I believe we are about to see a new and exciting, yet volatile, energy era for world leader USA and eventually the rest of the world, fueled by some of the most rapid and far reaching changes seen in a long time. The spark will be lit by technology and innovation that has already began. Some will call it AI, some will say it is political, some will say it is Elon Musk, and some may say it is climate change. To me, AI is just Google on steroids. My take is the results are inevitable, but the timing is uncertain, as is predicting the winners and the losers.
First, we must accept the fact that our electorate realized it was time for a change, with majority votes for the Presidency, both Houses of Congress, and previously backed up by the Supreme Court. That’s democracy, and now we must face many tricky realities, most of which may have unintended consequences. As an example, with limited immigration and solid economic growth, how will labor expenses fare in an already thin workforce often untrained for today’s economy, and yet unable to afford a house or a new car?
President-elect Trump’s alliance with Elon Musk was very timely, as Musk is a very hard working visionary and hopefully capable of helping some of the many problems in a democratic fashion. He is now the world’s richest man on paper, despite starting Tesla only ten years ago and barely escaping bankruptcy in 2008 when he risked his last $40 million net worth to save his company.
So far, President-elect Trump has been encouraging the oil and gas industry to drill, even though the industry is not responding as world demand continues to lag supply, which has increased through improved drilling and reservoir recovery techniques. Call it AI if you like, but normally that means the price is too high to clear the market, so why look for more? We are also closer to peak oil demand than thought due to efficiencies and technology, plus work changes such as work from home. The low cost of fossil fuels helps assure some place in the buildout of an energy grid to fuel the data center development for yet more electrification and AI. Solar and wind will have their place, but smaller modular type plants fueled by clean nuclear energy will have an important contribution too. Nuclear is not weather dependent and will be more able to store energy for peak periods or unstoppable electricity outages from weather. This program will require inter and intrastate regulatory cooperation. EV’s and autonomous cars will have their place, more determined by competition and consumer demand than subsidies that just prolong companies that cannot keep up, much as Henry Ford discovered when his assembly line was developed putting 90% of his competition in bankruptcy or forced mergers. Another benefit of our record oil production now allows us to put pressure on bad guy countries such as Iran and Russia, saving both money and lives, something the U.S. as the world’s policeman has been unable to enjoy since World War II!
ECONOMY
These changes are coming at a critical time, as a talked about recession just never quite gets here. The stock market and a strong real estate market (price-wise) have grown our wealth and confidence, although with increasing social anxiety due to income disparities. The markets are getting tested as short term rates have been decreasing, but longer term bond rates have been increasing due to our deficits, and concern that our financing needs will increase with a good economy. The result is a very strong U.S. Dollar helping finance our debt, but at the same time further depressing the economies of other countries in the world. China seems to be in something worse than a recession and Europe and Great Britain are entering one, all despite low and decreasing interest rates. Tariffs could worsen the problem, plus they are at least temporarily inflationary. Every country seems to have sizable inflationary and deflationary forces occurring at the same time. Many of these forces have unclear unintended consequences, and businesses and the public usually do not spend more in periods of uncertainty.
C-STORE INDUSTRY NOW
Our huge oil production levels and our excess refining capacity assure cheap gasoline and diesel, which are usually great for our c-store sales by leaving extra cash to spend on store items. EV’s and government policy regarding EV’s do remain problematic as the technology for lighter batteries, perhaps even solid state batteries, and improved charging facilities will bring less cost and much greater driving range to EV’s. Also, the internal combustion car repair industry is huge, and largely unnecessary for EV’s as they improve, a large saving for consumers and business. Plug-in EV’s at home will even be able to charge overnight and sell electricity back to the grid when not in use. The result is fewer necessary trips to the gas station.
Clearly convenience for store items will remain very important, with foodservice the most clear beneficiary for freshness, health, and taste for those who can execute. This transition is as large as the one from gas stations to adding convenience stores and just as difficult. Successful companies will sell the best selection of other store items, maybe including more fresh fruits and vegetables over time. Many more options are available compared to QSR’s and fast serve restaurants (without tipping). Automation will be increasingly important as well to contain labor and provide fast service, which might even help smaller stores to become more efficient even with limited foodservice for the right items. Location, location, location will always be critical.
INDUSTRY M&A AND MULTIPLES
If my comments seem unusually negative towards our industry, please note that most of our leading c-store industry companies sell on Wall Street at multiples as much as twice as high as well known supermarket company multiples. True, Wal Mart is now in a class of its own because of scale, synergies, and their combination with general merchandise under the same roof, similar to Costco and Amazon and even including fast home deliveries. All are serious competition constantly trying to improve their own forms of convenience.
M&A activity in all industries has been predicted by many to pick up in 2025, partly helped by a strong economy and greater bank lending. We’ll see. Regardless, at this point and with current interest rates, M&A multiples in our industry for company owned and operated stores should remain in a 7.0-9.5X range at the store level. As a result, selling prices are most likely going to vary tremendously with profitability, as there are more profit variables impacting them now than before or during Covid.
Money is quite plentiful for our industry, albeit more expensive than in the Covid years. The money is available for M&A transactions, and definitely for individual store or segment sales; even with or without the real estate, or with or without product supply. We are ready to discuss your preferences, whether buying or selling, and bring you the bids to decide. As always, part of NRC’s process is assistance for successful closings, which is how we at NRC get paid.
Have a great Holiday Season and a happy, healthy and successful 2025!
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