Parkland sees long runway for growth through industry consolidation
In the U.S., the company plans to double its store count moving forward without having to enter new markets.
CALGARY, Alberta — Parkland Corp. started with one store in Red Deer, Alta., and today is an international business with more than 3,300 retail locations across 25 countries, including the United States.
Years ago, the company didn't have a merger and acquisition (M&A) team and waited for bankers to approach Parkland with an offer. The problem with this model was that the company was overpaying and not creating synergies, so Parkland built its own M&A team.
"We are a consolidator. We have been very successful at consolidating the convenience and fuel marketing space," president and CEO Bob Espey explained during the company's recent Investor Day. "We're not a pure-play convenience company. We're not a pure-play fuel company. But those opportunities allow us to buy good assets at good value and grow them.
"As we look forward, one of the things we've learned is to have a broad pipeline. This is an industry that's consolidating. There are a lot of businesses for sale, so we look for lots of opportunities, so we're not beholden to any one opportunity," he continued.
Parkland's overall growth plan encompasses:
Develop — consolidate and grow its conventional marketing business in resilient markets;
Diversify — create convenience destinations through proprietary brands, food capabilities, digital communications, and electric vehicle charging; and
Decarbonize — help its commercial customers decarbonize.
In the U.S., the company's Parkland USA subsidiary sees significant industry consolidation on the horizon. The subsidiary operates in 11 U.S. states — Idaho, Montana, South Dakota, Minnesota, Wyoming, Utah, Colorado, Arizona, New Mexico and Florida — and has enough opportunities within these current markets to double its store count moving forward without having to enter new markets, according to Doug Haugh, president of Parkland USA.
Parkland USA recently entered into an agreement to acquire substantially all of the assets of Lynch Oil and its affiliates. Lynch Oil's operations are concentrated in southern and central Idaho, and include five large-format convenience stores and forecourts, two travel centres, two standalone car washes, and a rail storage terminal. This acquisition also will add annual fuel sales of more than 180 million litres.
"What drives the difference in valuations is that if you're a pure-play retail consolidator and you want to add scale and you've already got thousands of stores, you won't find many chains that also have thousands of stores. Instead, we're going to leverage stores like Lynch Oil with five large-format c-stores and two travel centres," Haugh explained.
The Lynch Oil deal will strengthen Parkland's growth platform across the Pacific Northwest, and complements its existing retail, commercial and wholesale businesses in Idaho.
The operator established a fourth U.S. Regional Operating Center (ROC) in Idaho Falls, Idaho, with its acquisition of Conrad & Bischoff Inc. (C&B) earlier in 2021. C&B's operations are concentrated in the fast-growing markets of Idaho and western Wyoming, with additional distribution capability into Utah, Nevada, Montana, and other states.
According to Haugh, however, the largest addressable market for Parkland USA is Florida. The Sunshine State has 9,800 total c-stores, with 7,800 of these locations selling gas. The water-bound market fits the retailer's criteria of a rapidly growing market that has rapid population growth, governance, supply dynamics, and a scalable market.
Parkland USA is positioned to build up its scale in Florida with the acquisition ofUrbieta Oil Co., which includes the purchase of 94 locations, 54 of which are "strategic sites." These locations are situated in two counties that are close to one another.
Calgary-based Parkland Corp. is an independent supplier and marketer of fuel and petroleum products and a convenience store operator. Parkland currently services customers across Canada, the United States, the Caribbean region, and the Americas through three channels: retail, commercial and wholesale.