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2025, The Year of Continuous Changes – History Being Made Daily

  • Writer: Jeff Kramer
    Jeff Kramer
  • Jul 15
  • 4 min read

Updated: Jul 15

ECONOMY

Overall, good news, as it appears U.S. Q2 2025 finished at about 2.5% real growth after inflation, but not accounting for the impact from possible wild inventory swings due to tariff uncertainties. Inflation seems stuck in the 2-3% range, which I think is terrific for decent growth and reasonable employment and unemployment trends, perhaps eventually impacted by deportation numbers.

 

Tariffs remain a big uncertainty, as it appears they will increase substantially starting in August. Many in the chain might eat some of that cost, including businesses because post-Covid profitability remains quite strong, as S&P 500 stock gross profit margins remain in the 13% range compared to the post-World War II average of 8%. And many will find AI a valuable tool for both cost savings and price profit optimization, partially as anticipated by record stock prices and very high price earnings multiples. U.S. wealth gains continue mostly from equities and real estate. What else is new? Ironically, the high cost of housing and automobiles (plus their financing costs) limits sales of these expensive items, leaving consumers with money to have fun through travel and affordable splurge spending, which is certainly a positive for our industry. 

 

Again, ironically, let’s hope the increasing size of the forthcoming round of tariffs due August 1 do not create important product shortages in the supply chain--a leading indicator of inflation and higher interest rates. Government deficit spending and capital spending largely for AI could produce several very strong growth quarters, good to help provide reasonable interest rates for now. Will tariffs designed to at least partially finance our deficits perhaps spike inflation worldwide? Possibly, but when? For now, money is extremely plentiful since ‘high’ short-term interest rates from the Federal Reserve are offset by quantitative easing as well as the recent release of bank reserves for lending. Banks, foreign investors, central banks, and cryptocurrencies, plus growing private equity and private debt, will support our debt binge as long as confidence remains in our growth, our world leadership in business, military strength, the rule of law, and democracy. Geopolitics are important. Fingers crossed for continued strong, non-inflationary growth!!

 

C-STORE INDUSTRY

The magnitude of the need for energy of all kinds to feed data centers and store electricity pretty much guarantees a future for oil for now. Gasoline is more uncertain. So, in the meantime, it should be noted that industry fuel profit margins tend to resort to historical profit margin ranges over time, adjusted for changes in inflation. The mixed picture above and the dramatic post-Covid shifts in local and state growth have produced large changes in demand and resultant profitability. Some areas are greatly impacted by NTI’s, especially from what I would call our industry’s own Magnificent 6 or 7, defined as companies with a standard footprint, brand recognition, solid property selection, and reliable foodservice, similar to McDonalds’ origins. There are many more who have at least changed their origins, a perfect example being very successful companies who perhaps now focus on pizza, sandwiches, chicken, etc. Restaurants and QSRs, beware.

 

Next question is whether these industry leaders will keep up with AI, technology, and consumer changing tastes and preferences. And unfortunately, our national economic statistics are distorted because they show that upper income earners spend a disproportionate amount of disposable income relative to lower income earners, which includes our store employees. So, we are more challenged despite being the unquestioned leader in our main product--convenience. Quite a challenge for many small and medium sized operators. Will automation help? Very possibly, as I guess we must all adjust to a more robotic world - yuck, my opinion only.

 

M&A

So, what does all this mean for our industry’s M&A landscape? Market value equals earnings times multiples. Buyers are watching recent trends more closely due to all of the above, although NRC still normally provides two-to-three-years of historical store-level data. Industry buyers focus on four-wall EBITDA as so-called “cash flows”, since they then apply their own overhead structure. That explains part of the trend for scale, because overhead per store tends to decrease, often substantially, for larger companies. It also helps larger companies obtain larger competitive discounts on fuel, food items, maintenance, construction costs, and hiring talent.

 

Clearly, size matters. Look at the huge margins today’s tech Magnificent 7 have earned. The key here was that they were first and best, gaining near monopolies. Ironically, that is changing now as the AI and robotics race is on, with much more competition. So, it will be the users of AI and robotics who will now benefit going forward. Everything gets more complicated when competing on the world scene with China right now. Can you imagine the Board meetings of GM, Ford and Stellantis these days? All sized c-store industry operators need to keep up with all trends and technologies, including those of the industry leaders, and then apply them to their particular locations, customer/employee base, and management capabilities.

 

The M&A multiples for individual stores are more variable than normal, depending on site value and potential for cost savings, including capital taken into account to give the buyer a safe rate of return for the risk. The same rules apply for larger M&A transactions, with some flexibility if all units are not of similar quality, which may result in lower multiples.  That is an advantage with using NRC, since NRC is able to sell off some individual units and deliver increased total proceeds to the seller.  NRC works for you, and we only get paid for successful closings. But for sellers today, the saying “Beauty is in the eye of the beholder”, is truer than ever, as it is often difficult to predict the eventual purchaser. Money is available!

 

If all goes well economically, we anticipate a more active M&A market for the remainder of the year, as does President Trump. As long as long term rates don’t go too high, this should be an accurate forecast. The 30-year Treasury Bond is again testing the important 5% level. Since many of the quality chains have been gobbled up, buying interest remains solid as buyers try their own strengths to make acquisitions work. The interest is there in all aspects of petroleum for retail, wholesale, lubes, propane, etc.  Please refer to the NRC website for recent offerings and completed transactions.


If you want to learn more, whether buying or selling, please call Jeff Kramer at 303-619-0611 or email him at jeff.kramer@nrc.com.

 
 
 

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