This analysis covers Casey's General Stores, a Midwest convenience chain that uses gas sales to draw customers and makes most profit from high-margin fresh food like pizza. The guest is bullish, seeing industry consolidation from mom-and-pop shops to big chains. Key holdings: Casey's (adding 100+ stores yearly, fresh food margins over 60%), 7-Eleven (competitor, 8%-9% market share), and Circle K (competitor, 5%-6% share).
This episode of Business Breakdowns provides an in-depth analysis of Casey's General Stores, a convenience store chain operating across 16 states in the Midwest and South of the United States, with a market capitalization approaching $10 billion and ranking third in the industry. The core thesis is
Markus Hansen (Portfolio Manager and Senior Analyst at Vontobel Asset Management) breaks down Casey's General Stores — a convenience store chain with a market cap of nearly $10 billion, operating approximately 2,500 stores across 16 U.S. states. Core thesis: Through a business model of "fuel as a traffic driver + high-margin in-store items (especially proprietary fresh food)," Casey's has built a structural advantage in a highly fragmented convenience store market. Its EBITDA margin (6%–6.5%) is already significantly higher than that of traditional food retailers (2%–4%), and there remains room for further expansion.
There are approximately 155,000 convenience store/gas station locations in the U.S., of which roughly 60,000–70,000 (nearly half) are operated by mom-and-pop shops. Hansen points out that these small operators face multiple pressures:
"Rising costs and technology investment needs are driving the industry toward concentration among large chains." — Markus Hansen
| Player | Approximate Store Count | Market Share |
|---|---|---|
| 7-Eleven (Japan's 7&I Holdings) | ~9,000 | 8%–9% |
| Circle K (Canada's Couche-Tard) | ~7,000 | 5%–6% |
| Casey's General Stores | ~2,500 | 2.5% |
| Other regional chains/mom-and-pop stores | 135,000+ | Remaining share |
Unique Insight: Hansen believes the driving force behind industry consolidation is not just economies of scale, but "experience upgrades"—large chains can offer clean environments, diverse selections, 24-hour operations, and mobile ordering, which small operators cannot replicate.
Approximately 70% of Casey's revenue comes from fuel sales, but profit (EBITDA) is primarily generated by in-store merchandise:
| Business Segment | Revenue Share | Gross Margin |
|---|---|---|
| Fuel Sales | ~70% | 30-35 cents/gallon |
| In-Store Merchandise (incl. private label) | ~30% | 30%-35% |
| Fresh Food (pizza, sandwiches, etc.) | Fresh food is included in in-store merchandise | 60%+ |
"Only about 25% of fuel customers enter the store, but the average ticket for those who do is between $6 and $10, and can exceed $20 if they purchase a pizza." — Markus Hansen
Casey's most famous product is pizza — a medium pizza with breadsticks costs about $21, offering strong value in an inflationary environment. Hansen emphasizes that fresh food is not only a high-margin business but also the key to brand differentiation:
Casey's private label currently accounts for about 5% of in-store sales, and Hansen believes this could increase to 10%-15% (the industry average). More importantly, the company owns and operates its own distribution centers:
"Distribution centers are fixed costs; as the store network expands, operating leverage will continue to be released." — Markus Hansen
Approximately half of Casey's growth plan comes from acquisitions and half from new builds. Hansen notes that acquisitions are the more realistic path, as new gas station construction faces significant NIMBY resistance:
Casey's insists on company-operated stores rather than franchising. Hansen believes this is highly consistent with its fresh food strategy:
"While the franchise model allows for faster expansion, quality control — especially the consistency of fresh items like pizza — would face challenges." — Markus Hansen
Casey's stores are primarily located in the Midwest and South, regions that offer the following advantages:
| Metric | Data |
|---|---|
| Current EBITDA Multiple | ~9-10x (forward) |
| Industry Acquisition Multiple | 14-17x EBITDA (acquirers can reduce by 3-4x through synergies) |
| Leverage Ratio | ~1x (can sustain 2-2.5x, or even 3x) |
| Dividend Yield | <1% (but management plans to grow dividends faster than earnings) |
Hansen believes that, given Casey's growth potential, 12-13x EBITDA is a reasonable valuation, while anything above 14x begins to price in an acquisition premium.
1. Electric Vehicle Transition: Hansen acknowledges this as a long-term threat but believes the near-term impact is limited—EV-related traffic accounts for less than 1% of Casey's store visits (mainly in the Chicago area), and the Midwest is dominated by trucks and large SUVs. Experience from Norway shows that EV charging (15-20 minutes) may actually increase in-store spending.
2. Tobacco/Alcohol Regulation: These two categories are important for convenience stores, but Hansen considers a full ban highly unlikely.
3. Fuel Price Volatility: Casey's does not store fuel (it distributes via its own fleet from wholesalers) and therefore bears no inventory price risk, though fuel margins are affected by the competitive landscape.
Hansen specifically emphasizes that the management turnover in 2018-2019 was a key turning point:
"The new management upgraded Casey's from a 'regional convenience store operator' to a comprehensive platform combining 'food + technology + retail.' "——Markus Hansen
| Position | Analyst View | Key Data |
|---|---|---|
| Casey's General Stores | Bullish | 2,500 stores, market cap ~$10B, EBITDA margin 6%-6.5%, adding 100-120 stores annually |
| 7-Eleven (7&I Holdings) | Neutral (Competitor) | Market share 8%-9%, primarily franchise-based |
| Circle K (Couche-Tard) | Neutral (Competitor) | Market share 5%-6%, shifting toward owned properties |
| Wawa | Neutral (Regional Competitor) | Dominant in New Jersey/Florida, known for fresh food |
| Sheetz | Neutral (Regional Competitor) | Dominant in Pennsylvania |
1. "Convenience stores sell time, not gasoline." (Markus Hansen) — Casey's core value lies in saving customers time. Fresh food and convenience services are the true profit drivers, while fuel merely serves as a traffic generator.
2. The underlying logic of industry consolidation is "cost escalation." — EPA compliance costs have risen 3–4 times over 15 years, technology investment thresholds have increased, and intergenerational succession issues have emerged. These factors collectively drive the fragmented market toward large chains, and Casey's is a beneficiary.
3. Casey's "pizza strategy" makes it the fifth-largest pizza chain in the U.S. — A $21 medium pizza combo is highly competitive in an inflationary environment, and fresh food carries a gross margin of 60%+, nearly double the 30%–35% margin on in-store merchandise.
4. Distribution centers are Casey's "moat." — Each $100 million distribution center can serve 600–1,000 stores within a 500-mile radius. Within the current coverage area, 70% of the geographic space remains undeveloped, and operating leverage will continue to be released.
5. "Only 25% of fuel customers enter the store, but this conversion rate has room to double." (Markus Hansen) — The in-store conversion rate at European convenience stores is roughly twice that of the U.S. Casey's can drive conversion improvements by enhancing the experience (cleanliness, fresh food, app ordering).
6. The electric vehicle transition is a "slow variable" for Casey's. — Currently, less than 1% of store traffic is related to EVs, and experience from Norway shows that charging time (15–20 minutes) may actually boost in-store spending. The Midwest is dominated by trucks and large SUVs, and internal combustion engine vehicles will remain overwhelmingly dominant for the next decade.
7. The 2019 management change was a "watershed moment" for Casey's. — The new CEO (with a background at 7-Eleven and IHOP) brought in technology and food industry experience, driving technology investments and the fresh food strategy, upgrading the company from a regional convenience store chain to a "food + technology + retail" platform.
8. Casey's "NIMBY moat." — New gas stations are increasingly difficult to approve due to community opposition, and tobacco and alcohol sales further strengthen the NIMBY effect. This causes the real estate value of existing stores to grow over time, making it difficult for competitors to build nearby.