AN INVESTOR PAMPHLET HAS LIFTED THE LID ON 7-ELEVEN’S SURGING PROFITS AS THE CHAIN IS PUT UP FOR SALE

National convenience and petrol station operator 7-Eleven has emerged from the pandemic with rapidly rising profitability that has leapt 45 per cent in only the last four years and which is promising strong organic growth in the years ahead fuelled by an improving food offer and new digital platforms.

The corner-store chain, Australia’s largest convenience retailer with more than 30 per cent market share that is forecast to turn over 2.7bn litres of fuel in fiscal 2023, has begun making its pitch to potential investors as the company is put up for sale by its long-term owners – billionaire Russell Withers and the family of his late sister Beverley Barlow.

In a pamphlet sent to interested buyers from Azure Capital, and obtained by The Australian, the full financial and operational details of 7-Eleven reveal a highly-profitable retail business bought by Mr Withers in 1977.
From one store in Melbourne, it is now completes more than 250m transactions each year with 32 per cent market share in convenience retail and 11 market share in fuel retail.

Titled “a unique opportunity to acquire Australia’s leading convenience retailer of scale”, it is seeking to tempt out buyers drawn to 7-Eleven’s strong retail presence that is harnessing premium sales and foot traffic compared to its rivals thanks to a powerful mix of in-store merchandise and petrol sales.Last week it was announced that Mr Withers and the Barlow family had put 7-Eleven on the block in a process that will see the brand’s Japanese global owner join the bidding for a business that is making combined merchandise and fuel sales of more than $4.5bn a year.

It could value the business at $2bn or more, especially if a bidding war begins.

The 7-Eleven process is at an early stage and is expected to take a number of months, but is for 100 per cent of the Australian business. Global private equity firms are also expected to express interest in the sale.

Looking under the hood for the first time, the Azure Capital investment teaser details the recent financial performance of 7-Eleven as it faced Covid-19 in 2020 and then traded through lockdowns, travel restrictions and work-from-home directions.

The Azure Capital note reports that merchandise sales – covering everything in the store from car deodorants, magazines, doughnuts, chips, drinks, chocolate and slurpees – were $1.7bn in 2020, rising to $1.75bn in 2021 and expected to reach $1.8bn in fiscal 2023.

The chain benefited greatly from the pandemic and restrictions on movement as many people chose to visit their local convenience stores rather than risk catching Covid-19 at crowded supermarkets. Travel limits also helped the chain while many workers still working from home are frequenting its stores as they rush out for a quick snack.

Perth-based Azure Capital has stated that for each of 7-Eleven’s 745 stores they have a catchment of 9,000 people who live within 1km of the store. This is against only 5,000 people within 1km of 7-Eleven’s nearest retail and fuel rival.

And while sales have risen steadily, earnings for 7-Eleven have rocketed ahead in that time. In 2020 retail gross profit was $450m, rising to $550m in 2021, to $575m in 2022 and forecast to hit $650m in 2023.

According to the investment note 7-Eleven will report adjusted group earnings before interest, tax, depreciation and amortisation of $220m in fiscal 2023.

Investors are being tempted by 7-Eleven’s national reach with potential buyers promised a retail business that generates 1.5 to 2 times the sales and foot traffic of its retail peers and which serves eight customers every second.

More than 60 per cent of customer visits to fuel and merchandise stores do not include a fuel sale.

The chain has a strong organic growth profile, the investment pamphlet says, that is well positioned to benefit from emerging food and mobility opportunities and growing customer digital engagement.

“Resilient, highly cash generative business with industry leading sales and profitability metrics and strong track record of growth through the cycle,” it says.

“Incremental growth beyond organic network expansion through optimisation of merchandise, innovative food strategy and new market formats.

“Ongoing customer digital transformation strategy to optimise customer experience and drive incremental growth in fuel volumes.”

7-Eleven has emerged in recent years from a wages scandal in 2015 when underpayment of salaries was found to be rampant. Mr Withers has kept a low profile since the scandal, which saw him step down as 7-Eleven chairman and also resign his role on the Australian Olympic Committee.

Last week 7-Eleven chief executive Angus McKay told The Australian it had recovered from disruptions caused by Covid-19 lockdowns and that its cheaper prices for coffee and food meant it was attractive to consumers as cost of living pressures increased.

“It is a great time to be in convenience (retail). Covid reinforced a lot of habits in people in terms of not wanting to travel far and so the close proximity of our stores has been perfect for us,” he said.

“The better we make our food offering, and I include coffee in that, the more that people want to come in, and we’ve been doing a lot of work on future proofing our business in terms of solving the convenience issue for our customers.”

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