A pedestrian walks past Japan's Seven & i's 7-Eleven convenience store in Tokyo, Japan on Aug. 19.Kim Kyung-Hoon/Reuters
After its attempted takeover of Carrefour SA was foiled by the French government, Alimentation Couche-Tard Inc.’s then-chief executive said that even without owning the grocer, the company still saw its future in food.
“I would say food is the common theme there across everything we’ve looked at” for growth opportunities, CEO Brian Hannasch said just after the Carrefour talks ended in 2021.
Now Canada’s convenience-store giant is once again vying for a retailer with formidable capabilities in food, with its August US$39-billion offer for Japan’s Seven & i, owner of the global 7-Eleven chain. Seven & i rejected the bid, but left the door open for continuing talks if Couche-Tard presents a better deal.
Much has been made of 7-Eleven’s Japanese convenience stores, or konbini, where customers can buy a range of foods including bento meals, teriyaki chicken skewers, mochi desserts, and onigiri – packaged so that the rice ball’s seaweed wrapping stays perfectly crispy. But Seven & i has also been working to improve its offerings and boost food sales across its North American business, where convenience stores generally have been associated in consumers’ minds with slurpees, potato chips, Gatorade and – if hot food is on offer – glass cases of pepperoni pizza or rotating racks of oleaginous hot dogs.
7-Eleven is far from alone in trying to sell more food. The category is growing in importance for convenience store retailers, as the industry grapples with a time of unprecedented change.
“Every single company is focusing on it, because they recognize that that’s the future,” said Anne Kothawala, president and CEO of the Convenience Industry Council of Canada (CICC).
There are a few reasons for this. First, tobacco sales have decreased, not just because a smaller percentage of the population smokes compared to previous decades, but also because more people are turning elsewhere for cheaper contraband cigarettes, she said. Younger consumers are also more inclined to buy food from convenience stores, as are customers who have been feeling the effects of inflation and are looking for inexpensive snacks or meals on the go.
And while fuel sales were almost back to prepandemic levels last year, convenience stores that are attached to gas stations are looking toward a future where electric and hybrid vehicles put pressure on fuel demand. (In Canada, roughly 46 per cent of convenience stores are co-located with a fuel station, according to CICC.) As gas stations install electric chargers, they are also hoping to sell food to customers who will have more time to kill while they wait for a charge.
“As we see some fuel demand start to come off, the convenience and the food space is playing an even more important role,” said Ian White, president of Parkland Canada, a division of Calgary-based Parkland Corp. PKI-T and one of the country’s largest gas station and convenience store operators with banners including On the Run stores, and Esso, Chevron and Fas Gas Plus fuel stations. Parkland has increased its gross profits from non-fuel sales, Mr. White added, because the stores’ product mix has expanded.
“By shifting consumers from lower-margin, declining categories to higher-margin growth categories like food, that is helping us fund growth, and meets the needs of consumers,” he said.
In 2022, Parkland bought M&M Food Market for approximately $322-million, and since then has been expanding the brand’s frozen food products into 500 of its On the Run locations. The idea is that customers stopping by the convenience store may pick up a frozen meal for lunch or dinner later; the M&M team has also developed a menu of items that heat up quickly for customers to eat right away, including spinach and red pepper egg white omelette bites; a turkey, bacon and Swiss cheese sandwich on focaccia; and vegetable samosas.
Parkland’s On the Run location in Mississauga, Ont. In 2022, Parkland bought M&M Food Market and has been expanding the brand’s frozen food products into 500 of its On the Run locations since.Fred Lum/The Globe and Mail
Starting next year, the company will be testing four to five stores that combine the On the Run and M&M brands with a more expanded presence for food. M&M also partners with other retailers such as Rexall and even Home Hardware – but since the acquisition it has pulled products from some competing convenience stores such as Circle K and OnRoute.
“From a food perspective, we needed a point of difference, and a brand that immediately gave us credibility,” Mr. White said, acknowledging that North America differs from a market like Japan, where more people consider convenience stores a reliable destination for food.
Some retailers have tried to tackle that problem by partnering with fast-food brands such as Subway, Tim Hortons or Dairy Queen – all of which are known commodities for visitors. Petro-Canada opened its first A&W location in 1997 and now has more than 80. The company is looking to add as many as 100 more in the next few years.
Other convenience stores are building out their own food brands. The Orangestore chain, which has 26 locations in Newfoundland, has been adding to its food menu, and a few years ago launched the Café Orange product line. It now sells sandwiches, wraps, pastries and coffee, as well as more indulgent fare such as taquitos and a cheeseburger dog – featuring hamburger meat with cheese in the shape of a sausage. (Slogan: “Oh yes, we did.”)
“I’ve been in this business for 25 years and, and we never thought about food back then. Everything was just fuel,” said David Button, president of Orangestore’s parent company, North Sun Energy – a partnership between Newfoundland convenience store chain North Atlantic and Petro-Canada’s parent Suncor. Orangestore is also looking to partner with more fast-food restaurants, and to expand its car-wash business.
“We do anticipate that we can’t expect fuel demand is going to continue to grow,” Mr. Button said. “For that reason, we’re trying to look for other revenue sources. Foodservice is one.”
Couche-Tard has also been building its own foodservice business, which it refers to as “Fresh Food Fast.” It now sells those items, including sandwiches and pizza, in roughly 5,800 of its nearly 17,000 global stores.
The company has also been expanding in food through acquisitions – beyond just attempting the 7-Eleven takeover. In August, Couche-Tard announced the acquisition of GetGo Café +Markets, a U.S. chain of roughly 270 convenience stores and fuel locations from grocery retailer Giant Eagle. Couche-Tard’s new CEO, Alex Miller, praised the chain’s made-to-order food capabilities during an early-September call to discuss the company’s first-quarter results. Mr. Miller told analysts the deal is a “perfect example” of what the company is looking for in its mergers and acquisitions, and the role that food plays in those decisions.
Couche-Tard has long coveted Seven & i, which is working to bring more of the Japanese food experience to its North American stores.
“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. The key to this change is fresh food,” Seven & i chief executive officer Ryuichi Isaka told Bloomberg in February.
To do that, Seven & i has been expanding its food distribution system in North America, making deliveries from its commissaries more regularly, and to offer local items based on customers’ tastes – both strategies it already employs in Japan, making it possible to sell a wider variety of fresh food in stores. In the U.S., 7-Eleven has been opening what it calls “Evolution” stores, with restaurants on location and more premium products on the shelves including cigars and wine.
The convenience-store industry has been struggling, with an average of 1.5 stores in Canada shutting their doors every day last year, according to CICC. Store owners see food as a way to offset those pressures.
“Community stores tend not to be significant destinations; they tend to be a stop along the way,” Parkland’s Mr. White said. “Part of what we’re trying to do – particularly as some of the core categories for the community stores start to fall off – is we’re reinventing ourselves by introducing new categories that are credible and that are growing.”