Thursday, September 23, 2010

Couche-Tard The Northern Invasion

Every now and again something comes along that affects an industry in such a way that it creates a paradigm shift within that industry. In my new book, I talk about ‘Tears (holes) in the environment’ that are natural reoccurring phenomena that generally go unnoticed – like when American Airlines created the Sabre System and took control of the air travel industry .  This is another big one.  ‘Okay, so he’s gonna talk about game changers,’ but wait. This is a really good story and I think you’ll find it interesting. 

There’s a big company out there that’s come to America from Canada, acting like a sneaky shark and picking off sleeping convenience store operations left and right, and they’ve been getting away with it for over a decade. 

You know who I’m talking about – Couche-Tard. It’s not my intention to disparage this aggressive enterprise. No, not at all. In fact, I am awed by their actions and hold them in great esteem. They are doing something right. I’m just jealous it’s not someone I know.
So what does Couche-Tard know the rest of us don’t know?

If you do a little research you’ll see that Couche-Tard has read the Walmart playbook and spent millions of dollars forming synchronous relationships with their suppliers and automating their inventory control system. Now they’re gobbling up crippled multi-store chains like hot-dogs at a ballpark.  Couche-Tard has implemented Just-In-Time Inventory (JIT). 

Now, JIT is a magnificent system that’s been around since Henry Ford started using it to make his famous Model T’s. How it works is deceptively simple:

  1.  A customer buys an item
  2.  A replacement is immediately re-ordered
  3. The replacement arrives at the selling place Just-In-Time for the next sale

There are many advantages, but from an expense assessment, the reduction of inventory on hand created by setting up a JIT environment has a huge effect on costs.  For example, Couche-Tard appears to maintain a level of inventory that is about 14% less than the average convenience store operator. According to their website, the company has 3,500 stores in the US operating under the Circle K Banner. If the average convenience store in America has around $60,000 worth of inventory (at cost) a quick exercise in math tells us that 3,500 US stores stock about $210 Million versus Couche-Tard’s $180.5 Million, a difference of around $29 Million and some change. Now these figures are generalized, but you get the idea. 

Another action being performed from the Couche-Tard playlist is more frequent store deliveries. Okay, so they have their own distribution centers, but things didn’t start out that way. In efforts to further reduce inventory in the stores, the company has implement robotics in their distribution center to pick single units. 

There are certainly other tools available in this Canadian company’s arsenal, but a paradigm shift has occurred and if it continues to go unnoticed, the American convenience store industry is in big trouble.

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