Electrification – of Everything?

My 2024 year end blog said to expect big changes in 2025. It’s a very exciting time in our history, led by the incredible race of technology and innovation that appears to be closer to providing big returns for those in the lead. This includes countries, companies and individuals. Noted economic historians like Schumpeter would call it an age of ‘creative destruction’ as new technologies replace the old, which, by definition, includes companies as well. Today, the computer chips get smaller and the speed and results come quicker. My conclusion is a growing competitive environment of the haves and have nots is arriving.

There are certainly some important headwinds today, economic for one – they are always there. Our current economic headwind list is long. Perhaps the most persistent one is our very large amount of sovereign debt relative to our economy, actually even larger than during wartimes of the past. If AI (Artificial Intelligence) can deliver with cost savings and continuous economic benefits, the holders of our debt will give us time since our growth will allow us to pay it back, in theory. You have seen me mention my belief that the benchmark 10 Year U.S. Treasury bond ideally should not go beyond 5% for our current growth rate, unless real growth after inflation really accelerates from AI productivity benefits. This benchmark is important because our government cannot control it like short term Federal Funds rates due to the bond market’s size. Fortunately, our country has tremendous resources such as energy in multiple forms, plus terrific so called ‘intellectual property’ due to our excellent education system and an historically ambitious and creative workforce. Time will tell if those attributes hold up. The world’s leading economy has one of the world’s strongest currencies, the U.S. Dollar, which is a good gauge of the world’s confidence in the U.S., as about 70% of world trade is denominated in dollars, a very powerful tool to greatly facilitate our power and growth since World War II.

Any new President brings change, which is often good as the world is constantly changing. In a true democracy, one party goes too far, regimes change, and the cycle repeats. President Trump is facing the above headwinds at a particularly critical time, as the race for AI supremacy is creating an ‘economic war’ of sorts, particularly with China, that could also lead to military supremacy for the winner. And, yes, China is already ahead of us in some categories of this race. Our country certainly needed deregulation for data centers, as well as immigration limits to restrict criminal activity and not overpopulate as jobs are eliminated from AI, and certainly education and training must be greatly improved to service the new economy. Yet post Covid geopolitical changes can be averse to our industry as well, perhaps the best example being changes in SNAP rules. Tariffs are another whole story not worth getting into at this point, other than saying that tariffs aside, inflation is still in control and even heading downward.

Industry M&A has been slowed significantly in the first six months of 2025 due largely to many of the aforementioned uncertainties while worldwide growth goes through fits and starts, and two serious expensive wars persist way beyond their time. And all the while our debt increases daily in a divided Legislative Branch of government that can’t get out of its own way.

To be fair, in spite of everything mentioned, the wheels of technology keep spinning, and the above messes will be improved (not solved) eventually. After all, business is still good, and money is plentiful and not restrictively expensive for the right businesses. And where did $22 trillion of private equity and credit suddenly appear? The gas/convenience store/ foodservice industry remains an industry that still finds more qualified buyers than most. Why? Because time is something we never have enough of, so people will pay up for convenience, so businesses will as well in M&A transactions and new construction.

Gas demand continues its decline, about 4% per year as a result of car fuel efficiency and work from home, but margins regionally make up for the gallon loss so far. C-store sales in dollars have held up well, but 2024 and 2025 saw units in many categories and stores decline, a new trend unusual in good economic times. Foodservice is the hero, as growth has proven out in NACS State of the Industry statistics.

And, as is often the case, size matters and tends to mask ills that are more difficult for smaller companies. Yet, smarter companies can often succeed with a solid business plan when the more progressive marketers come in the market. Where does your company stand and are you holding on, hoping that margins will save you? We are also a fortunate industry that has many flexible forms of operation, such as company-operated or dealer, company-owned or leased, franchised, car wash, gaming, etc. NRC can discuss those possibilities and assess their economic benefits and various alternatives for you.

The key to understanding AI is that it involves ‘Electrification - of Everything’. We know it as automation. That was the real purpose of the Musk blitz of government offices, to evaluate what can be automated through electrification. In our stores, the future may hold the advent of robotics of everything you can think of, such as checkout, stocking, shelf pricing from an office, price book, even robotic interaction with the customer (yuck), all of which might be controlled and accounted for remotely. Right now, the sharper companies in our industry are excelling with foodservice and brag about opening a new store requiring 50 new hires, largely for food. How many will it take for the same amount of sales in four years? In the meantime, the store and foodservice will be the key for most operators since the decline in fuel could accelerate as EVs become more popular at lower costs from scale production, and charging is largely done at home where idle cars can generate electric storage for use later or for alternative use in the home or grid.

I’m not trying to scare anyone into anything, other than trying to have you realize that the speed of technology is exponential today, and it is essential that everyone realize what is coming, even in ‘old’ industries, which I contend is not our industry if you can keep up or get ahead. How would you like to be a marginal standalone QSR without all of the peripheral items like snacks, drinks, sweets, etc. to offer the public? Yes, our stores carry many unhealthy items, but that will improve as well over time when the public demands it and will pay for it. They will if it also tastes good. U.S. consumers are spoiled.

So, yes, there will remain a good place for industry M&A at reasonable multiples in the 7.0-9.5X range and a little higher for scale, and for store sizes and sites that have flexibility for the consumer needs of the future. Everyone has weak units that don’t fit their chain’s image, or brand, or ROI, as examples. Don’t forget that in addition to private structured M&A sales, NRC specializes in selling individual units or groups of units through the largest database of qualified prospects in the industry. Selling off certain units also strengthens your company if there is a sale plan in your future. We can help you plan for that well in advance. Please call me anytime to discuss.