With nearly 12,000 locations across North America and Europe, gas station and convenience store giant Alimentation Couche-Tard (ATD.TO) is on the front line of rising fuel costs and inflationary pressures.
Brian Hannasch, CEO of the Quebec-based company, said on Wednesday that customers are driving less, putting less fuel in their tanks on average, and switching to cheaper beer and cigarettes when they come inside to shop.
"We're clearly seeing an impact on fuel demand that's taking shape in a couple forms. I think the most recent data is showing that we are seeing some softening in miles driven. We certainly view this as temporary," he told analysts on a post-earnings conference call on Wednesday.
"Our average bill pre-COVID, and really up until recent quarters, would have been 10 to 12 gallons [of fuel] per visit. That's declined to eight. So that's a signal that there is some pressure on consumers."
Couche-Tard reported fourth-quarter and full-year financial results after the closing bell on Tuesday. The company, which reports in U.S. dollars, booked US$477.7 million in net earnings, a decrease from US$563.9 million in the year-ago quarter, despite surging retail fuel prices. Couche-Tard says this was due largely to impairments on its Russian business and investment in the cannabis industry.
Hannasch says the run-up in fuel prices likely caused consumers to visit the pumps more often during the quarter. Couche-Tard reported total road transportation fuel sales topped $12.4 billion, a $4 billion increase year-over-year, mainly attributable to higher fuel selling prices, which Hannasch views as "transitory."
Inside the store, he says sales have remained robust. However, Hannasch notes some shoppers are seeking out cheaper brands.
"We're seeing conversions from premium beer to budget beer, for example. Same in the cigarette category, where people are looking for value," he said. "Indian reservations and the dark market have regained share. I think there is some temporary pressure there."
Hannasch adds that the COVID-19-driven spike in tobacco consumption has run its course.
"I think people are smoking a bit less," he said.
Couche-Tard itself is exposed to the squeeze of inflation on several fronts. The company says its fuel margins remained strong in the quarter, despite rising crude oil prices and supply chain challenges. However, it also relies on scores of vendors for products to stock its shelves.
Hannasch says Couche-Tard's vendors have "truly been partners during COVID," but he admits that "a fair amount of tension" exists as the company looks to provide value for customers.
"They've got pressures, and we have pressure," Hannasch said. "We are pushing back. But at the same time, we are trying to be fair. If we see suppliers getting greedy, that conversation is being had."
Addressing mounting concerns of a North American recession, Hannasch says Couche-Tard has been a strong performer in two previous economic downturns.
"I would never say our industry is recession-resistant, but we're pretty resilient," he said. "We're pretty much a part of people's everyday lives."
Toronto-listed Couche-Tard shares have climbed more than 20 per cent over the past 12 months. The stock dipped 2.85 per cent to $51.86 as at 12:44 p.m. ET on Wednesday.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.