Ultramar seeks to challenge Couche-Tard in Canada with house brands, new stores

MONTREAL - The Ultramar convenience store chain is looking to challenge Canadian convenience store giant Alimentation Couche-Tard by adding hundreds of private-label brands currently sold in the U.S. and building new stores in Ontario and Quebec.

"I think we can compete with Couche-Tard at any corner," says Kim Bowers, chairwoman and CEO of CST Brands Inc. (NYSE:CST)

The Texas-based company is the second-largest publicly traded fuel and convenience retailer in North America after Couche-Tard, with 1,900 outlets in the U.S. and Canada, including 278 corporate stores in Canada and arrangements with nearly 500 dealers.

But it lags far behind its Quebec-based rival, posting US$12.8 billion of revenues last year, compared with US$35.5 billion by Couche-Tard, including US$5 billion in Canada and US$19.4 billion in the U.S.

CST plans to invest $60 million this year and add eight new Depanneur du Coin and Ultramar retail locations and 15 dealers.

Similar annual growth is expected in coming years but Bowers concedes the company has a long way to go to catch up with Couche-Tard (TSX:ATD.B), which operates more than 6,200 stores in North America, including some 1,900 in Canada.

"They are certainly a well-run company and their stores are well run. (But) I think our stores are very competitive and what we have to offer, consumers are looking for," she said in an interview following a special event at a golf club north of Montreal.

She said the company's focus is growing the number of customer visits by expanding its offering of fresh food and private label products like a new sports drinks and signature fresh-baked kolaches and whoopie pies.

"Today we service over 500 million customers every year and I'd like to see that double and triple in the next five years."

CST Brands is the exclusive seller of the Ultramar brand in Canada, where it employs more than 3,000 people. It also operates nine Shell locations acquired from Sobeys.

Spun off last year from oil giant Valero Energy, CST Brands is looking for growth opportunities but won't be in the running for transformational deals until 2015, including Hess' convenience stores, which would be "too big a bite" at this time, she added.

The immediate focus is integrating the once independent Canadian and U.S. businesses to share best pactices and increase its scale through fuel purchasing savings.

Irene Nattel of RBC Capital Markets said Canada represents a substantial part of CST's revenue base where fuel margins are far more stable (on average about 10 cents per gallon higher than in the U.S.) ... "creating a nice opportunity for the company."

CST Brands missed expectations as it earned US$10.7 million or 14 cents per share in the first quarter, compared with US$22.9 million or 30 cents per share in the prior year. Analysts on average expected the company would earned 30 cents per share this year.

Revenues decreased 5.9 per cent to US$3 billion, including US$1.01 billion in Canada.

Bowers said the cold winter was challenging for its retail network, but offered a boost to the company's home heat business.

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