I’ve owned shares of Casey’s General Stores (CASY), a domestic operator of gas stations with convenience stores, for a long time. My initial idea was that for the big oil conglomerates, this part of their business was an afterthought. Not a good afterthought, either. It was/is a mature business, so it’s not glamorous and certainly not a path to top management Having the conglomerate name on the station also makes it a bigger target for consumer anger when oil prices are high.
So consolidation by smart operators in a mature, fragmenting industry was my initial idea.
A while ago, I started thinking that independent gas station chains also have a chance to redefine themselves as the go-to places to charge your EV–something I suspect the big oil companies should also do, but will be loathe to, especially in the US. In fact, Marathon Oil sold its Roadway chain to Seven & i in 2021.
Seven & i
Seven & i was originally a moderately-priced, forward-thinking (for Japan, anyway) domestic retailer who bought the 7-Eleven franchise for Japan, which it turned into the largest and most successful of the “conbini” convenience store chains there. Ultimately, it acquired the failing US parent, as well–and began to reinvigorate and expand it.
Seven & i has been under attack by foreign investors who want the company to break itself up, on the standard idea that the sum of the individual parts will far exceed the market cap of the whole.
To complicate matters, Alimentation Couche-Tard (ATD.TO), the second-largest operator of convenience stores in North America (the Circle K brand), has just made a bid to buy Seven & i, presumably to keep the North American assets and sell off the rest.
my take
Wall Street seems to me to be viewing this as consolidation aimed at retaining critical mass that’s typical in a declining industry. I think that’s right, as far as it goes. I think it’s also possible, though, that operators view their locations as having a second life as EV charging stations.
Curious how the business will change in the coming years. In the Netherlands (highest ev charger density in the world) there’s slow charging at home, work and street and fast charging on motorways. I imagine demand for gas stations on every corner (or 3 sometimes!) will decrease if people can top up their car at so many other places while they do other stuff. A big hurdle for new fast charge entrants over here is lack of space and rest areas locations with existing contracts to the oil companies. I imagine battery swapping will be the next big thing, as NIO does already in China. Quicker, and better for your battery, and ostensibly cheaper up front costs if the battery is leased apart from the car.
Hi Matt. One of my earliest mentors used to say that in a road construction boom, some people buy construction companies, some buy cement makers, but he buys the company that makes the trucks that deliver cement to the construction site. The idea is to find a play on some essential common element in an area that’s about to undergo substantial growth. Sort of the Nvidia of roadbuilding. My variation on this idea is that there will be a wave of investment interest, starting with the most obvious beneficiaries, like the construction companies, that will roll through levels of less obvious ideas and finally get to the equivalent of cement mixers. Why not have one position in the cement truck companies and another that’s more flexible and rolls with the tide of investor interest. Industry consolidation in construction/construction materials has rendered this more a thought experiment than a viable real-world strategy, but it’s the idea that counts.
Gas stations are a backwater for the big oils here in the US, maybe ex the West Coast. No one gets to be CEO by running them and the companies take substantial political heat when pump prices are high. So there have been lots of divestitures over the years–and they’re still happening now.
The bigger chains of independent stations tend to have large convenience stores linked to them, and, I think, are in the forefront of adding EV charging stations. (I own CASY and have in the past but not now owned Touche Carde and 7 and I). They also tend to be between the Appalachians and the Rockies, where people routinely drive long distances. Something like 2/3 of the operating profit for them, and a larger share of growth, comes from convenience store sales, though, so they’re really stores with gas stations attached to draw traffic, rather than fuel sellers with a convenience store sideline. WaWa would be an eastern, suburban version of this. The publicly traded names also tend to be consolidators in what is a mature industry. My guess is that their currently-small EV businesses become significant plusses, although who knows what the timing will be.
I haven’t followed the EV industry in China but battery swapping sounds like an interesting idea. My guess would be than fintech-driven separation of ownership/financing of the chassis and the battery will come in the US before anything else. There is a kind of parallel in the current state of affairs in the domestic auto business, with Japanese car-makers (also Korean, I think) making the engine abroad and the rest here.
It will also be interesting to see what happens as Chinese EV makers try to enter this market. Europeans have always been niche providers of autos here. With Japanese cars, early adopters were younger, counter-culture drivers. With Korean carmakers, it was the less affluent. Who will the Chinese target? The ultimate losers from these developments, though, have consistently been the highly-protected incumbents, GM and Ford, even more so as protective barriers forced foreigners to open plants in the US. Btw, GM is a famous business school case on how to turn a 50% market share into 15%.