Retail Revolution

Retail Revolution

Canadian companies are setting the pace at opposite ends of the retail spectrum – from one of the biggest global storefronts to one of the trendiest online shopping clubs. Here they share some expansion tips.

Alimentation Couche-Tard: The World’s Corner Store

Whether socializing over slushies or nipping in for milk, the convenience store figures large in everyone’s life – and in neighbourhoods universally.

Dominating North America’s corners and growing worldwide is Canada’s Alimentation Couche-Tard Inc. (ACT), the largest independent convenience store operator in North America with over 6,200 stores, and a total of 12,000 globally.

In Canada, most operate under the familiar Couche-Tard and Mac’s banners and, in the U.S., Mexico, Asia and United Arab Emirates, under the Circle K brand. In Europe, the Statoil name will be retained for several years; along with the company, ACT owns the iconic droplet and colour scheme, which will remain part of the brand.

It’s a classic rags-to-riches story for the company’s founder, president and CEO Alain Bouchard. His single dépanneur in Laval, Québec in 1980 has mushroomed into a global retail empire.

The company capitalized on the consolidation of several Québec convenience store chains in the 1980s and 90s, and steadily grew through purchases of strategic chains elsewhere in Canada and in the United States.

Then, the US$804 million acquisition of Circle K in 2003 from ConocoPhillips nearly doubled the number of North American stores, catapulting ACT into the big league. Another 36 North American acquisitions added about 1,200 stores.

The company’s biggest transformational purchase – and its first venture in Europe – was last year’s US$3.6 billion acquisition of Norway’s Statoil Fuel and Retail ASA (SFR), a leading store and fuel sales operator in Europe’s Nordic and Baltic regions.

EDC provided a US$250 million loan towards that deal. And another 2,300 gas station convenience stores were added to ACT’s ledger.

Plotting growth with local partners

The company’s incremental growth has been carefully plotted, starting with visiting potential acquisitions and those of nearby competitors.

Sometimes an investment hinges on an existing partnership, says Raymond Paré, Vice-President and Chief Financial Officer. “You can’t enter into a market in South America or Asia all alone, without having a local partner, because you’ll quickly find yourself in a corner. Local people understand local realities.”

After gaining a toehold in a region, ACT realized the synergistic potential of its acquisitions, fuelling further growth in existing and adjacent markets.

He cites Japan, where ACT has almost 3,000 licensed stores, as an example of providing support and branding to partners. “It’s through our licensees that we grow. Once we’re comfortable with the partnership and with local market dynamics, we might further expand.”

When a transaction is completed, ACT uses a decentralized operating model: local management is retained and encouraged to deepen its understanding of local consumer trends.

Customized approach

Micro-marketing and merchandising to different clientele is key, Paré says, pointing out the vastly different product range in stores around Montreal’s financial district, along the autoroute, in metro stations, and in a residential neighborhood.

To ensure management is frequently inspecting stores, ACT’s North American operations are divided among 12 business units, generally with 400 to 500 stores each – “that’s our target range,” adds Paré.

Differentiating between markets is also critical to managing global growth, and that’s achieved through the same decentralized strategy. “It would be a monumental mistake to take a cookie-cutter approach to our global customers,” says Paré.

It’s analogous to cooking, he muses. “There’s always a way to modify a recipe, to give it a different taste. That’s exactly what we do; we start with the ‘dish’ of a solid base and we allow a local team to adapt it according to local tastes.”

Another tool in ACT’s competitive arsenal is an increasing focus on private label and fresh food products to win market share from traditional food retailers.

“It would be a monumental mistake to take a cookie-cutter approach to our global customers.”

ACT also ascribes its success to two essentials of the convenience store: location and speed of service. Says Paré: “We sell proximity of service and time, which is an important need in industrialized countries.”

To ensure local management is motivated to deliver results, ACT empowers them through financial incentives. “There’s one thing that’s pretty international and that’s the desire for more money. It’s a pretty big driver,” says Paré.

“It’s about keeping good management in place, and giving them interesting incentives and power, while measuring results.” Regular assessments ensure employees meet reasonable targets.

ACT will apply the same formula to SFR in Europe, where local management will be retained to further develop the convenience stores, in keeping with the company’s core strength, while maintaining fuel sales (pushed up from 25 to 40 per cent of overall sales with SFR’s integration).

In addition to building markets where Statoil is already the leader, ACT aims to make inroads into the Benelux countries, Germany and the U.K., alongside further expansion of the Circle K brand in the United States.

Paré views EDC’s role in ACT’s growth as an important financing vehicle “allowing us to create value and wealth for Canada.” The company creates its own financing syndicates, negotiating with global banks for favorable terms.

Nevertheless, adds Paré, “partners like EDC are important to bring such deals (like SFR) to fruition and help us continue to grow.”

Beyond the Rack: Prêt-à-Profits

The theatre lights were dimming as the patron quickly completed her online transaction on her phone. But it wasn’t tickets she scored – it was a pair of Fendi sunglasses for under $100, from Beyond the Rack (BTR).

In four years this online shopping website has grown dramatically, to some 8.7 million Canadian and U.S. members. BTR alerts them by email of imminent “flash” or time-limited sales, typically lasting 48 hours.

Billed as a private shopping club, members register to access designer brand apparel, accessories and homewares at prices up to 80 per cent off retail.

Because quantities and sizes are limited, BTR recommends that buyers “attend the event” soon after it opens and shop quickly – items in shopping bags will be put back on sale if they’re not purchased within 20 minutes.

Ranked Canada’s third fastest growing private company in 2012 by PROFIT magazine, BTR selects merchandise with popular North American brand partners, allowing the well-known names to create demand quickly.

A complex algorithm determines which of three BTR processing facilities – Montreal, Las Vegas or New York State – the purchases are sent to for shipment to the customer.

Finding their niche

BTR founders Yona Shtern and Robert Gold, based in Montreal, were inspired by successful European sites that were being copied in the U.S., but focusing on luxury goods. Given the success of apparel discounter T.J. Maxx and its Canadian division Winners, Shtern and Gold saw an opportunity for a mid-market online player.

The model also generates higher returns for the manufacturer when divesting of its distressed inventory through the site, rather than through other clearance channels, maintains Shtern.

“With traditional off-price retail, the product basically sits there and keeps going through a markdown cycle, until it’s sitting on a shelf somewhere for 99 cents,” he contends.

“When the product goes into our channel, it’s only up for two days at a pre-set price, which we agree upon with our brand partner, and in many instances our selling environment actually helps the brand.”

The launch of homewares last year was a resounding success and two new business units will go live this year, says Shtern. Unlike many of its competitors, BTR also provides cross-border shopping.

The company’s phenomenal growth has produced the inevitable growing pains. Shtern concedes that managing a 450-strong workforce in two countries to serve millions of members has created issues.

Growth has been explosive since BTR’s 2009 launch – from $6 million in revenues then, to $150 million in 2012.”

“Our biggest challenge is staying ahead of the curve in terms of capital needs, to fuel growth in our technology, infrastructure and marketing. Another enormous challenge has been constantly expanding our logistics capabilities to meet our business needs, growing from a single order to shipping almost 15,000 packages a day.”

Investing in domain expertise is key, he notes, with a new U.S. division staffed by locals. “We hired a ‘skill set’ that understands the needs of the market and are able to guide us in terms of value to the consumer and all the regulatory issues.”

Access to working capital to maintain expansion is an ongoing challenge, with many banks uninterested in lending to a concern with no inventory or receivables. EDC’s injection of equity financing has therefore been “mission critical,” says Shtern.

“EDC shares our vision about the potential for much further expansion on a national and international scale.” Shtern adds that EDC was also instrumental in helping BTR make important business connections.

At this juncture, BTR’s ambitions are focused on the sizeable North American market. “We have our eye on the prize,” says Shtern. “We want to be a dominant e-commerce player in the United States.” Today that market already accounts for 40 per cent of BTR’s sales.

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