ul></ul></ul>
    27. 27. Increased Capital Requirements NACS SOI 2002 / 2006 2006 2002 $1,915,060 $2,854,149 $1,541,500 $1,831,800 Total $103,521 $113,361 $72,600 $84,800 Inventory $820,501 $1,132,875 $550,700 $562,700 Equipment $557,948 $771,199 $537,000 $513,000 Bldg. $432,790 $836,714 $381,200 $671,300 Land Rural Urban Rural Urban
    28. 28. Reliance On Selected Categories <ul><li>Gasoline </li></ul><ul><li>Cigarettes </li></ul><ul><li>Top Ten Categories </li></ul>
    29. 29. Reliance On - Gasoline <ul><li>Fuel Is Traffic Driver </li></ul><ul><li>C-store Sell 78% Of All Gasoline (NACS Estimate – 2005) </li></ul><ul><li>C-stores – ⅓ Margin Comes From Fuel </li></ul><ul><li>Fuel Is Becoming More Of A Commodity </li></ul><ul><ul><li>Government regulation (allows less variation) </li></ul></ul><ul><ul><li>Spaghetti factor </li></ul></ul><ul><ul><li>More c-store retailers going “unbranded” </li></ul></ul>
    30. 30. Reliance On Gasoline <ul><li>Fuel Profitability Measured On CPG </li></ul><ul><li>Reported On Gross Basis </li></ul><ul><li>Reported Based On WAM </li></ul><ul><li>NACS Reported Fuel Margins </li></ul><ul><ul><li>2002 – 12.7 CPG </li></ul></ul><ul><ul><li>2003 – 13.7 CPG </li></ul></ul><ul><ul><li>2004 – 12.7 CPG </li></ul></ul><ul><ul><li>2005 – 16.3 CPG </li></ul></ul><ul><ul><li>2006 – 14.7 CPG </li></ul></ul><ul><li>Margins Vary By Region / Market </li></ul>NACS Fact Book 2006 NACS 2007 SOI
    31. 31. Reliance On – Gasoline Margin Variation OPIS Presentation NASC 2007 SOI
    32. 32. Reliance On - Gasoline <ul><li>Impact Of Credit Card Fees </li></ul><ul><ul><li>Credit card usage increases as gasoline prices increase </li></ul></ul><ul><ul><li>Consumers urged to use higher fee cards </li></ul></ul><ul><ul><li>NACS reports credit card fees have risen from $3.2B in 2003 to $6.6B in 2006 </li></ul></ul><ul><ul><li>Credit card fee structure </li></ul></ul><ul><ul><ul><li>Flat rate per transaction </li></ul></ul></ul><ul><ul><ul><li>Plus % </li></ul></ul></ul>
    33. 33. Reliance On - Gasoline <ul><ul><li>Credit Card Alternatives </li></ul></ul><ul><li>“Discount For Cash” </li></ul><ul><ul><li>Typical 5 ¢ per gallon </li></ul></ul><ul><ul><li>Credit Cards Fighting (CA Lawsuit) </li></ul></ul><ul><li>Debit Cards (lower fees) </li></ul><ul><li>ACH (Automatic Clearing House) </li></ul><ul><ul><li>Flat fees (some as low as 15 ¢ per transaction) </li></ul></ul><ul><ul><li>Linked to </li></ul></ul><ul><ul><ul><li>loyalty cards </li></ul></ul></ul><ul><ul><ul><li>drivers’ licenses </li></ul></ul></ul>
    34. 34. Reliance On - Gasoline <ul><li>New Competitors </li></ul><ul><ul><li>Big box (Wal-Mart) </li></ul></ul><ul><ul><li>Supermarkets </li></ul></ul><ul><ul><li>Membership organizations (Sam’s, Costco, BJ’s) </li></ul></ul><ul><li>Changes In Their Business Model </li></ul><ul><ul><li>Impact on selling enough fuel to impact overall sales / margin numbers </li></ul></ul><ul><ul><li>Wal-Mart selling its real estate to Murphy </li></ul></ul><ul><ul><li>Wall Street demand that they make money </li></ul></ul><ul><ul><li>Impact on certain areas of the country greater than others (Texas vs. North East) </li></ul></ul>
    35. 35. Reliance On - Cigarettes <ul><li>Model Changing </li></ul><ul><ul><li>Had a sizable profitability component based on purchases / displays </li></ul></ul><ul><ul><li>Now based more on actual sales </li></ul></ul><ul><li>NACS SOI Data (Short Term Changes Not Dramatic) </li></ul><ul><ul><li>2007 </li></ul></ul><ul><ul><ul><li>34.35% of in-store sales </li></ul></ul></ul><ul><ul><ul><li>21.1% of in-store gross margin </li></ul></ul></ul><ul><ul><li>2002 </li></ul></ul><ul><ul><ul><li>38.7% of in-store sales </li></ul></ul></ul><ul><ul><ul><li>25.9% of in-store gross margin </li></ul></ul></ul>
    36. 36. Reliance On - Cigarettes <ul><li>% Gross Margin Declining </li></ul><ul><ul><li>2002 (20.8%) </li></ul></ul><ul><ul><li>2007 (18.0%) </li></ul></ul><ul><ul><li>Margin declining, but on higher unit value </li></ul></ul><ul><li>$ Gross Margin Increasing (Avg. Per Store) </li></ul><ul><ul><li>2002 ($63,657) </li></ul></ul><ul><ul><li>2006 ($69,742) </li></ul></ul><ul><li>Business Moving From Cartons To Packs </li></ul><ul><ul><li>2002 (62.8% cartons) </li></ul></ul><ul><ul><li>2005 (41.0% cartons) </li></ul></ul>NACS Fact Book 2003 / NACS 2007 SOI / NACS SOI Index Group
    37. 37. Reliance On - Cigarettes Data Source: AIM Convenience / Gas Retailers Five Year Carton Shipments
    38. 38. <ul><li>Cigarette Category Continues To Grow In The Convenience Store Channel </li></ul><ul><li>Still Approx. 18.5 Million Consumers Buying Cigarettes In Other Than Convenience/Gas </li></ul><ul><li>Premium Brands Continue To Grow In Market Share </li></ul><ul><li>Premium Brand Market Share In Convenience / Gas Is 77.6% (Higher Than Any Other Class Of Trade) </li></ul>Reliance On - Cigarettes Data Source: McLane Company
    39. 39. 2007 Top Ten Categories (as a % of GM$ Contribution) Category % Of In-store GM$ Cigarettes 21.1 Packaged Beverages 17.0 Beer 8.6 Foodservice Prepared Onsite 7.9 Hot Dispensed Beverages 7.3 Candy 5.7 Cold Dispensed Beverages 3.7 Other Tobacco 3.7 Salty Snacks 3.7 General Merchandise 2.6 All Others 18.7% Top 10 81.3% NACS 2007 SOI
    40. 40. Increased Operating Cost - Labor <ul><li>Measured In Terms Of </li></ul><ul><li>Hours Per Store Per Week </li></ul><ul><li>Dollars (Per Store Per Week/Month) </li></ul><ul><li>% Of Sales (Total / Inside) </li></ul><ul><li>% Of Total Gross Margin </li></ul><ul><li>Sales Per Man Hour </li></ul><ul><li>Sales Per Labor Dollar (Foodservice) </li></ul>
    41. 41. Increased Operating Cost - Labor <ul><li>Growing In Terms Of Dollars </li></ul><ul><li>Stable / Declining As Percentage Of Total Gross Profit </li></ul><ul><ul><li>2001 (38.6%) </li></ul></ul><ul><ul><li>2005 (35.9%) </li></ul></ul><ul><ul><li>Influenced by growth In $GM from foodservice </li></ul></ul><ul><li>Impact of Proposed Increase In Min. Wage </li></ul>NACS 2002/2006 SOI
    42. 42. Increased Operating Cost - Labor <ul><li>Turnover – The Hidden Cost </li></ul><ul><li>Average Store Has 11.1 Employees </li></ul><ul><ul><li>6.1 Full time </li></ul></ul><ul><ul><li>4.0 Part time </li></ul></ul><ul><li>Turnover Rates (NACS 2007 SOI Same Store Sample) </li></ul><ul><ul><li>Store managers (19.7%) </li></ul></ul><ul><ul><li>Full time (83.9%) </li></ul></ul><ul><ul><li>Part time (79.8) </li></ul></ul><ul><li>Turnover Cost </li></ul><ul><ul><li>Depends on metrics used (hard / soft) </li></ul></ul><ul><ul><li>Potentially greater with larger foodservice offer </li></ul></ul>NACS 2006 / 2007 SOI
    43. 43. The Players
    44. 44. The Players <ul><li>The MOC’s </li></ul><ul><li>Casey's </li></ul><ul><li>The Pantry </li></ul><ul><li>Alimentation Couche-Tard, Inc. </li></ul><ul><li>Susser Holdings Corporation </li></ul><ul><li>Delek US Holdings, Inc. </li></ul>
    45. 45. The Players – The Oil Companies <ul><li>Fuel – Not Store Driven </li></ul><ul><li>ExxonMobil </li></ul><ul><li>BP </li></ul><ul><li>Chevron </li></ul><ul><li>Shell </li></ul><ul><li>Amerada Hess </li></ul><ul><li>ConocoPhillips, Inc </li></ul><ul><li>Sunoco </li></ul><ul><li>CITGO </li></ul><ul><li>Tesoro </li></ul>
    46. 46. The Players – Casey’s <ul><li>Headquartered In Ankeny, Iowa </li></ul><ul><li>Operates Primarily In Rural Markets </li></ul><ul><li>Operates 1,463 Stores In Nine Midwestern States </li></ul><ul><li>Low Cost / Low Sales </li></ul><ul><li>Utilizes Self-distribution For In-store Mdse. (90% Of Items Sold) </li></ul><ul><li>Hauls Most Of Its Own Fuel (~75%) </li></ul><ul><li>Known For Proprietary Pizza / Doughnuts </li></ul>
    47. 47. The Players – Casey’s <ul><li>Historically Used Organic Growth </li></ul><ul><ul><li>Purchased 49 Gas N’ Stops January, 2006 </li></ul></ul><ul><ul><li>2006 Annual Report future acquisitions likely </li></ul></ul><ul><li>Fuel </li></ul><ul><ul><li>Generated 70.8% of net sales </li></ul></ul><ul><ul><li>2006 Margin (11.5 cpg) / 2007 goal (10.8 cpg) </li></ul></ul><ul><ul><li>Contributed 24.3% of total gross margin </li></ul></ul><ul><li>In-Store </li></ul><ul><ul><li>Generated 29.2% of net sales </li></ul></ul><ul><ul><li>2006 Margin (31.5% ) / 2007 goal (32.2%) </li></ul></ul><ul><ul><li>Contributed 75.7% of total gross margin </li></ul></ul>
    48. 48. The Players – The Pantry <ul><li>Headquartered In Sanford, North Carolina </li></ul><ul><li>Operates In Eleven States In Southeast </li></ul><ul><li>Operates 1,500 Stores </li></ul><ul><li>80% Of Stores Branded Kangaroo Express </li></ul><ul><li>Operates 197 QSR’s </li></ul><ul><ul><li>Subway </li></ul></ul><ul><ul><li>Quiznos </li></ul></ul><ul><li>Operates 179 Car Washes </li></ul><ul><li>Average Store Size 2,600 Sq. Ft. </li></ul>
    49. 49. The Players – The Pantry <ul><li>Fuel Brands (BP/Amoco / CITGO (82%) and Kangaroo – 1,100 locations) </li></ul><ul><li>Fuel </li></ul><ul><ul><li>Generated 77% of net sales </li></ul></ul><ul><ul><li>Gross margin 15.8 cpg </li></ul></ul><ul><ul><li>Contributed 35% of total gross margin </li></ul></ul><ul><li>In-Store </li></ul><ul><ul><li>Generated 23% of net sales </li></ul></ul><ul><ul><li>Gross margin 37.4% </li></ul></ul><ul><ul><li>Contributed 65% of total gross margin </li></ul></ul>
    50. 50. The Players – Alimentation Couche-Tard <ul><li>Headquarted In Laval, Quebec Canada </li></ul><ul><li>Operates In Canada (Mac’s) / U.S. (Circle K) </li></ul><ul><li>Entered U.S. Via Acquisition In 2001 </li></ul><ul><li>Operates 3,000 + Locations In 28 States </li></ul><ul><li>Operates Decentralized Structure of Six Region In U.S. (Max. Preferred 600 Stores) </li></ul><ul><li>Regional V.P. Of Operations Function As Business Unit CEO’s </li></ul><ul><li>77% Of Revenue Comes From U.S. </li></ul>
    51. 51. The Players – Alimentation Couche-Tard <ul><li>Fuel (U.S.) </li></ul><ul><ul><li>Generated 64.2% of net sales </li></ul></ul><ul><ul><li>Gross margin 15.4 cpg </li></ul></ul><ul><ul><li>Contributed 25.1% of total gross margin </li></ul></ul><ul><li>In-Store (U.S.) </li></ul><ul><ul><li>Generated 35.8% of net sales </li></ul></ul><ul><ul><li>Gross margin 33.2% </li></ul></ul><ul><ul><li>Contributed 74.9% of total gross margin </li></ul></ul><ul><li>IMPACT Store Upgrade Program (Innovation-Marketing-People-Alimentation-Couche-Tard) </li></ul><ul><ul><li>Designed to target local preferences </li></ul></ul><ul><ul><li>Cost of $90-$180MM </li></ul></ul><ul><ul><li>~50% Currently completed </li></ul></ul>
    52. 52. The Players – Susser Holding Corp. <ul><li>Headquartered In Corpus Christi, Texas </li></ul><ul><li>Long Family History In Industry </li></ul><ul><li>Went Public In October, 2006 </li></ul><ul><li>Operates In Texas And Oklahoma </li></ul><ul><li>320 Stores </li></ul><ul><li>Re-imaged To Proprietary Stripes Brand In 1 st Qtr. 2007 From Circle K </li></ul><ul><li>135 Laredo Taco Company Locations </li></ul><ul><li>Supplies Fuel To 367 Dealers </li></ul>
    53. 53. The Players – Susser Holding Corp. <ul><li>Fuel </li></ul><ul><ul><li>Generated 71.3% of net sales </li></ul></ul><ul><ul><li>Average annual gallons 1,243,000 </li></ul></ul><ul><ul><li>Gross margin 13.6 cpg </li></ul></ul><ul><ul><li>Contributed 37% of total gross margin </li></ul></ul><ul><li>In-Store </li></ul><ul><ul><li>Generated 28.7% of net sales </li></ul></ul><ul><ul><li>Average mdse. Sales per store $887,000 </li></ul></ul><ul><ul><li>Gross margin 32.6% </li></ul></ul><ul><ul><li>Contributed 63% of total gross margin </li></ul></ul>
    54. 54. The Players – Delek US <ul><li>Based In Nashville </li></ul><ul><li>Owned By Delek Group Limited (Israel) </li></ul><ul><li>Entered US Market In May, 2001 With Acquisition Of Mapco Express </li></ul><ul><li>Went Public May, 2006 </li></ul><ul><li>Operates Texas Refinery </li></ul><ul><li>Sells Fuel Under Its Own Plus Four Other Brands </li></ul><ul><ul><li>BP </li></ul></ul><ul><ul><li>Exxon </li></ul></ul><ul><ul><li>Chevron </li></ul></ul><ul><ul><li>Shell </li></ul></ul>
    55. 55. The Players – Delek US <ul><li>Fuel </li></ul><ul><ul><li>Generated 76.3% of net sales </li></ul></ul><ul><ul><li>Average annual gallons 1,075,000 </li></ul></ul><ul><ul><li>Gross margin 14.5 cpg </li></ul></ul><ul><ul><li>Contributed 37% of total gross margin </li></ul></ul><ul><li>In-Store </li></ul><ul><ul><li>Generated 23.7% of net sales </li></ul></ul><ul><ul><li>Gross margin 30.6% </li></ul></ul><ul><ul><li>Contributed 63% of total gross margin </li></ul></ul><ul><li>69% of In-Store Merchandise Comes From McLane Company </li></ul>
    56. 56. The Players – Alon USA <ul><li>Based In Dallas, TX </li></ul><ul><li>Owned By ALON Israel Oil Co. LTD </li></ul><ul><li>Entered US Market In August, 2000 With Acquisition FINA Inc.'s Downstream Operations </li></ul><ul><li>Went Public July, 2005 </li></ul><ul><li>Operates </li></ul><ul><ul><li>Four Refineries (Texas, California and Oregon) </li></ul></ul><ul><ul><li>1,200+ FINA brand retail sites </li></ul></ul><ul><ul><li>206 Southwest Convenience Store (FINA and 7-Eleven) </li></ul></ul><ul><ul><ul><li>West Texas </li></ul></ul></ul><ul><ul><ul><li>New Mexico </li></ul></ul></ul>
    57. 57. The Players – Alon USA <ul><li>Fuel </li></ul><ul><ul><li>Generated 55.3% of net sales </li></ul></ul><ul><ul><li>Average annual gallons 408,000 </li></ul></ul><ul><ul><li>Gross margin 16.0 cpg </li></ul></ul><ul><ul><li>Contributed 19.1% of total gross margin </li></ul></ul><ul><li>In-Store </li></ul><ul><ul><li>Generated 44.7% of net sales </li></ul></ul><ul><ul><li>Gross margin 32.9% </li></ul></ul><ul><ul><li>Contributed 80.9% of total gross margin </li></ul></ul><ul><li>55-60% Of In-Store Merchandise Comes From McLane Company </li></ul>
    58. 58. Q&A
    59. 59. Appendix
    60. 60. Purchase Value <ul><li>Value Primarily Based On EBITDA </li></ul><ul><li>EBITDA Based </li></ul><ul><ul><li>Current store level </li></ul></ul><ul><ul><li>Adjustments </li></ul></ul><ul><li>EBIDTA Ranges </li></ul><ul><ul><li>4X to 6X fee properties </li></ul></ul><ul><ul><li>1X to 3X non-fee properties </li></ul></ul>
    61. 61. Purchase Value <ul><li>Sales Lease Back Popular Financing Mechanism </li></ul><ul><li>Based On Coverage Ratio ( EBITDA After Corporate G&A Allocations To Rent Ratios ) Ranging From 1.75X To 2.0x </li></ul><ul><li>Cap Rates Range From 8.5% to 9% </li></ul>
    62. 62. Annual Change in Retail Sales Source: US Department of Commerce 14.9% 25.5% 17.1% Total Sales 17.9% 31.1% 18.9% Motor Fuel Sales 8.3% 14.4% 13.7% In-Store Sales Convenience Stores 5.0% 7.0% 6.5% Total Retail Sales 2006 2005 2004
    63. 63. 2007 Survey Sample Source: Nielsen, 2007 NACS State of the Industry Survey powered by CSX 15.2% 22,018 145,119 Total 74.2% 14,282 19,252 E (500+ stores) 40.4% 2,542 6,296 D (201-500 stores) 27.7% 2,885 10,403 C (51-200 stores) 16.0% 2,008 12,529 B (11-50 stores) 0.3% 301 96,639 A (1-10 stores) SOI Sample % of Nielsen Count SOI Sample (including CSX) Nielsen Count of Convenience Stores Category
    64. 64. Share Of Total U.S. Cigarette Industry Volume by Major Class of Trade Data Source: IRI/MARLIN
    65. 65. Driving Behavior Impacts C-Stores <ul><li>Consumers Who Said They Are Shopping C-stores Less Are Also Driving Less Than Last Year </li></ul><ul><li>41% Of C-store Shoppers Say They Are Driving Less </li></ul>Source: The NPD Group / Study: Winning Back the C-Store Shopper
    66. 66. Driving Behavior Impacts C-Stores Source: The NPD Group / Study: Winning Back the C-Store Shopper
    67. 67. C-Store Shopping At The Time Of Gas Purchase Continues To Fall Source: The NPD Group / Motor Fuels Index Other Services Used at Time of Gas Purchase
    68. 68. C-Store Channel Penetration Source: The NPD Group / Convenience Store Monitor Penetration = Percentage Of Individuals Who Made A C-store Purchase In An Average 30 Day Period. -0.8% 0.8% -2.8% -2.1%
    69. 69. Gasoline Is A Zero Sum Game 86% Of the adult population buys gasoline at least once each 30 days b2b Solutions, LLC
    70. 70. Reliance On – Gasoline Margin Variation OPIS Presentation NASC 2007 SOI
    71. 71. Industry Challenges - Gasoline <ul><li>Credit Card Fees </li></ul><ul><ul><li>Credit card fee structure </li></ul></ul><ul><ul><ul><li>Varies by issuer </li></ul></ul></ul><ul><ul><ul><li>Card type </li></ul></ul></ul><ul><ul><li>OPIS numbers (May 28 news letter) – several MOC’s have issued temp drops in fees </li></ul></ul><ul><ul><li>Range for ExxonMobil </li></ul></ul><ul><ul><ul><li>MasterCard – 1.90% </li></ul></ul></ul><ul><ul><ul><li>AMEX – 2.90% </li></ul></ul></ul><ul><li>NACS / Merchants Coalition Fighting </li></ul><ul><ul><li>In congress </li></ul></ul><ul><ul><li>U.S. has some of the highest interchange rates </li></ul></ul>
    72. 72. Reliance On - Cigarettes Data Source: IRI/MARLIN Convenience / Gas Cigarette Category Five Year Sales
    73. 73. U.S. Cigarette Volume Trends - By Retail Segment Data Source: IRI/MARLIN Reliance On - Cigarettes
    74. 74. C-Store Visit Frequency Source: The NPD Group / Convenience Store Monitor Visit Frequency = Average Number Of Visits Individuals Make To A C-store In An Average 30-day Period. -5.1% 0.7% -4.0% 0.8%
    75. 75. 2007 Top Ten Categories (as a percent of in-store sales) <ul><li>Category % Of In-store Sales </li></ul><ul><li>Cigarettes 34.4 </li></ul><ul><li>Packaged Beverages 13.8 </li></ul><ul><li>Beer 12.2 </li></ul><ul><li>Foodservice 12.1 </li></ul><ul><li>Other Tobacco 3.8 </li></ul><ul><li>Candy 3.7 </li></ul><ul><li>Salty Snacks 3.2 </li></ul><ul><li>General Merchandise 2.0 </li></ul><ul><li>Fluid Milk 1.9 </li></ul><ul><li>Packaged Sweet Snacks 1.5 </li></ul>Top 10 88.5% All Others 11.5% NACS 2007 SOI
    76. 76. Foodservice Category Analysis (18.4 Percent Of Total In-store Sales) Food Prepared Onsite 41.4% Cold Dispensed Beverages 17.3% Packaged Sandwiches 5.89% Hot Dispensed Beverages 31.8% Frozen Dispensed Beverages 3.5% NACS 2007 SOI
    77. 77. The Players – Casey’s <ul><li>Rural Markets </li></ul><ul><ul><li>62% of its stores in markets with less than 5,000 </li></ul></ul><ul><ul><li>Only 12% are in markets of 20,000 or more </li></ul></ul><ul><li>Nine Midwestern States: Iowa,  Illinois,  Indiana, Kansas, Minnesota, Missouri, Nebraska, South Dakota, and Wisconsin </li></ul><ul><li>Product Selection - 1,800 SKU’s </li></ul>
    78. 78. The Players – Casey’s <ul><li>Gasoline </li></ul><ul><ul><li>Two grades of fuel (regular/mid-grade) </li></ul></ul><ul><ul><li>Avg. throughput 802,451 gallons </li></ul></ul><ul><li>Uniform Stores </li></ul><ul><ul><li>Total Cost $1.3MM </li></ul></ul><ul><ul><li>2,720 sq, ft. </li></ul></ul><ul><li>Store Generally Open 16 Hours (6 a.m. – 11 p.m. </li></ul>
    79. 79. The Players – The Pantry <ul><li>Operates In Eleven States (Indiana, Kentucky, Virginia, Tennessee, North Carolina, South Carolina, Georgia, Alabama, Mississippi, Louisiana, Florida) </li></ul><ul><li>Additional Fuel Brands (Chevron and ExxonMobil) </li></ul><ul><li>Stores That Sell Fuel – 1,014 </li></ul>
    80. 80. The Players – Alimentation Couche-Tard <ul><li>Just Lost Two Key Executives </li></ul><ul><ul><li>Regional head (Florida / Gulf Region) </li></ul></ul><ul><ul><li>Head of eastern North America operations </li></ul></ul><ul><li>Uses Sale Leaseback As Part Of Acquisition Strategy </li></ul>
    81. 81. The Players – Alimentation Couche-Tard <ul><li>Six U.S. Regions ( Midwest Region, the Great Lakes Region, the U.S. West Coast Region, Arizona, the U.S. Southeast Region and the Florida and Gulf region) </li></ul><ul><li>Operates 300 QSR’s (Incl. Subway, Dunkin’ Donuts, Noble Roman’s, Quiznos, Blimpie) </li></ul><ul><li>Over 62% Of All Locations (U.S. and Canada) Offer Fuel </li></ul><ul><li>Goal Is More Proprietary Foodservice </li></ul><ul><li>Store Size 2,000 – 2,500 sq. ft. </li></ul><ul><li>New Stores 3,000 Sq. Ft. With 3,200 SKU’s </li></ul>
    82. 82. The Players – Susser Holding Corp. <ul><li>Store Locations </li></ul><ul><ul><li>Texas (306) </li></ul></ul><ul><ul><li>Oklahoma (19) </li></ul></ul><ul><li>Store Open 24 Hours (321) </li></ul><ul><li>Stores That Sell Fuel (323) </li></ul><ul><li>Freestanding Stores (98%) </li></ul><ul><li>Average Store Size (3,100 sq. ft.) </li></ul><ul><li>New Locations (55 have 4,800 sq. ft.) </li></ul>
    83. 83. The Players – Susser Holding Corp. <ul><li>Has Used Sale Leaseback (74 locations / $170MM) </li></ul><ul><li>Offers 2,500-3,000 SKU’s </li></ul><ul><li>Purchases 40% Of Its Mdse. From McLane Company </li></ul><ul><li>Gasoline Brands (Valero – 90%+ / rest Shamrock, Chevron, Exxon and unbranded) </li></ul><ul><li>Avg. Throughput – 1,243,000 Gal. Per Yr. </li></ul>
    84. 84. The Players – Delek US <ul><li>States It Customizes Offer To Local Market </li></ul><ul><li>66% Stores Open 24 Hours / Remainder 16 Hours </li></ul><ul><li>79% Of Its Locations Are Corners </li></ul><ul><li>Avg. Store Size 2,360 / 69%> 2,000 Sq. Ft. </li></ul><ul><li>Same Store Merchandise Sales Up 2.9% </li></ul><ul><li>2006 Store Gross Margins 30.6% (Fueled By Increase In Food And Fountain) </li></ul><ul><li>Private Label Products (Water, Bag Candy, Juices, Energy and Soft Drinks) </li></ul>
    85. 85. The Players – Delek US <ul><li>Centralized Management </li></ul><ul><li>New Offices Opened July, 2006 </li></ul><ul><li>Operates 394 Stores (87% in Alabama, Tennessee and Virginia, others in Arkansas, Georgia, Kentucky, Louisiana, Mississippi) </li></ul><ul><li>Signed To Purchase 107 Calfee Co. Sites </li></ul><ul><li>Operates Stores Under Five Brands (MAPCO Express, MAPCO Mart, East Coast, Fast Food Fuel and Discount Food Mart) </li></ul><ul><li>Just Developed New Upscale Format - MAPCO Mart </li></ul><ul><ul><li>Expanded proprietary restaurant offer (Grille Marx) with made-to-order grill sandwiches, premium coffees and walk-in beer caves </li></ul></ul><ul><ul><li>Touch screen terminals at gas islands that allow customers to order food while fueling </li></ul></ul>
    86. 86. The Players – Alon USA <ul><li>Centralized Management </li></ul><ul><li>Retail Headquartered in Odessa, TX </li></ul><ul><li>Signed To Purchase 107 Calfee Co. Sites </li></ul><ul><li>Purchase 55-60% OF In-Store MDSE. From McLane Company </li></ul><ul><li>Have Rights to License 7-Eleven Name in West Texas and Majority of Counties in New Mexico </li></ul>
    87. 87. The Players – Alon USA <ul><li>Installing New POS System </li></ul>

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