Core-Mark deal, inflation fuel surge in PFG’s c-store segment

Dive Brief:

Food and beverage distributor Performance Food Group (PFG) saw its convenience-store division skyrocket during its most recent fiscal quarter thanks to its acquisition of c-store distributor Core-Mark a year ago, according to the company’s recent earnings report.
Specifically, first-quarter net sales for PFG’s c-store division grew 98.2% year over year, to $6.3 billion, by far outpacing the rest of its segments, according to the report.
PFG expects its acquisition of Core-Mark to drive more “business wins” — especially in the non-tobacco categories — moving forward, George Holm, chairman and CEO of PFG, said during the company’s recent earnings call.

Dive Insight:

PFG officially moved its c-store segment under the Core-Mark brand during the quarter — a “seamless translation” that contributed to the results, Holm said during the call.

“We have now owned Core-Mark for a little over a year, and the results are better than we had expected when we announced the transaction,” he said.

Core-Mark contributed $4.7 billion of the $6.3 billion in net sales earned by the convenience division during the quarter, according to the earnings report. Much of this growth came from the company’s non-tobacco portfolio, which grew at a “high teens rate,” offsetting low-single-digit declines in tobacco sales, Holm said during the call.

“The mix shift to higher-margin food and foodservice-related product categories continues to drive both growth and adjusted EBITDA margin improvement in the segment,” he said.

Rising inflation also contributed to PFG’s surge in c-store profits during the quarter, Holm noted during the call. Convenience inflation grew “into the double digit range” and remained there during the past three months, he said.

“We continue to expect these gains to moderate through the balance of fiscal 2023,” he said.

Additionally, PFG benefited from supplier-led price increases — especially in the candy and cigarette categories, where it experienced “higher-than-normal gains,” Jim Hope, chief financial officer and executive vice president, said during the call.

“The expectation underpinning our current guidance is for decelerating inflation over the next three quarters in each of our segments,” Hope said. “Naturally, this means lower inventory gains in each subsequent quarter.”