due on 04/29/2019 for Doc Daimler Only / 1 - 2 pages conclusion and proofread

Introduction

The Pantry is a convenience store business that started out with just 379 stores (Powell, Martin, Roland, & Lawlor, 2012). In 1996, Mr. Peter Sodini implemented a growth by acquisition strategy, increasing the number of stores to 1,670 by 2010 (Powell et al., 2012). Now a major competitor in the industry such as 7-Eleven, Alimentation Couche-Tard and Casey's General Stores, The Pantry had to deal with a two-year long recession which revealed a potential flaw in the financing of the acquisition strategy. Mr. Sodini retired, and Mr. Terrance Marks took over as CEO (Powell et al., 2012). Marks came with a background at Coca-Cola Enterprises and brought several of his former executives with him (Powell et al., 2012). Under his leadership, a new business plan relied heavily on a marketing and rebranding strategy in hopes a brand loyalty would prove more recession stable.

The Pantry, Inc. is the leading convenience store in the southeastern United States. The company offers merchandise, fuel products, and services. Fuel sales account for about three-quarters of the company's total sales. It operates stores under variously selected banners, which primarily include Kangaroo Express. In 2015 The Pantry Inc. acquired, a leading convenience store operator in the southeastern United States and one of the largest independently operated convenience store chains in the United States. The Pantry operates approximately 1,700 stores in 13 States under select banners, including Kangaroo Express®, its primary operating banner. Again, in 2015 Couche-Tard launches its global Circle K brand, the world's preferred destination for convenience and fuel. During 2016 acquisition of Topaz, the leading convenience and fuel retailer in Ireland made up of 444 stores. In 2016 Couche-Tard signs an agreement with Imperial Oil to acquire 278 Esso-branded Canadian fuel and convenience sites located in the provinces of

Ontario and Québec. 2017 Couche-Tard enters into a merger agreement to acquire 100% of the outstanding shares of CST Brands, Inc. (NYSE: CST) which stands as the 4th largest chain in North America with 1,146 locations in the US due to a strong presence in Texas and 873 locations in Canada. In 2018 Couche-Tard enters into a merger agreement to acquire 100% of the outstanding shares of Holiday Station stores, Inc. an important convenience store player in the U.S. Midwest region, with 522 stores, a food commissary and a fuel terminal in Newport, Minnesota, which supplies one third of the stations ( Bloomberg.com, 2018)

Company analysis

The Corporate strategy is based on growth and acquisitions. The Pantry, Inc. considers acquisitions a way to bring new capabilities which help the company to create value for its investors as well as for its customers. It started has been following this strategy since 1997 when it acquired Lil' Champ of Jacksonville. The company acquired the 47-store Presto chain in December 2010 following its strategy and expanded its footprint into the Midwest (Annual Report,2010).

The Pantry, Inc. is the leading independent chain of convenience store chain in the southeast of the country. It is the third largest independently operated convenience store chain in the US. Kangaroo Express ® is the primary operating banner. The company's stores offer a range of merchandise, fuel, and ancillary products and services. Its merchandise products include tobacco products, packaged beverages, beer and wine, general merchandise, health and beauty care products, self-service fast foods and beverages, salty snacks, fast food service, candy, dairy products, bread and cakes, grocery and other merchandise, and newspapers and magazines.

The company offers both branded and private branded fuel based according to the requirements of the local market. There are approximately 50 fuel terminals in the company's operating areas which allows the company to choose from more than one distribution point for most of its stores. It also earns money from the services which include sales of lottery tickets, prepaid products, money orders, services such as public telephones, ATMs, amusement and video gaming and other ancillary product and service offerings.

McLane Company, Inc., a wholly owned subsidiary of Berkshire Hathaway Inc. is the major supplier of the company.

The company's major strengths include the 100% control of its retail outlets which helped it to establish itself as a reliable brand throughout the country and its valuable and well-managed relations with its suppliers. The company's future strategy based on growth and acquisitions offers it huge opportunities if the company decides to establish its foothold in other states of the country. Even the company can benefit from mode franchising as a part of its expansion plan. Exponential growth of other giant stores like Walmart and 7-Eleven is a great threat to the company and they will offer a tough competition in the future.

Industry analysis

Convenience store and retail fuel industries are characterized by high competition. Also, these two industries are marked by ease of entry and constant change in the number and type of retailers offering the products and services found in our stores. So, the threat of substitute is also higher. As there are enough large vendors of the products, the power of the suppliers is moderate. Profitability of the firm in this industry is thoroughly bound to the purchasing power

of the consumers and their buying behavior so customer plays a pivotal role in this industry.

Suppliers of the same product are many, so the power of the buyers is also greater.

A traditional leader in total stores, 7-Eleven, also leads the industry in franchised/licensed strategy as more than 4800 of its total 6523 7-Eleven stores are franchises now. As the company has most of its stores in the southeastern part of the country, it will be wise to analyze the southeast region's convenience store industry.

Overall, the Southeastern market offers huge opportunities to the grocery store businesses as the region is fueled by rising consumer demand for healthy, convenient, ethnic, specialty and organic food products. It is a dynamic and growing market with a lot of luck to offer!

The Pantry store is a business convenience store that was started with 379 stores. Now a major competitor in the industry such as 7-Eleven, Alimentation Couche-Tard and Casey's General Stores, The Pantry had to deal with a two-year long recession which revealed a potential flaw in the financing of the acquisition strategy.

Problems Identification

To identify the problem Pantry is facing we will start with the replacing of Pantry's former CEO in 2009. Terry Marks was hired as Pantry's new CEO and with him, he brought in new growth strategies and new management. Over the course of his term from late 2009 to 2011, his new strategies led to a loss of 165 million dollars in net income. This can be attributed to some of Pantry's past behavior and the implementation of the new strategy. Because of Pantry's old strategy of growth through acquisition and their lease obligations, the company only owns 394 locations out of 1200. Because Pantry has only a limited amount of equity in its assets this increases the company's liability and has caused them to accrue a debt of over 1.2 billion dollars.

The implementation of a brand-new strategy for the entire company is a difficult task and has been a struggle for Pantry to consolidate its brand name to multiple acquisition stores in order to improve brand identity.

The Pantry, Inc. compete with a number of convenience store chains, independent convenience stores, supermarkets, drugstores, discount clubs, fuel service stations, mass merchants, fast food operations and other similar retail outlets.

The performance of individual stores can be affected by changes in traffic patterns and the type, number, and location of competing stores. Most important competitive factors are location, ease of access, fuel brands, pricing, product and service selections, customer service, store appearance, cleanliness, and safety. A store company's success depends on its store base, strategic mix of locations, fuel offerings and use of competitive market data, as well as its management's expertise, which helps the company to be an effective and significant competitor in the market.

Current marketing and branding strategy are costly changed the CEO after 13 years and it is also adopting a new business strategy and the strategy includes marketing and branding and growth by acquisition. There is a loss of $165M in the last four quarters and it is because of the costly marketing and branding strategy.

General Environmental Analysis

The General Environment of industry are factors of forces and conditions outside of the company's control. However, a successful company will be able to identify changes in the environment and react accordingly.

Demographic: The Pantry's demographic environment is based primarily on both tobacco and fuel consumers. Fuel products account for 75% of the company's gross revenue, but only 30% of its gross margin (Powell et al., 2012). Of the remaining 25% gross margin, The Pantry's tobacco sales make up 40% (Powell et al., 2012). A reduction in either group of the consumers would provide a severe impact on The Pantry's Gross Margin.

Sociocultural: The Social-Cultural environment is also based on tobacco and fuel consumers. With more than 95% of The Pantry's locations providing fuel products with on-site storage, the environmental impact of the company is a major concern (Powell et al., 2012). Below grade storage containers have potential for ground contamination if the containers are not properly maintained and inspected. But society doesn't just focus on the environment but also the health of individuals. A social move to quit smoking through state-funded cessation programs affects consumers across all age groups that could impact sales.

Economic: In the economic environment, successful companies should have a stable business strategy to withstand large downswings in the economy. The Pantry, as with most convenience stores in the industry, hinge profits on a high volume, low-profit-margin product, gasoline. Increases in petroleum prices result in a lower profit margin. This profit margin is reduced further when consumers pay for fuel with credit cards. For every credit card transaction, the store has to pay an interchange fee to credit and debit card companies (Powell et al., 2012).

Political: The political and legal environmental factors include taxes and for The Pantry, this would be fuel and tobacco taxes. As funding needs increase for roadway improvements or increase healthcare costs, most governments respond with taxes on fuel and tobacco. Increased fuel consumption means roadways are more congested leading to more maintenance and repair. Governments see fuel is an attractive source for taxation. The states are also concerned with

healthcare costs increasing, especially those ailments related to tobacco use. Again governments target the source and tax tobacco.

Technological: Companies have started to rely heavily on computers and software systems to analyze a company and provide insight into potential revenue sources or losses. The Pantry has already invested in fuel pricing software and researched Point of Sale software that would help identify high sales or profit margin merchandise trends.

Strategic Analysis – Porters' five forces analysis

Summary Industry Competitors-Industry competition is very high

The Threat of New Entrants- is also very high

The Threat of Substitute Products- is also very high

The Bargaining Power of Buyers- is also high

Bargaining powers of the suppliers are moderate to high

Strategic Analysis-VRIO

Industry Competitors

"The convenience store industry is marked by high level of fragmentation and saturation, making competition for consumer dollars intense" (Powell, Martin, Roland, Lawlor, 2012). The rivalry of The Pantry, INC is considered strong as Pantry is competing along with three of the largest convenience stores in the United States; 7-eleven, Alimentation Couche-Tard and Casey's General Stores. Each company has a different strategy that creates a competitive advantage over rivals. In 2011, 7-Eleven had the fourth place for the best franchise in North America (Entrepreneur, 2011), Alimentation Couche-Tard is the second largest independent convenience

store in North America and finally, in 2010, Casey's achieved a net profit margin twice the average of the whole industry. Competing with a convenience store is not limited and doesn't exclude those from other industries to enter the market, as previously discussed that the industry is highly fragmented. For example, club and mass-merchandise store begun to provide fuel services, which intensify the competition with convenience stores' limited products.

The Threat of New Entrants

The threat of new entrants is strong due to the ease of entrance to the convenience store industry. Business is very appealing even for small to medium operators, selling basic and essential products in the store, overhead is not high, and a low number of employees with a minimum salary is required to run this operation. Moreover, loyalty is irrelevant to most convenience stores unless they offer a reward program. New entrepreneurs feel comfortable to enter and exit the market (Convenience Stores in the US, 2010, p.27).

The Threat of Substitute Products

The threat of substitutes products in the Pantry is high. The availability of the majority of the products and services provided by Pantry can be found in other grocery stores, clubs and mass-merchandise stores which increase the likelihood that consumers can use other merchants from different industries for the same products. For example, Walmart and Sam's club are operating their own gas station, sometimes with lower prices per gallon, which attract customers to consume their product especially if a customer has to get groceries from that same location.

The Bargaining Power of Buyers

Bargaining power of suppliers and the bargaining power of buyers is understood by an analysis of two completely diverse markets within the convenience store industry. The first segment is the

fuel or petroleum industry and the next segment is the merchandise. The bargaining power of the buyer is very low regarding petroleum because vertical integration is not possible (Pantry would find it difficult to purchase an oil company) and the number of suppliers for fuel is relatively low in comparison to soda or chips. The second category is the merchandise. The bargaining power of the buyer in regard to merchandise is relatively moderate to high because Pantry purchases large quantities of items and over half of those items are purchased from a single wholesaler in a mass quantity. This means that Pantry has a great amount of power when negotiating prices for their merchandise. In contrast with the fuel market, Pantry has the opportunity to vertically integrate merchandise suppliers as they have started to create replica products instead of cowering to the supplier demands, this also allows for great bargaining power. When balancing the two components of the buyer power of the Pantry, it becomes moderate overall.

The Bargaining Power of Suppliers

The Pantry bargaining power of suppliers is moderate. The pantry has its own brand that brings about 60% of its in-store merchandise and the rest 40% is received via third-party distributors such as Coca-Cola, Budweiser & Frito-Lay.

Multi-State Network

The Pantry's multi-state system of advantageous stores is the organization's most noteworthy and just continued upper hand. The benefits are significant, unmistakable, heterogeneous, stable, uncommon, and the organization is sorted out to abuse.

Product Mix and Delivery

Blending admirably with the multi-state organize, The Pantry has an incredible blend of in-store items, fuel cost ascertaining programming, vital/different areas, and upwards of 240 organization possessed and worked speedy administration eateries under understood brands.

Private-Label Merchandise

As expressed previously, a lion's share of The Pantry's stock, 60%, originate from one staple distributer and the rest of enormous name outsider merchants. Along these lines, The Pantry has started creating private-market stock to counterbalance its dependence on its distributor. While unquestionably an enhancement.

Sale-Leaseback Model

A great part of The Pantry's prosperity was because of the brisk securing of advantageous stores on an expansive scale. Add up to store check expanded from 379 to around 1670 stores in 14 years by means of 90 acquisitions.

Financial Analysis

Income Statement Analysis

The total revenues have changed over a period of 2006-2010 15.93%, 30.16%, -28.96%,

13.7%respectively. The gross profits of the company for these years have been steady between

33.8% - 37.4% of the total revenues.

Balance Sheet Analysis

The balance sheet of the company indicates that the company has a favorable ratio because the debt to asset ratio of the company is not high and the company has a strong balance sheet and financial position.

Ratio Analysis

The current ratio of the company more than 1.68 which was 1.11 in 2006 which means that the company has improved its current and liquidity position over the last five years. The profitability of the company has been reduced and the company has shown a loss in the year 2010.

DuPont Analysis

Two-line items of note were a $230,820 Goodwill cost that did not occur under any other year, an increase in other impairment charges by 34,000 (a 1,639% increase from the previous year). With that said, the ROE calculated was a -.54 compared to the positive ROE of the past the years.

References

Appendix

Table 1: Income Statement – The Pantry Inc.

EXHIBIT 1 - The PANTRY FINANCIALS
Consolidated Income Statements, The Pantry
Fiscal Year Ended
	September 30, 2010	September 24, 2009	September 25, 2008	September 27, 2007	September 28, 2006
	53 Weeks		52 Weeks		52 Weeks		52 Weeks	52 Weeks
Revenues:
Merchandise	$	1,797,860	$	1,658,926	$	1,636,711	$	1,575,922	$	1,385,659
Fuel	$	5,467,402	$	4,731,205	$	7,358,915	$	5,335,241	$	4,576,043
Total revenues	$	7,265,262	$	6,390,131	$	8,995,626	$	6,911,163	$	5,961,702
Costs and operating expenses:
Merchandise cost of goods sold	$	1,190,396	$	1,071,842	$	1,041,474	$	989,894	$	867,717
Fuel cost of goods sold	$	5,202,717	$	4,419,861	$	7,096,648	$	5,110,545	$	4,294,839
Store operating	$	536,618	$	515,635	$	516,085	$	499,613	$	437,935
General and administrative	$	97,949	$	101,452	$	90,014	$	97,707	$	83,141
Goodwill impairment	$	230,820	-		-		$	-	$	-
Other impairment charges	$	36,259	$	2,084	$	3,175	$	-	$	-
Depreciation and amoritization	$	120,605	$	108,712	$	108,326	$	95,887	$	76,025
Total costs and operating expenses	$	7,415,364	$	6,219,586	$	8,856,722	$	6,793,646	$	5,759,657
Income (loss) from operations	$	(150,102)	$	170,545	$	138,904	$	117,517	$	202,045
Other income (expense):
Gain (loss) on extinguishment of debt	$	791	$	4,007	-		$	(2,212)	$	(1,832)
Interest expense, net	$	(85,990)	$	(89,283)	$	(92,833)	$	(72,199)	$	(54,661)
Total other expense	$	(86,781)	$	(85,276)	$	(92,833)	$	(73,829)	$	(55,693)
Income (loss) before income taxes	$	(236,883)	$	85,269	$	46,071	$	43,688	$	146,352
Income tax benefit (expense)	$	71,268	$	(31,178)	$	(17,492)	$	(16,956)	$	(57,154)
Net income (loss)	$	(165,615)	$	45,091	$	28,579	$	26,732	$	89,198
Earnings (loss) per share:
Basic	$	(7.42)	$	2.43	$	1.29	$	1.17	$	3.95
Diluted	$	(7.42)	$	2.42	$	1.29	$	1.17	$	3.88

Table 2: Balance Sheet – The Pantry Inc.

EXHIBIT 2
Consolidated Balance Sheets, The Pantry
Fiscal Year Ended
	September		September		September		September		September
	30, 2010		24, 2009		25, 2008		27, 2007		28, 2006
ASSETS
Current Assets:
Cash and Cash Equivalents	$	200,637	$	169,880	$	217,188	$	71,503	$	120,394
Receivables (net of allowance for doubtful accounts)	$	92,118	$	92,494	$	109,050	$	84,445	$	68,064
Inventories	$	130,949	$	124,524	$	132,248	$	169,647	$	140,135
Prepaid expenses and other current assets	$	21,848	$	18,142	$	12,706	$	14,662	$	18,783
Deferred income taxes	$	11,468	$	14,959	$	14,845	$	10,594	$	8,348
Total Current Assts	$	457,020	$	419,999	$	486,037	$	350,851	$	355,724
Property and Equipment, net	$	1,005,152	$	1,028,982	$	990,916	$	1,025,226	$	745,721
Other Assets:
Goodwill	$	403,193	$	634,703	$	627,653	$	584,336	$	440,681
Other intangible assets	$	6,722	$	29,887	$	32,564	$	34,802	$	12,496
Other noncurrent assets	$	24,363	$	40,584	$	31,560	$	34,224	$	33,285
Total Other Assets	$	434,278	$	705,174	$	691,777	$	653,362	$	486,462
Total Assets	$	1,896,450	$	2,154,155	$	2,168,730	$	2,029,439	$	1,587,907
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt	$	6,321	$	4,317	$	27,385	$	3,541	$	2,088
Current maturities of lease finance obligation	$	7,024	$	6,536	$	5,322	$	5,348	$	3,511
Accounts payable	$	144,358	$	140,730	$	171,216	$	192,228	$	139,939
Accrued compensation and related taxes	$	14,736	$	22,804	$	20,217	$	15,739	$	19,676
Other accrued taxes	$	31,748	$	25,164	$	27,226	$	26,416	$	27,440
Self-insurance reserves	$	29,681	$	30,904	$	33,775	$	32,873	$	29,898
Other accrued liabilities	$	37,866	$	31,386	$	39,936	$	40,812	$	34,978
Total Current Liabilities	$	271,734	$	261,841	$	325,077	$	316,957	$	257,530
Other Liabilities:
Long-term debt	$	753,020	$	769,563	$	819,115	$	746,749	$	602,215
Lease finance obligations	$	450,312	$	458,509	$	459,711	$	452,609	$	240,564
Deferred income taxes	$	38,388	$	109,260	$	90,708	$	74,667	$	72,435
Deferred vendor rebates	$	10,212	$	17,392	$	20,875	$	23,937	$	23,876
Other noncurrent liabilities	$	64,675	$	70,415	$	63,685	$	60,692	$	54,280
Total Other Liabilities	$	1,316,607	$	1,425,139	$	1,452,794	$	1,358,654	$	993,370
Commitments and
contingencies
Shareholders' Equity:
Retained Earnings	$	100,562	$	266,177	$	220,605	$	189,378	$	162,646
Total Shareholders' Equity	$	308,109	$	467,175	$	389,859	$	353,828	$	337,007
Total Liabilities and Shareholder's Equity	$	1,896,450	$	2,154,155	$	2,168,730	$	2,029,439	$	1,587,907

Table 3: Financial Ratios

Criteria	September 30, 2010	September 24, 2009	September 25, 2008	September 27, 2007	September 28, 2006
Operating Efficiency	(0.023)	0.007	0.003	0.004	0.015
Asset Efficiency	3.831	2.966	4.148	3.405	3.754
Financial Leverage	6.155	4.611	5.563	5.736	4.712
DuPont Ratio	(0.538)	0.097	0.073	0.076	0.265