3 Insights Into Couche-Tard's Fuel Business
By Samantha Oller on Dec. 02, 2016LAVAL, Quebec -- Electric vehicles, Renewable Identification Numbers and consumer demand—Alimentation Couche-Tard, one of the largest fuel retailers in North America, has a lot on its mind.
President and CEO Brian Hannasch weighed in on all of these and the implications for Couche-Tard’s network of 6,600 fueling sites in North America. Read on for fuel news highlights from the chain’s recent second-quarter 2016 earnings call. ...
Alternative fuels
While not actively pursuing alternative fuels, Couche-Tard is watching the development of electric vehicles (EVs) and hydrogen. Its board and management team has met with fuel experts such as John Heywood, a professor in the MIT Department of Mechanical Engineering and an internal-combustion-engine expert, to learn more about the development of the market in North America and globally.
When it comes to EVs, the company does not expect any major developments in the near future. Hannasch cited a statistic that EVs made up only one-half of 1% of new vehicles sold in North America in 2016, while truck and SUV sales have surged.
“When you put this in context with taking 15 years to turn the fleet over, we see a long runway for traditional fuels,” said Hannasch. “The experts we talk [to] see a much bigger impact from the improvement of the efficiency in the traditional fleet … than the introduction of electric or hybrids certainly in the next 15 to 20 years.”
Couche-Tard is installing EV charging stations at some of its sites in Norway, which has the largest fleet of plug-in EVs per capita in the world. In the meantime, the retailer expects to gain market share in traditional fuels in the coming decades, thanks to what Hannasch described as “a very robust fuel forecourt above-average industry volumes.”
RIN economics
After the pending merger with CST Brands finalizes, Couche-Tard will have annual fuel volumes of around 17 billion gallons worldwide. This should give it even greater ability to leverage its scale and build on any competitive advantages in how it buys, transports and sells fuel, said Hannasch.
In the United States, Couche-Tard buys under several structures, including some where it benefits in full or partly from the selling of Renewable Identification Numbers (RINs), credits that obligated parties such as refiners under the Renewable Fuel Standard (RFS) use to show compliance with biofuel blending volumes. When asked about Couche-Tard’s reliance on RINs and the possibility of any reform of the system, such as moving blending obligations downstream to retailers such as Circle K, Hannasch demurred.
“If it does go away, it goes away for everyone and the markets will adjust and we’ll focus on other ways to again establish and widen our competitive advantages on how we purchase fuel,” said Hannasch, who declined to quantify how much money RINs have generated for Couche-Tard. He also cited how difficult it is to change the RFS rule and strong industry opposition to change.
Fuel prices and store traffic
As the Organization of the Petroleum Exporting Countries (OPEC) agreed to its first cuts in oil production in eight years to help prop up prices, the ultimate effect on gasoline prices, which had been trending upward, is still unknown. The effect of gasoline price increases on customer buying behavior depends on two big factors, said Hannasch—pace and the state of the economy.
“When we see price shocks, we see behavior impacts very quickly,” said Hannasch. “If it’s a slow steady increase, we tend not to see much of an impact.”
The second variable is the financial health of the consumer. “Four or five years ago with higher unemployment, I think we were much more susceptible to price increases affecting consumer behavior,” said Hannasch. “Today, unemployment is relatively low in most of our markets and we think the consumers’ in a better place if something material did happen.”
It would take “a very material increase” in gas prices to significantly impact fuel demand or even premium-grade gasoline sales over the long term, he said.
Laval, Quebec-based Couche-Tard’s global retail network includes more than 12,300 locations, primarily under the Circle K brand. In North America, its network consists of approximately 8,000 c-stores, including more than 6,600 stores selling motor fuel. It has 15 business units, including 11 in the United States covering 41 states and four in Canada covering all 10 provinces.