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Less than a year ago Robert Katz, senior partner for the company that owns Clark Retail Enterprises Inc., made a bold prediction.
"We could get this chain to 3,000 or 4,000 units within the next few years," Katz, a key member in the New York venture capital firm Apollo Management LP, told a Chicago business publication.
And why not? Clark was the great consolidator of the Midwest, acquiring White Hen Pantry Inc., Wareco Services LLC and Minit Mart Foods LLC. In two years, the upstart retailer picked up 500 stores in eight deals, placing it among the elite c-store chains in the country with more than 1,300 units and $2.5 billion in annual sales.
But times have changed. Clark has been quiet the past 12 months as rivals Marathon Ashland Petroleum LLC, Alimentation Couche-Tard Inc. (ACT) and Krause Gentle Corp. step up their presence in the central United States.
Moreover, many of Clark's suburban outlets are under increasing pressure as quick marts and gas pumps sprout in front of big-box competitors Costco, Dominicks and Meijer.
Several high-level sources told Convenience Store News that Clark is for sale — either the entire chain or at least several hundred stores — but officials at Clark deny it. "Apollo bought them at a premium price," a former ranking Clark employee said of the $230 million transaction in 1999. "They were expecting a high return and they never got it."
In interviews with CSNews, Clark president and CEO Brandon Barnholt and Apollo's Katz emphasized that while the company is divesting up to 100 stores in low-concentration markets, Clark's financial profile is strong, though, like many others, stung by dwindling gasoline margins.
"Nothing could be further from the truth," Katz said when asked if Apollo was looking to spin off Clark. "I can say categorically that there's been no decision to get out of the convenience store industry or to sell Clark. We are very satisfied with Clark as an investment and the management team is first-rate.
"It's always important to remember that acquisition for acquisition's sake does not necessarily build shareholder value," Katz continued. "It's excellent retail discipline not only to acquire but to integrate. There are a number of companies that failed because they kept on buying but never integrated."
Planning and Streamlining
Barnholt said rumors might have begun to swirl as the company started to sell underperforming stores in Michigan and Iowa. In addition, the company recently laid off "several dozens of employees" in a bid to shrink overhead and to "squeeze" out additional dollars. "Over the last six months we've been aggressively streamlining the brands we bought one year ago," Barnholt said. "People see that and may think there's something deeper going on, but there isn't."
At the same time, Barnholt said he does meet with other CEOs and said he would entertain offers if the price were right. "Is Apollo happy with the Clark investment? The answer is yes," he said. "But we and they said from day one that their investment horizon is three years to seven years — and this is year three.
"The facts are that what Apollo is here to do, along with the Clark management team, is to create the most value . . . and what the right way is for them to take advantage of that value proposition."
In a wide-ranging interview, Barnholt also told CSNews:
Clark is selling 50 to 100 outlets in Detroit and parts of Ohio and Wisconsin. "I've got stores available, stores I believe are viable but are not markets we think are best for Clark." He cited the recent sale of more than a dozen stores to Detroit jobber Atlas Oil.
The company continues to work with its primary wholesaler Fleming Inc., with whom it signed a long-term deal in 2000, to foster a better relationship. "It's been two years and we are still in the process of learning how each other operates," Barnholt said. "We are in a long-term agreement with them and we will try to continue to honor it."
Clark ended its relationship with fuel supplier Premcor (formerly Clark USA) and relies on multiple sources for its supply.
It moved away from the supplier side of the business, where it had begun to partner with supermarkets and other nontraditional gasoline retailers in Texas and California. Further, the chain's jobber network base had shrunk from 225 stores in 1999 to 150, but the number is climbing through Clark's store sell-off.
"We've been trying to digest all that we've acquired and combine the brands," he said. "We're still aggressive. We've been at the table in every acquisition in the past year, but we haven't seen a deal that's been attractive to us.
"At the end of the day," he said, "we're going to buy and grow through acquisitions when we feel the deal is right."