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FDD Talk 2015: The Circle K Franchise Opportunity (Financial Performance Analysis, Estimated Costs, and Other Important Stuff You Need to Know)

by Franchise Chatter on December 28, 2015

in Convenience Store Franchise, FDD Talk 2017: Retail Franchises, Franchise Earnings, Retail Franchise



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Circle K Stores

In this FDD Talk 2015 post, you’ll learn the following:

  • Section I – Background information on the Circle K franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for a Circle K franchise, based on Item 7 of the company’s 2015 FDD
  • Section III – Presentation and analysis of Circle K’s financial performance representations, based on Item 19 of the company’s 2015 FDD, including information on the:
  • 2014 average gross sales for the 3,131 company-operated Circle K Stores (by region, then by quartile) that were open and operating the entire 52-week period ending April 26, 2015
  • 2014 average gross sales for the 386 franchised Circle K Stores (by quartile) that were open and operating the entire 12-month period ending April 30, 2015 and for which Circle K received complete monthly gross sales information for the entire 12-month period
  • 2014 average gross sales for the company-operated Circle K Stores with less than 1,800 square feet, from 1,800 to 2,600 square feet, and greater than 2,600 square feet, respectively, that were open and operating the entire 52-week period ending April 26, 2015
  • 2014 average gross sales for the franchised Circle K Stores with less than 1,800 square feet, from 1,800 to 2,600 square feet, and greater than 2,600 square feet, respectively, that were open and operating the entire 52-week period ending April 26, 2015
  • annual merchandise sales and the related sales growth for the 189 franchised Circle K Stores that have been open and operating for three full years as of April 30, 2015, during their first, second, and third years in operation
  • average monthly sales and the sales growth achieved by the 110 franchised stores that have been converted to Circle K Stores from another existing convenience store since January 1, 2004 and have at least 12 months of sales history as of April 30, 2015, in the first 12 months of operations following their conversion to Circle K
  • average monthly sales and the sales growth achieved by the 95 franchised stores that have been converted to Circle K Stores from another existing convenience store since January 1, 2004 and have at least 24 months of sales history as of April 30, 2015, in the second 12 months of operations following their conversion to Circle K

Section I – Background Information

Circle K may not have the 56,439 locations that behemoth 7-11 boasts (8,109 in the U.S., 47,835 abroad, and 495 company-owned units), but it’s doing well enough with its 14,916 locations (7,987 in North America; 2,229 in Europe, including Norway, Sweden, Denmark, Poland, and in the Baltics with Estonia, Latvia, Lithuania, and Russia; and 4,700 in 12 other countries, including China, Guam, Honduras, Hong Kong, Indonesia, Japan, Macau, Malaysia, Mexico, the Philippines, the United Arab Emirates and Vietnam).

Its origins date back to 1951, when Fred Hervey purchased three Kay’s Food Stores in El Paso, TX (he passed away in 1999 at the age of 90). In 1975, there were 1,000+ Circle K stores across the country, and in 1979 the chain entered the international arena with its first stores in Japan.

The company’s growth continued and by 1984 sales had topped $1 billion, but the company filed for Chapter 11 bankruptcy in 1990. 1993 saw the chain’s purchase by Investcorp, which helped it emerge from bankruptcy and go on to become a public company in 1995.



In 1996, the chain was bought by an independent petroleum refiner company called Tosco Corporation. Franchising the concept started in 1999. The brand was acquired by the Phillips Petroleum Company in 2001, which in 2002 then became ConocoPhillips.

Now owned by Quebec-based Canadian parent company Alimentation Couche-Tard, Circle K is in more than 20 states and 10 countries around the world. Here’s how Circle K keeps circling back to success in the highly competitive convenience store industry:

New Ownership and Brand

Couche-Tard, one of the world’s leading convenience retailers, acquired the brand in 2003, and announced in September 2015 the creation of a new global convenience brand, “Circle K.” This new Circle K brand will replace Couche-Tard’s existing Circle K, Statoil, Mac’s, and Kangaroo Express branding on stores and service stations across Canada, the U.S., Scandinavia, and Central and Eastern Europe. The new Circle K brand will also appear on licensed stores worldwide.

Couche-Tard has chosen to retain the company’s founding Couche-Tard retail brand in the Province of Quebec in Canada due to the specifics of that market. The re-branding includes a fresh, clean Circle K logo which will go along with store refreshes as they occur.

Differentiation

So how is Circle K different from every other convenience store? At first glance, it isn’t. It’s got all the usual snack foods, a few hot food choices, and the full range of beverages one expects (including its own brand of coffee), along with a few other key non-food products, and of course gasoline at filling stations. They do have branded in-store ATM machines and also offer money orders.

Interestingly, Circle K was the first convenience store retailer to put all tobacco products behind the counter, out of the reach of underage buyers, and more recently was the first retailer to adopt the use of electronic age verifiers in all stores, reducing human error in the process.

Acquisitions

Circle K and parent company Couche-Tard are upping the stakes with the acquisition of The Pantry (operating primarily under the Kangaroo Express banner) for a cool $861 million in cash. This added 1,500 locations to the growing Circle K empire.

Section II – Estimated Costs

  • Please click here for detailed estimates of Circle K franchise costs, based on Item 7 of the company’s 2015 FDD (updated).

Section III – Financial Performance Representations (Item 19, 2015 FDD) and Analysis



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