Consolidate and continue to strive
The journey to become the world’s preferred destination for convenience and fuel continued in fiscal 2017, as we strived to create an even more modern and efficient store experience. The combination of our strong and committed approach to organic growth and our disciplined approach to mergers and acquisitions brings us further on this route.
Despite the broader retail slowdown in North America, we continued to focus on acquisitions, organic growth as well as the identification and evaluation of potential synergies, thus confirming our many strengths, such as our geographic diversification, our excellence in integrating acquisitions and our culture of managing and controlling expenses.
Every acquisition is fuelled with the intention to make sure our new family members incorporate our values. As a growth-oriented company, we know every acquisition is only as good as its successful integration. To achieve this, we must be diligent and present in our stores, and pursue our ongoing quest for financial efficiency.
Finally, as a demonstration of our ability to balance acquisitions with organic growth, same‑store metrics continued to expand in fiscal 2017, sustained by the growing popularity of our broader food service offering, our effective merchandising strategies as well as the rollout of our coffee concept, Simply Great Coffee, in a growing number of stores worldwide.
Global reach of our Circle KR brand
During fiscal 2017, we increased the strategic position of our global brand by converting more than 2,400 stores throughout our network. Our continued efforts to roll out our brand and increase our brand awareness allowed for more and more customers to discover the Circle K experience.
Fiscal 2017 marked the first time we introduced our global Circle KR brand to our customers in Scandinavia. Here, the challenge was to successfully transition from the well-established Statoil brand without affecting customer traffic in stores. We are pleased to report that we achieved outstanding results and our integration teams surpassed the desired results with increased customer traffic at the rebranded sites, all the while managing the initial risks identified for the company, a performance that exceeded our expectations.
This year also marked the rebranding of our first official sites in Poland and in the Baltics (Estonia, Latvia and Lithuania). We look forward to rebranding more than 300 stations in these countries, and the rebranding process is moving forward at an impressive pace. Opening events in early fiscal 2018 were marked by a strong engagement by our teams, laying the groundwork for the forthcoming changes across these markets.
Driven by this success, the Circle KR banner continued to gain momentum on both continents, with more than 2,500 stores rebranded globally since 2016, with approximately 1,200 in Europe and approximately 1,300 in North America, bringing us closer to becoming the world’s preferred destination for convenience and fuel.
Prospering in our key categories
Our success relies on our capacity to cater to customer needs and offer easy visits to people on the go. We continued to perform in our key categories in fiscal 2017. Indeed, during that period, same-store merchandise revenues increased in several parts of our network, and our overall performance was attributable to our continued efforts to adapt to new markets, to provide strong operations and to deliver fast and friendly service to customers.
Simply Great Coffee
Simply Great Coffee is now available in over 2,700 stores globally and has proven successful in the European markets. We now have the offer implemented in more than 1,500 stores in our North American network.
At the end of fiscal 2017, we had over 4,500 stores in North America serving freshly delivered or baked-on-site donuts, pastries, muffins, croissants and cookies. In 2018, we plan on adding another 500 made-on-site bakery stores to the Canadian market and opening up daily delivery in additional stores within our Southeast and Gulf Coast markets.
In the next year, we will concentrate efforts on continuing to establish a broader offer combined with the development of our new bakery program to get the message out on their exceptional taste at a more-than-competitive price. Our goal: become a one-stop shop that offers fast and friendly service along with quality products for our clients in need of a breakfast on the go.
Cold dispensed beverages
Polar PopR & FrosterR are the foundation of our cold dispensed program, with a loyal fan base that continues to grow. As consumers’ preferences and needs are changing, we are evolving the offer to build on our brand’s already strong position. Last year, new equipment and an expanded portfolio were implemented in 750 stores across the network, and in fiscal 2018, over 2,000 stores will receive capital investments to further improve our cold dispensed offers in order to solidify our position as a preferred destination for consumers.
Fuel rebranding to our milesR program
Our performance in the fuel sector is due to a combination of factors, one of which is our milesR program. However, we must not underestimate the importance of execution, cleanliness and pricing in order to explain our results. In fiscal 2017, same-store road transportation fuel volumes contributed to drive our organic growth, namely in the United States.
Our branded and premium fuels, milesR and milesPLUSR, are more and more present in our different sites. So far, in total, across Europe and the United States, we have close to 1,500 sites with milesR and more than 700 sites are planned for 2018 throughout our network. In addition, by the end of 2018, we hope to offer milesPLUSR in a little over 1,000 sites in Europe.
Making the most of our acquisitions
We seek to leverage economies of scale wherever we can, while identifying local innovations that the company can benefit from globally. This way, we learn from every acquisition and turn the individual strengths of the businesses we acquire into our own strengths across the map.
A perfect example of this is the Topaz acquisition. The addition of Ireland’s leading fuel and convenience retailer to our family of merchants brought an extensive and attractive convenience and fuel network, an outstanding food offering and very professional teams. We are very excited to learn from their great ideas and bring them to our stores across the rest of Europe and in North America.
Fiscal 2017 was also witness to the integration of the 278 Imperial Oil retail sites in Ontario and Québec. This was an important achievement for us. Indeed, with this transaction, along with CST, Couche-Tard’s network in Canada now consists of more than 2,200 stores. This affords us the opportunity to raise brand awareness through high-profile retail sites and allows us to further expand our position in high-density metropolitan areas with significant growth potential. But most importantly, it makes a powerful combination of three strong Canadian retail brands: Couche-TardR, EssoR and Tim HortonsR. Between our brands, we learn from each other’s best practices and can leverage our strengths, making our service offering even greater than it would be if we were operating individually.
It was also this year that we announced the agreement to purchase 53 sites held by American General Investments, LLC and North American Financial Group, LLC (together, “Cracker Barrel”). For 49 years, the Sadler family grew the Cracker Barrel chain from a single location to a successful operation that now stands as a leader in Southern Louisiana communities. The acquisition of the Cracker Barrel branded stores has expanded our presence in the Baton Rouge and Lafayette Louisiana markets as well as strengthened our food service offer, as those stores include 11 quick-service restaurants.
In connection with The Pantry integration, we reached our 24-month expense reduction annual run rate objective of US$85 million and quickly surpassed our merchandise and service supply cost reduction objective of US$27 million, as well as our target for fuel synergies associated with the fuel rebranding of approximately 1,000 stores in the Southeastern region of the U.S. This integration was a real success story, of which our teams can be proud. We will continue to build on the successes with the integration of The Pantry with our future acquisitions.
CST and CAPL acquisitions: expanding our footprint in the U.S.
Following the CST/CAPL acquisition of approximately US$4.4 billion, which closed on June 28, 2017, we are actively planning the transition and identifying potential synergies and best practices. The next year will be dedicated to rolling out our brand inside the stores previously owned by CST through branded stock and private-label products. Full rebranding will take place starting end of fiscal 2018 or early fiscal 2019, allowing us to connect gradually with customers in these markets and proving the value of a Circle K store experience.
Pursuant to the acquisition of CST, Couche-Tard became the general partner of CAPL, owns 100% of CAPL’s Incentive Distribution Rights and holds a 20.5% equity investment in CAPL. CAPL distributes branded and unbranded road transportation fuel to more than 1,100 locations in the United States.
Adding CAPL is an opportunity to acquire a leading wholesale fuel business and enter into the master limited partnership (MLP) market with them. We believe there are material synergies between CAPL and our existing wholesale dealer supply business.
With this acquisition, the combination of Couche-Tard’s close to 9,500 North American locations and CAPL’s network of more than 1,100 locations makes us one of the largest wholesale fuel distributors in the United States. This is another step in becoming the world’s preferred destination for convenience and fuel.
This merger ensures an enviable position for the company in the Southwestern United States, with an important presence in Texas, Georgia, in the Southeast U.S. region, New York and Eastern Canada. The transaction brings additional options to our growth strategy and will strategically strengthen our positioning in both the U.S. “sun belt” and the East Coast of Canada. We are proud to welcome CST/CAPL teams and customers into the Couche‑Tard family.
With the CST transaction having closed, we remain committed to our usual financial discipline so that we can continue to thrive on our capacity to seek out the right acquisitions.
The Holiday stores: building on our geographical growth strategy
It is this capacity to seek out the right business opportunities that allowed us on July 10, 2017, to sign an agreement with Holiday Companies – an important player in the convenience and fuel industry in the Upper-Midwest U.S. – in order to acquire all of the issued and outstanding shares of Holiday Stationstores, Inc. and certain affiliated companies (“Holiday”). With this acquisition, anticipated to close during the fourth quarter of fiscal 2018, our presence will be greatly increased in the northern tier of the U.S.
Holiday operates 522 sites (374 company-operated and 148 franchised) in 10 states, including 6 states new to the company: Idaho, Montana, Wyoming, North Dakota, South Dakota and Alaska. Following the close of the acquisition, Couche-Tard would be in 48 states.
For over 90 years, Holiday stores have been managed by the Erickson family, which has deep consumer loyalty within the region. The stores are well maintained, with top quartile convenience and fuel volumes. Couche-Tard will also acquire a food commissary, which produces and provides fresh and frozen food for all stores, as well as a fuel terminal supplying fuel to one third of the stations. We see tremendous synergies between the two companies and look forward to welcoming the Holiday brand, its highly successful programs and its teams to the Couche-Tard family.
Corporate social responsibility
As one of the largest retail brands in the world, we believe that social and environmental responsibility is an integral part of everyday life in our company. Therefore, at Couche-Tard, corporate social responsibility is not a stand-alone part of our business. It is integrated into our management system, and all of our categories are continuously developed towards greater sustainability and social responsibility, including fuel, car wash, coffee and food. And in our customer promise, “Take it easy,” corporate responsibility means to think of all the issues that are relevant to our customers, to care about what they care about and to strive to always be part of the future solution.
As Alain Bouchard said, we are a people-intensive business. This means that it is of utmost importance at Couche-Tard that we put the right person at the right place. In order to achieve this, we must recognize autonomy, acknowledge empowerment and emphasize leadership. A good leader will find people that will help him or her achieve greater success.
With the retail industry at a slowdown in many regions, we know that our goal of becoming the world’s preferred destination for convenience and fuel will hinge on the quality of our employees and our ability to engage them. The myVOICE program was introduced with the objective of getting annual feedback from our staff across all our sites and offices and making them a part of our changing world. Through this strategy aimed at increasing our employee loyalty, we know we will succeed in building a strong brand from town to town and country to country.
With this in mind, we are very excited to report that the second edition of our myVOICE survey, held in 2017, generated an impressive response rate of 90%. This provided us with key learnings from which we drew in order to lower employee turnover. Based on these learnings, we created a global human resource team to lead our human resource strategy across the globe. As such, they will oversee the alignment of tangible actions to create an engaging journey for our employees worldwide.
Diversity is encouraged at Couche-Tard and, in a company where we take pride in the fact that the majority of our people come up from within, we believe having women in leadership roles can also serve as an incentive for their peers. We are proud to have welcomed to our management team two outstanding women executives whose diversified perspectives and visions provide us with a competitive advantage.
Furthermore, we encourage our teams to stand out and become leaders in the industry of today and tomorrow. This year, we are extremely delighted to see four of our colleagues nominated at the Top Women in Convenience Awards 2017, which honor women who have demonstrated exemplary skills in their functions in the merchandise sector. We are very proud of Kathy Cunnington, Vice President, Shared Services North America, and Kimberly James, Senior Director, Global Brand Management, who are nominated in the Senior Leader of the Year category; Megan Baccam, Director, Hot Beverages, U.S., nominated in the Rising Star category; and of Elisa Goria, Global Head of Cold Dispensed Beverages, finalist in the Woman of the Year award.
We are also proud to mention that Jacob Schram, Group President, European Operations has been named the 2017 Insight European Industry Leader of the Year by the Association for Convenience & Fuel Retailing (NACS). Jacob’s positive leadership skills and vision bring great outcomes to our business day in and day out, which makes this recognition of his strengths by the industry especially significant.
Couche-Tard has applied a number of innovative techniques to grow its business while remaining environmentally aware. We have maintained focus on energy efficiency, water resource management, recycling, waste management, environmental compliance and the supply of renewable fuels. Our commitment to the environment is important to us, and we have established strategies in order to ensure that our approach to environmental matters is consistent and cohesive across all our markets. Those strategies guide all environmental initiatives across the company’s operations in North America and Europe, and the results are conclusive.
Reducing energy consumption
We closely monitor data through an Energy Performance Report (EPR), which provides, on a monthly basis, our consumption and cost data to better understand our performance. By looking at our performance company-wide, down to the site level, we are able to identify opportunities for improvement, act upon them and then measure the impact of those actions.
More eco-friendly fuels
Couche-Tard is one of the largest retailers of renewable fuels in North America, including ethanol blending and biodiesel. Biofuels are part of our customer offer across all our European markets. We are proud to say that we are the leading retailer in Norway and Sweden when it comes to maximizing the renewable share of conventional gasoline and diesel and the offer to the B2B segment of pure- or high-blended liquid renewable fuel products. Within the area of electric quick-charging, our network in Scandinavia has the widest offering in the retail market.
Furthermore, for the first time in fiscal 2017, Circle K brought HVO100 – a climate-smart alternative to “fossil diesel” – to private cars in Sweden. HVO100 reduces carbon dioxide emissions by up to 90% compared with standard diesel.
Saving water and the environment
Last year, Couche-Tard entered into a global agreement with the world’s largest manufacturer of car washes. The agreement includes co-operation in developing even more efficient car washes in terms of both quality and energy. We work with our suppliers and vendors to continue to make strides in reducing our water consumption along with meeting our customers’ need for a quality wash. In North America, we are replacing touchless equipment with brush equipment that can reduce water consumption by as much as 50%. Globally, we are installing equipment that recaptures much of the water for reuse with reclaim and recapture systems. In Scandinavia, for example, many of our car wash locations use detergents and conditioning chemicals certified to meet the Nordic Ecolabel or “Swan” environmental standards. Our approach to chemicals is consistent with our focus on safety, energy, water usage, and waste.
Healthy choices for people on the go
As customers take a more active interest in health and nutritional claims, the demand for “good-for-you” products and ingredients is increasing. Couche-Tard has answers for this demand.
With an offering of fresh sandwiches, expanded nut and protein lines, quality-driven breakfast items, as well as improved juice and water propositions, we have added to our overall brand image by adapting to customers’ changing tastes. For example, in Sweden, we have introduced the Pulled Oumph, a savoury vegan wrap for our vegetarian customers on the go!
Driving organic growth in North America are our new Foodvenience stores – food prepared on-site plus convenience. The program offers high-quality food at a good value with freshly made sandwiches, pizza, salads, baked goods and breakfast. It is thus far proving to be a successful innovation. The experience of our Southwest Business Unit clearly demonstrates the appreciation of our clients for these types of products. In that region, the Foodvenience offering increased from 4 to 9 sites in 2017, while generating a 44% increase in daily sales!
Progress was also made in our Polar PopR fountain offering, with expansions in Vitamin Water and Zero Calorie flavor profiles, which gives customers a healthier cold dispensed selection. Stores have implemented fresh fruit programs for quick-grab bananas and apples, which have been a tremendous success.
In our Irish sites, as well as in a few other markets, we are also on a mission to change the way people think about food on the go. We choose locally sourced ingredients from partners we know and trust, ensuring our customers the best quality. We work endlessly with our food partners to improve quality and create greater choice.
The Re.Store brand delivers a completely new and innovative approach to forecourt convenience retailing and revolutionizes the standards, quality and overall customer experience of forecourt dining. We are providing a balanced and nutritious range of fresh, healthy and tasty food for people on the go. Eating well has never been this easy; customers just need to visit one of our 150 Re.Stores across Ireland.
With the Cantina concept, we have developed a specific Mexican-style food offering in Ireland. Over the past year, we have seen a tremendous response to it. The Cantina menu is very much appreciated by our customers, and we can’t wait to continue spreading the full Mexican street food experience across some of our different markets.
Donations and community investment
Couche-Tard encourages employee involvement in their communities. It is our way of giving back to our customers and having a significant impact in their everyday lives. This year, from conservation efforts on behalf of Flora, Fauna y Cultura de Mexico to fundraising initiatives for underprivileged children supported by Nadezhda (Hope) in Murmansk – the city where it all began for Couche-Tard in Russia – or for the victims of the floods in Baton Rouge, we are proud to report that our employees stepped up and rallied to help their communities.
Also, we are very proud to say Couche-Tard continues to invest in the local communities where we do business through our “Fueling our Schools” program. The program has been extended to nearly 500 locations across Canada and the United States. Individual sites partner with local schools to raise money at a designated pump throughout the year. Approximately one million dollars was donated this past year through this program.
We take great pride in our collaborations with the Red Cross, Lung Association of Nova Scotia, Janeway Children’s Hospital Foundation, Cash for Clubs, Jack and Jill Foundation, Norwegian Cancer Society, Salvation Army and Muscular Dystrophy Association. We support the Medical University of South Carolina, Victory Junction Camp, Children’s Miracle Network and BRIS-Children’s Rights in Society.
We understand the need for our investors to receive accurate reporting regarding our company’s corporate responsibilities. We will inform all our investors of our intentions and plans through our communication tools once they have been developed, in order to ensure a balance between return on investment and the need to engage all our target groups, from our employees to our customers, including our investors.
In fiscal 2018, drawing on our experience with The Pantry integration, we will focus our efforts on carrying out the CST and CAPL integrations as well as on closing the agreement with Holiday.
Our organic growth is also an important part of our development. Therefore, this year we will pursue the development of our key categories and food offering. We believe we must continue to build on our strengths and adapt to the market changes: innovation and technology always push us to be at the forefront. At Couche-Tard and Circle K, we thrive on selling people time. And we will pursue our efforts to develop our brand by creating store experiences with customers in mind as well as products for people on the go.
All of these achievements are driven by our desire to please our customers. The rolling out of our loyalty platform in the next year will allow us to get even closer to our customers. Our objective is to stand out with the quality of our products, but first and foremost, with the quality of the customer experience we provide. This can be achieved by making sure employee engagement is at its highest. We aim to achieve a lower turnover that generates better services for our customers. After all, what we are looking to accomplish is “making it easy, so folks can take it easy”!
President & Chief Executive Officer