The head of Alimentation Couche-Tard Inc. says lower-income consumers feeling "strained" by economic headwinds are cutting back on how often they visit the chain's convenience stores.
These customers are also adopting more "value-seeking" behaviour and, in some cases, trading down for products they see as more affordable, chief executive Brian Hannasch said Thursday on a conference call with analysts to discuss the company's latest results.
Couche-Tard is seeing these habits crop up most in the company's salty, confectionary and grocery categories, which Hannasch said are the softest part of its business.
"We can look geographically and see that where we've got lower income consumers, our results are worse and where we've got higher income consumers the results are pretty stable," he said.
Hannasch's remarks came a day after his company reported its net earnings attributable to shareholders were US$623.4 million in its third quarter, down 15.5 per cent from US$737.4 million a year earlier.
The Laval, Que.-based business, which reports in U.S. dollars, said revenues for the quarter ended Feb. 4 totalled US$19.6 billion, down from US$20.1 billion during the same quarter last year.
The convenience store and gas station chain behind the Couche-Tard and Circle K banners attributed the fall in earnings to a lower average road transportation fuel gross margin in the U.S. and softer customer traffic amid challenging economic conditions.
"We think this is transitory," Hannasch said, when asked on the call about the softness in consumer spending.
"We don't think this weakness in that consumer base will persist over multiple years."
To address the number of customers turning to "value-seeking" behaviour, Couche-Tard has focused on marketing its private-label products, growing its loyalty program and offering Fuel Day promotions.
The private label portion of Couche-Tard's business has been growing at double-digit rates, Hannasch said.
He also sees potential in the company's beverages business, which benefited recently from the launch of purple Red Bull cans in Europe, where alcohol sales were also strong.
He expected a boost to also come from a partnership with Warner Bros. and Legendary Pictures to promote the "Godzilla x Kong" movie with branded cups, Frosters and even a Kong breakfast stuffed with double the cheese and triple the meat.
The company could lean on beverages and growth in the nicotine category to help it manage softness it saw from its cigarettes business, which Hannasch said was "weak" in part because of a "very large tax increase" on the products in Hong Kong and lower tourism in the U.S.
Couche-Tard will also be working to integrate European retail assets it bought from TotalEnergies.
The deal valued at 3.1 billion euros was signed in March 2023 and includes retail assets in Germany and the Netherlands, plus a 60 per cent controlling interest in its Belgium and Luxembourg entities.
Irene Nattel, an analyst with RBC Capital Markets, said investors were "likely disappointed" by the company's most recent results, but pointed out the closure of the TotalEnergies deal increased Couche-Tard's European footprint by 80 per cent.
Even though she characterized the quarter as a "pothole" with the quarter's results coming in below her forecasts, she said her "outlook remains constructive."
After the markets closed on Thursday, Couche-Tard announced that former prime minister Stephen Harper is joining its board of directors, effective immediately.
This report by The Canadian Press was first published March 21, 2024.
Companies in this story: (TSX:ATD)
Tara Deschamps, The Canadian Press
