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Rolling Recession or Rolling Recovery? Its Importance for C-Store M&A

Economic data remains mixed, but overall improving once again. On the one hand, some economic recovery groups like housing and automobiles report soft unit sales due to high interest rates and poor affordability ratios for the average consumer. The huge amount of 2023 Covid related consumer bounce back spending is slowing, especially as layoffs are increasing for corporations to maintain profitability.


Since U.S. consumer spending comprises 70% of our economy, this is a very important change for both our customer base and our employee base. Unemployment statistics commonly are a lagging indicator with complex accounting and seasonal adjustments. And, regardless of slowdowns, wages continue to grow at over 5%.


Currently offsetting any weaknesses is a large wave of Government inspired spending, which is bringing a desired manufacturing and capital spending improvement, especially in the U.S., and perhaps slowly starting in the rest of the world. Relatively low oil prices and abundant oil and natural gas supplies are certainly helping as well, Geopolitics and wars notwithstanding. The dilemma is the adverse impact on interest rates from high debt levels, leaving important worldwide financial policy at a standstill until something changes. Near term, the U.S. economy is still growing strongly overall, perhaps starting a 'rolling recovery'. Recall that total economic growth over the long term is determined by the growth of the working population plus productivity growth. Right now, the U.S. is growing in spite of slowing demographics, and is helped by a boost from immigration and often Al related productivity gains that help inflation.


For c-store M&A participants especially, the news is good and bad. Consumer related businesses in general are doing well if you have 'pricing power', for c-store companies either at the pump, in the store, and especially with foodservice. Add on businesses like gaming, car washes, or financial services can save many companies or stores that might be weak in some profit centers, which is why computer analysis through Al and data collection is so critical for optimizing profits. Al might also assist our industry in store automation.


The bad news could be that there is no guarantee that interest rates stay level, even though decreases would help housing and car sales. Yes, with our high national debt, rates might even go higher eventually if the economy keeps recovering, which is probably why Jay Powell is officially targeting a very unrealistic goal of 2% inflation for policy flexibility in either direction. Our economy still has many job openings, primarily because many of the skill sets for 'old economy' jobs like construction, trucking, and mining as examples are lacking in our labor force. In addition, there are likely open positions for many Al positions related to medical and climate change issues where knowledge is increasing exponentially.


Bottom line, changes are coming that are very hard to predict. Know your business skills and properly finance your company with the right institutions to fit maturity schedules! Do not count on Government to save businesses and consumers.


Change can be good and bring opportunities for buyers and sellers, but remember that selling prices of stores and companies are determined by both earnings and affordable multiples, both of which could be in post Covid transitions. Stay tuned.


JEFF KRAMER

Managing Director

(303) 619-0611

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