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07/19/2022

Couche-Tard mitigates forecourt challenges with its proprietary Circle K fuel brand

Fuel margins remain healthy throughout North America.
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Couche Tard gas station

LAVAL, Quebec — Higher prices at the pump have presented some headwinds for the convenience channel, but Alimentation Couche-Tard Inc.'s proprietary fuel brand is helping the retailer face those challenges.

According to the company's fourth-quarter 2022 earnings report, same-store road transportation fuel volume decreased 1.7% in the United States. However, fuel volume increased 3.7% in Europe, and 4.3% in Canada.

"In our Circle K fuel rebranding work over the quarter, we completed about 300 rebrands, bringing the total for the year to 680 additional sites and the overall number to nearly 3,500," CEO Brian Hannasch reported during Couche-Tard's earnings call on June 30. "The Circle K brand ambassador program has nearly 900,000 activations and our brand ambassadors continue to educate our customers about the brand value proposition, quality guarantee, and premium claim."

Couche-Tard, the parent company of the global Circle K brand, introduced its Top Tier Circle K fuel in the U.S. in late 2018, beginning in Florida. The retailer began the awareness phase in 2020 as it brought the brand to more of its forecourts across the globe.

Also helping prop up its fuel category in the U.S. was Circle K's recent "Win Fuel for a Year" contest. During the promotion, which ran from Feb. 2 through April 25, customers were able to enter daily to win one of the weekly awarded prizes.

"The 'Win Fuel for a Year' U.S. campaign wrapped up this quarter with 288 winners announced, and we are pleased with the growth of our Premium Thursday program, and the increased transactions in our EZ Pay program which gives a great discount in these times of high prices," Hannasch said.

Despite the increased number of Circle K fuel locations and growing awareness, Couche-Tard still has to grapple with labour and supply chain issues in the fuel category. However, its operating model is working to the company's benefit.

"Like our peers in the industry, we are experiencing pressure in different areas of our supply chain, particularly the fuel supply chain. We have been able to maintain reasonable inventories with our strong sourcing capabilities," the chief executive said. "Now with more than 1,000 drivers in our U.S. fleet for fuel, we are working hard to maintain reliable supply for our customers during the challenging time, both in the trucking industry and also in terms of U.S. supply overall with inventories being at record lows in many of our products."

"Like all participants, we are impacted by the inflationary pressures in labour and fuel. Yet having [our] own internal fleet, we are able to accurately measure these effects and mitigate these cost pressures where possible," Hannasch added.

Fuel category numbers

Couche-Tard's road transportation fuel gross margin for the fourth quarter of 2022 was 46.12 cents per gallon in the U.S., an increase of 11.67 cents per gallon, CFO Claude Tessier reported. In Canada, it was 13.41 cents per litre, an increase of 2.49 cents per litre.

"Fuel margins remain notably healthy throughout our North American network due to the favourable market conditions, a higher fuel breakeven margin in the industry, and the continued work on the optimization of our supply chain, including our Circle K fuel rebranding initiatives," Tessier explained.

In Europe and other regions, the company's road transportation fuel margin was 7.51 cents per litre, a decrease of 3.34 cents per litre.

"Fuel margins were impacted by increases in crude oil prices, supply chain challenges from the current geopolitical context, as well as volatility in the diesel market," he noted.

For fiscal year 2022, Couche-Tard's road transportation fuel gross margin was 39.62 per gallon in the U.S., 9.86 cents per litre in Europe and other regions, and 11.74 cents per litre in Canada.

Laval-based Couche-Tard operates in 24 countries and territories, with more than 14,000 stores, of which approximately 10,700 offer road transportation fuel.

With its well-known Couche-Tard and Circle K banners, it is one of the largest independent convenience store operators in the United States, and it is a leader in the convenience store industry and road transportation fuel retail in Canada, Scandinavia, the Baltics, as well as in Ireland. It also has an important presence in Poland and Hong Kong SAR. Approximately 122,000 people are employed throughout its network.

Originally published at Convenience Store News - U.S.