‘A pipe-dream bid’: How Circle K owner’s proposed acquisition of 7-Eleven would reshape the convenience store industry
A proposed deal by the owner of Circle K to purchase 7-Eleven’s Japanese parent company would create a new giant in the convenience store space in the U.S. and abroad, though it’s unclear whether stakeholders and regulators will let it go through.
Canada-based Alimentation Couche-Tard, which owns the Circle K chain of convenience stores, made a bid to buy 7-Eleven’s Japanese parent company Seven & i Holdings — which has a market value of $38.4 billion, per Bloomberg — the company confirmed Aug. 19. Seven & i said it formed a special committee of independent outside directors to review the proposal.
Couche-Tard, which according to Reuters is valued at about $58 million, has been rapidly expanding its position within the fuel and convenience industry, though the 7-Eleven deal would multiply its influence several times over. This comes as U.S. investment firm ValueAct Capital, a major shareholder in Seven & i, has for several years argued that the Japanese company’s leadership hasn’t realized the full potential of 7-Eleven as its returns have unperformed peers. ValueAct has pushed Seven & i to restructure the company to focus on growing the convenience store business such as by splitting off its Ito-Yokado chain of supermarkets, which the company said it was considering in April.
On the same day it confirmed the Seven & i proposal, Couche-Tard announced it would buy the GetGo chain of 270 gas stations from supermarket operator Giant Eagle. Last year, the company bought more than 2,000 stores in Europe from TotalEnergies SE. The company previously tried to acquire Speedway but lost to Seven & i, which bought the Ohio-based chain for $21 billion.
A combined company would control almost a fifth of the U.S. market. As of its last earnings release in April, Alimentation Couche-Tard operated 10,445 stores. Including franchisees and other agreements, the company controlled almost 17,000 stores. Meanwhile, Seven & i Holdings operates, franchises or licenses about 86,000 stores globally, including more than 13,000 in the U.S. and Canada.
In the U.S., 7-Eleven controlled 14.5% of the convenience store space while Couche-Tard had just 4.6%, according to GlobalData research shared with the Associated Press.
Brandon Lawrence, a fuel industry consultant, said the deal would give Circle K tremendous pricing power but that it doesn’t necessarily mean people would pay more at the pump. He expects a new company would use its scale to undercut others in the market and drive foot traffic, and that it would have access to a massive amount of pricing data.
“Fuel is going to be a fight going forward,” Lawrence said. “If you’re not pricing your fuel in a sophisticated kind of way, they’re going to be able to outmaneuver you.”
Frank Beard, head of marketing for Rovertown, which helps build mobile apps for convenience store chains, said local and regional chains will need to find ways to differentiate themselves. Some examples of this include Shop Rite in Louisiana serving quick-service Cajun food, United Dairy Farmers in the Midwest offering ice cream or Texas cult favorite Buc-ee’s providing an especially unique experience with a variety of food and branded merchandise in its massive locations.
“This is just further evidence that if you’re a local or regional chain, you really need to lean into what makes you unique even more,” Beard said. “The worst thing you can do in a sea of sameness is to be more like your competition. Circle K’s ever-increasing scale here should really just convince retailers that what they need to do is differentiate themselves even further than maybe they already are.”
Serving affordable, high-quality food, might do that for 7-Eleven. The chain is already known for this in Japan, where grab-and-go meals from 7-Eleven and other convenience stores have become a significant part of Japanese culture. Seven & i is working with supplier Warabeya Nichiyo Holdings Co. in the U.S. to bring better food items to stores, including sliders, French toast and chicken-salad sandwiches, its CEO Ryuichi Isaka told Bloomberg. “We believe that we need to change our business model from one that relies on gasoline and cigarettes to one in which customers choose us based on our products,” Isaka said of its U.S. business. “The key to this change is fresh food.”
Michael Causton, co-founder of JapanConsuming, a Tokyo-based research firm specializing in Japanese consumer and retail markets, called the deal a “pipe-dream bid” that won’t happen.
“This is the last thing [Seven & i] wants or needs,” Causton said in an email. “Alimentation Couche-Tard is a major competitor in North America and increasingly globally and this bid will be disruptive/time consuming. Seven [& i] has its own expansion plans for global expansion and is doing just fine on its own so far.”
Causton said the deal will be opposed by the influential family owners of the business. The descendants of Masatoshi Ito still own an 8.1% stake in the business worth $3.1 billion, Bloomberg reported. “They won’t want to sell no matter how high the price goes in my view. As in never,” Causton said.
Causton expects the Japanese corporate establishment to also oppose the takeover. “None of the big firms will be wanting to see more speculative foreign takeover bids and putting this one down will be important to all.”
Additionally, Causton doesn’t expect Japan would want to bring what he calls a core emergency service provider into foreign hands. The company, he said, is regarded as part of the backbone of Japanese emergency response services by quickly offering supplies after natural disasters. He pointed to Couche-Tard’s failed $20 billion bid for French convenience store operator Carrefour, which the French government rejected over food security concerns. The deal may also attract attention from U.S. regulators.
Mike Allen, director of Azabu Research, however, said because Seven & I has a majority-independent board, “it’s going to be difficult for them to resist any reasonable offer.”