Dive Brief:
- Arko Corp., parent of convenience retailer GPM Investments, converted 153 company-operated c-stores in its network to dealer sites last year and plans to “dealerize” hundreds more in 2025, including about 100 by the end of Q1, the retailer announced in its earnings report on Wednesday.
- Arko launched this strategy last summer as a means to reduce site operating expenses and corporate general and administrative expenses. During Wednesday’s earnings call, Chairman, President and CEO Arie Kotler said he believes these conversion stores should generate greater fuel and merchandise returns under different leaseholders.
- Despite Kotler’s confidence, analysts on Wednesday’s call questioned the strategy, as Arko’s merchandise and fuel earnings declined last quarter and during the full-year 2024.
Dive Insight:
According to its annual report also released on Wednesday, Arko’s merchandise revenue decreased by $70.7 million, or 3.8%, while its fuel revenue decreased by $605.5 million, or 8.1%. On the merchandising side specifically, Arko said the drop was largely due to underperforming stores that it closed or converted to dealer sites.
Multiple analysts asked why Arko plans to ramp up its dealerization strategy even after it saw declines last year because of it.
Robert Giammatteo, EVP and CFO, reassured investors that the program is accretive, and that they should expect to see gains begin in late 2025 or 2026 once Arko has built out more of a runway with the conversions.
“What we're doing here is a bridge to optimize the channels — to provide some buoyancy to the [profit and loss] that's going to offset some of those [negative] trends that have been in place for a while,” Giammatteo said.
Giammatteo added that the strategy is allowing Arko to focus more on its company-operated stores, which are performing well and offsetting the negative merchandise and fuel trends.
“We’re going to benefit from stores that are more competitive, able to drive business, versus perhaps some of the macro trends that have been weighing on some of the less competitive stores,” he said.
The dealerization strategy, Kotler emphasized, is about quality over quantity with Arko’s stores.
“At the end of the day, the stores that we would like to end up with are the stores that we see a huge upside for,” he said.
Arko is launching a seven-store pilot of a more food-focused concept near its home base of Richmond, Virginia. As of late last year, the company said the layout and non-foodservice merchandise assortment for these locations were set, and that it was finalizing the foodservice offerings.
On Wednesday’s call, Kotler said Arko is finalizing the permits for these stores and expects to begin construction in late March.
