Casey’s General Stores: Fuelling Convenience

Sector

RetailConsumer

Background

Markus Hansen is a portfolio manager at Vontobel Asset Management. We cover the fragmented convenience store market, why Casey's has become known for its fresh pizza, and how petrol prices are set in the industry.

Cover

Date

August 23, 2023

Episode Number

125

Background / Overview

Casey’s General Stores was founded in the 1960s in Iowa by Don Lamberti, initially as a single gas station that evolved into a convenience store. The company’s name derives from the initials of a supplier friend, K&C, who encouraged Lamberti to expand. Casey’s growth strategy mirrored early Walmart, targeting small, rural towns with populations of 15,000 to 20,000, which were overlooked by larger retail chains. This focus on underserved markets allowed Casey’s to build a loyal customer base and establish a strong regional presence.

As of April 2025, Casey’s operates 2,500 stores, primarily in the Midwest (e.g., Illinois, Missouri, Iowa) and Southwest (e.g., Arkansas, Tennessee, Kentucky), with a market capitalization of approximately $10 billion. The company is the third-largest convenience store chain in the U.S., behind 7-Eleven (owned by Japan’s Seven & I) and Circle K (owned by Canada’s Alimentation Couche-Tard), and the largest American-owned, publicly listed player in the sector. Casey’s employs a workforce that includes a significant proportion of women, with diverse representation in management, reflecting its community-rooted culture.

Casey’s operates three store formats:

• 3,000 square feet: Traditional convenience store size.
• 5,000 square feet: Expanded format with enhanced offerings.
• 7,000 square feet: Large stores with multiple fuel pumps and extensive in-store amenities, including kitchens and liquor sections.

The company owns its real estate and operates three distribution centers (DCs), with plans for a fourth, servicing stores within a 500-mile radius. This owned logistics network is a cornerstone of its operational efficiency, enabling Casey’s to control costs and maintain product freshness, particularly for its prepared food segment.

Ownership / Fundraising / Recent Valuation

Casey’s is a publicly listed company with no significant private equity ownership or recent fundraising events highlighted in the transcript. The company has attracted acquisition interest, notably from 7-Eleven and Couche-Tard in 2010, when it had roughly 1,000 stores. Management rejected these offers, a decision that proved prescient as Casey’s has since grown to 2,500 stores and significantly increased its valuation.

Currently, Casey’s trades at a forward EBITDA multiple of 9-10x, which is attractive relative to industry transaction multiples of 14-17x EBITDA for convenience store acquisitions. The lower trading multiple reflects Casey’s organic growth potential and operational efficiency, though acquisition premiums could push valuations higher due to synergies (e.g., 3-4x EBITDA reduction post-acquisition). The company maintains a low leverage profile, with a net debt-to-EBITDA ratio of approximately 1x, well below the 2-2.5x that the business model could support. Casey’s has initiated a dividend policy (yield <1%) and conducts share buybacks, signaling a shift toward returning capital to shareholders while continuing to invest in store expansion.

Key Products / Services / Value Proposition

Casey’s business model revolves around three core segments, each with distinct value propositions:

1. Fuel:
• Description: Gasoline and diesel sales, offered at multiple pump stations, with options for regular and premium fuels.
• Volume: Accounts for 70% of revenue, driven by high transaction volumes.
• Price: Margins are $0.30-$0.35 per gallon, stable but with limited growth potential.
• Revenue/EBITDA: Fuel generates the majority of revenue but contributes less to EBITDA due to lower margins (estimated 10-15% gross margin).
2. Grocery & General Merchandise:
• Description: Includes national brands, private-label products (5% of in-store sales, targeting 10-15%), snacks, beverages, tobacco, and liquor (sold in “beer caves”).
• Volume: Significant foot traffic, with 25% of fuel customers making in-store purchases.
• Price: Gross margins of 30-35%, driven by branded and private-label products.
• Revenue/EBITDA: Contributes to in-store revenue (30% of total) and a substantial portion of EBITDA due to higher margins.
3. Prepared Food & Dispensed Beverages:
• Description: Fresh food offerings, including pizza (Casey’s is the fifth-largest pizza chain by sales), sub sandwiches, donuts, and coffee. Pizzas are a flagship product, with a medium pizza meal (including sides) priced at ~$21.
• Volume: Drives 75% of store traffic, indicating strong consumer demand for food over fuel.
• Price: Gross margins exceed 60%, reflecting premium pricing and low variable costs.
• Revenue/EBITDA: A key EBITDA driver, contributing disproportionately to profitability due to high margins.

Value Proposition:

• Convenience: Casey’s sells time by offering a one-stop shop for fuel, groceries, and fresh meals, catering to busy consumers in rural and suburban areas.
• Quality and Trust: The brand is synonymous with fresh, high-quality food, particularly pizza, fostering customer loyalty.
• Affordability: Competitive pricing on food (e.g., $21 for a family meal) appeals to cost-conscious consumers in low-cost-of-living regions.
• Community Focus: Stores serve as fixtures in small towns, capturing local demand and building habitual purchasing patterns.

Segments and Revenue Model

Casey’s operates as a single integrated business but can be segmented economically into three units: fuel, grocery/general merchandise, and prepared food/dispensed beverages. The revenue model combines high-volume, low-margin fuel sales with high-margin in-store sales, with the latter driving profitability.

• Fuel: Revenue is driven by gallons sold multiplied by a per-gallon margin ($0.30-$0.35). Pricing is dynamic, adjusted using technology to monitor local competitors, though smaller players often set the baseline price due to their higher cost structures.
• Grocery/General Merchandise: Revenue comes from a mix of national brands and private-label products, with margins of 30-35%. Private-label growth (from 5% to 10-15% of in-store sales) is a key driver, leveraging Casey’s distribution network for cost efficiencies.
• Prepared Food/Dispensed Beverages: Revenue is driven by unit sales of high-margin items like pizza, with margins exceeding 60%. The segment benefits from emotional purchases (e.g., craving-driven snacks) and low price sensitivity, as customers prioritize convenience over comparison shopping.

Splits and Mix

• Revenue Mix:
• Fuel: 70%
• In-store (Grocery + Prepared Food): 30%
• Grocery/General Merchandise: ~15-20%
• Prepared Food/Dispensed Beverages: ~10-15%
• EBITDA Mix:
• In-store (Grocery + Prepared Food): ~70% of EBITDA
• Fuel: ~30% of EBITDA
• Prepared food contributes disproportionately due to 60%+ gross margins.
• Geographic Mix: Concentrated in 16 Midwest and Southwest states, with 70% of the current footprint still underserved, offering room for organic growth. Recent acquisitions (e.g., 63 stores in Tennessee) target adjacent states within the 500-mile DC radius.
• Customer Mix: Serves middle-income consumers (average salary $50,000-$60,000) in low-cost-of-living areas, with strong appeal to families, sports travelers, and rural residents reliant on cars.
• Channel Mix: All sales are through company-owned stores, with no franchising, ensuring quality control and operational consistency.
• End-Market Mix: Primarily convenience-driven purchases, with 75% of traffic non-fuel related, reflecting demand for food and grocery items.

Historical/Forecasted Mix Shifts:

• In-store Growth: Casey’s aims to increase in-store sales, particularly prepared food, by expanding kitchen-equipped stores and private-label offerings.
• Private-Label Expansion: Targeting 10-15% of in-store sales, up from 5%, to boost margins.
• Geographic Expansion: Continued penetration in Southwest states (e.g., Tennessee, Arkansas) to leverage existing DCs.

KPIs

• Store Count: 2,500 stores, with a target of 100-120 new stores annually (50% acquisitions, 50% new builds).
• Same-Store Sales Growth: Mid-single digits, driven by in-store sales and private-label penetration.
• Fuel Margin: $0.30-$0.35 per gallon, stable but with upside from premium fuel sales.
• In-Store Conversion Rate: 25% of fuel customers make in-store purchases, with potential to double (based on European benchmarks).
• EBITDA Margin: 6-6.5%, with potential to reach 8-10% through operating leverage and in-store mix shift.
• Average Ticket Size:
• Grocery: $6-$10
• Prepared Food: $5-$20 (e.g., $21 for a pizza meal).
• EV Penetration: <1% of traffic is EV-related, concentrated in urban stores (e.g., Chicago suburbs).

Acceleration/Deceleration:

• Accelerating: In-store sales, private-label penetration, store count growth.
• Stable: Fuel margins, geographic footprint expansion.
• Potential Deceleration: Fuel demand with EV adoption (long-term risk).

Headline Financials

Revenue Trajectory:

• Historical CAGR: Mid-single digits, driven by store count growth (1,000 stores in 1990s to 2,500 today) and same-store sales.
• Forecast: Continued mid-single-digit growth, supported by 100-120 new stores annually and in-store sales growth (prepared food and private label).

EBITDA Trajectory:

• Historical: EBITDA margins expanded from ~4-5% to 6-6.5% due to operating leverage from DCs and higher-margin in-store sales.
• Forecast: Potential to reach 8-10% with increased prepared food mix and private-label penetration.

FCF Trajectory:

• Strong cash conversion (55-60% of EBITDA) due to low working capital requirements (quick inventory turnover) and moderate capex.
• Supports organic growth, acquisitions, dividends, and buybacks.

Value Chain Position

Casey’s operates midstream in the convenience retail value chain, bridging fuel wholesalers and food/grocery suppliers with end consumers. Its primary activities include:

• Inbound Logistics: Fuel is sourced from wholesalers, with Casey’s delivering over 50% via its own trucks. In-store products are supplied through three DCs, ensuring freshness and cost control.
• Operations: Store-level retail, including fuel dispensing, grocery sales, and in-store food preparation (kitchens for pizza, sandwiches, etc.).
• Outbound Logistics: Minimal, as products are sold directly to consumers at stores.
• Marketing & Sales: Loyalty programs, mobile apps, and digital pricing enhance customer engagement and drive in-store purchases.
• Service: Clean, safe stores with self-checkout kiosks and technology-driven inventory management improve the customer experience.

Go-To-Market (GTM) Strategy:

• Community Focus: Targets small towns with limited competition, building habitual purchasing through brand trust.
• One-Stop Shop: Combines fuel, groceries, and fresh food to maximize convenience and ticket size.
• Technology: Mobile apps, loyalty cards, and dynamic pricing attract tech-savvy consumers and optimize margins.

Competitive Advantage:

• Logistics Ownership: Vertically integrated DCs reduce costs and ensure product freshness, particularly for high-margin prepared food.
• Real Estate Ownership: Owning store real estate provides flexibility to retrofit stores (e.g., adding kitchens) and captures long-term value as towns grow.
• Prepared Food: High-margin pizza and snacks differentiate Casey’s from traditional convenience stores and fast-food competitors.

Customers and Suppliers

• Customers:
• Demographics: Middle-income ($50,000-$60,000/year), rural/suburban consumers in low-cost-of-living states.
• Behavior: Convenience-driven, with 75% of traffic non-fuel related, reflecting demand for food and groceries. Emotional purchases (e.g., snacks, pizza) drive higher margins.
• Retention: High due to brand loyalty, limited competition in small towns, and habitual purchasing.
• Suppliers:
• Fuel: Sourced from wholesalers, with Casey’s managing over 50% of delivery logistics to optimize costs.
• Grocery/Food: Combination of national brands and private-label products, with DCs enabling bulk purchasing and quality control.
• Dependency: Low supplier power due to Casey’s scale and logistics control, reducing reliance on any single supplier.

Pricing

• Fuel:
• Structure: Dynamic pricing based on local competition, with margins of $0.30-$0.35 per gallon.
• Drivers: Smaller players set baseline prices due to higher costs; Casey’s leverages premium fuel sales for margin upside.
• Elasticity: Moderate price sensitivity, as convenience and store amenities outweigh minor price differences.
• In-Store:
• Structure: Fixed pricing for groceries (30-35% margins) and prepared food (60%+ margins), with minimal comparison shopping due to convenience focus.
• Drivers: Emotional purchases, brand loyalty, and mission-criticality (e.g., quick meals) reduce price sensitivity. Private-label products enhance margins.
• Contract Length: No long-term contracts; sales are transactional, ensuring pricing flexibility.

Bottoms-Up Drivers

Revenue Model & Drivers

• Fuel:
• Model: Gallons sold x margin per gallon ($0.30-$0.35).
• Volume Drivers: Traffic from rural car dependency, with 70% of revenue from fuel. Stable demand due to limited EV penetration (<1% of traffic).
• Price Drivers: Dynamic pricing adjusts to local competition; premium fuel sales boost margins.
• Growth: Limited, as margins are stable and volume growth depends on store expansion.
• Grocery/General Merchandise:
• Model: Unit sales x price, with 30-35% margins.
• Volume Drivers: 25% conversion rate from fuel customers, with potential to double. Private-label growth (5% to 10-15%) increases volume.
• Price Drivers: National brands and private-label products command stable pricing; emotional purchases reduce sensitivity.
• Growth: Mid-single digits, driven by store count and conversion rate improvement.
• Prepared Food/Dispensed Beverages:
• Model: Unit sales x price, with 60%+ margins.
• Volume Drivers: 75% of traffic is non-fuel, reflecting strong demand for pizza and snacks. Kitchen retrofits and mobile ordering boost volume.
• Price Drivers: Premium pricing due to quality perception and convenience; low price sensitivity for emotional purchases.
• Growth: High single digits, driven by mix shift to prepared food and private-label expansion.

Absolute Revenue:

• ~$15B, with 70% from fuel and 30% from in-store sales. Mid-single-digit CAGR driven by store growth and in-store mix shift.

Mix Dynamics:

• Product Mix: Shift toward prepared food (10-15% of revenue, 60%+ margins) enhances profitability.
• Customer Mix: Middle-income, convenience-driven consumers ensure stable demand.
• Geo Mix: Expansion into Southwest states leverages existing DCs, reducing costs.
• Organic vs. Inorganic: 50% of store growth from acquisitions, 50% from new builds, balancing cost and control.

Cost Structure & Drivers

• Variable Costs:
• Fuel: Cost of wholesale fuel, partially offset by owned logistics (>50% of delivery). Estimated 85-90% of fuel revenue.
• Grocery: Cost of goods sold (national brands and private-label), ~65-70% of grocery revenue.
• Prepared Food: Ingredients and labor, ~35-40% of prepared food revenue, yielding 60%+ margins.
• Drivers: Inflation (labor, materials), offset by bulk purchasing and private-label scale.
• Fixed Costs:
• Distribution Centers: $100M per DC (250,000 sq ft, serves 600-1,000 stores). Amortized over large store networks, providing operating leverage.
• Store Operations: Rent (minimal, as Casey’s owns real estate), utilities, and technology (kiosks, digital pricing). Labor is semi-fixed, with self-checkout reducing wage costs.
• Overhead: Admin, marketing, and R&D, scaled across 2,500 stores.
• Drivers: Economies of scale from DCs and technology investments reduce fixed costs as a % of revenue.
• Cost Analysis:
• % of Revenue:
• COGS: ~75-80% (fuel: 85-90%, grocery: 65-70%, prepared food: 35-40%).
• SG&A: ~15-20% (labor, technology, overhead).
• EBITDA Margin: 6-6.5%, with potential to reach 8-10%.
• % of Total Costs:
• Variable Costs: ~80% (fuel and in-store COGS).
• Fixed Costs: ~20% (DCs, store overhead, technology).
• Operating Leverage: Fixed costs (DCs, technology) decline as a % of revenue with store growth, driving margin expansion.
• EBITDA Margin:
• Current: 6-6.5%, above retail benchmarks (2-4%) due to high-margin prepared food.
• Forecast: 8-10% with increased in-store sales and private-label penetration.
• Drivers: Revenue growth (mid-single digits) and fixed cost leverage (1-3% incremental margin).

FCF Drivers

• Net Income: ~$400M-$500M (est., assuming 50-55% of EBITDA after tax and interest).
• Capex:
• Maintenance: ~$100M-$150M (1% of revenue) for store upkeep and technology.
• Growth: ~$200M-$250M (1-2% of revenue) for new stores ($1-2M/store) and DCs ($100M each).
• Total: ~$300M-$400M (2-3% of revenue).
• Net Working Capital (NWC):
• Low due to fast inventory turnover (perishable goods, quick fuel sales).
• Cash conversion cycle: ~10-15 days (inventory: 5-10 days, receivables: 0-5 days, payables: 10-15 days).
• FCF: ~$500M-$600M (55-60% of EBITDA), supporting dividends, buybacks, and growth.

Capital Deployment

• Organic Growth:
• 50-60 new stores annually ($1-2M/store, $60M-$120M capex).
• DC expansion (fourth DC planned, $100M investment).
• Inorganic Growth:
• 50-60 acquisitions annually (e.g., 63 stores in Tennessee). Acquisition multiples: 14-17x EBITDA, with synergies reducing effective multiples by 3-4x.
• Recent acquisition pace: 1,500 stores added in the last 10+ years.
• Shareholder Returns:
• Dividends: <1% yield, growing faster than earnings to establish a dividend story.
• Buybacks: Opportunistic, supported by strong FCF and low leverage (~1x net debt/EBITDA).
• Leverage Strategy: Underlevered at 1x, with capacity for 2-2.5x to fund larger acquisitions without compromising financial stability.

Synergies:

• Acquisitions enhance DC utilization, reducing logistics costs.
• Technology and back-office integration lowers SG&A as a % of revenue.
• Real estate ownership ensures long-term value capture.

Market, Competitive Landscape, Strategy

Market Size and Growth

• Total Market: ~155,000 convenience stores/gas stations in the U.S., with a market size of ~$600B-$700B (fuel + in-store sales).
• Segmentation:
• Fuel: ~60% of industry revenue, low margins (10-15%).
• In-store: ~40% of revenue, higher margins (30-60%).
• Growth:
• Volume: Stable, driven by car dependency in rural areas.
• Price: Moderate inflation (2-3% annually) and premium fuel sales.
• Absolute: Low-to-mid single digits, with in-store sales outpacing fuel.
• Industry Growth Stack:
• Population growth: 0.5-1% in Midwest/Southwest.
• Real GDP growth: 2-3%.
• Inflation: 2-3%.
• Convenience demand: 3-5% (driven by time scarcity and snacking trends).

Market Structure

• Fragmentation: Highly fragmented, with 60,000-70,000 mom-and-pop stores (1-10 locations), small regional chains (10-30 stores), and national players.
• Market Shares:
• 7-Eleven: 8-9%.
• Circle K: 5-6%.
• Casey’s: 2.5%.
• Others: Long tail of regional and independent players.
• Minimum Efficient Scale (MES): Larger MES due to high fixed costs (DCs, technology, EPA compliance) favors national chains. Maximum competitors = Total Market Size / MES (~155,000 / 600 stores per DC = ~250 viable chains, but consolidation reduces this).
• Traits:
• Regulation: EPA rules increase costs for fuel storage and compliance.
• NIMBY: Limits new store development, favoring acquisitions.
• Technology: Digital pricing, loyalty programs, and inventory management favor scale players.

Competitive Positioning

• Matrix Positioning:
• Price: Mid-tier fuel pricing, premium in-store pricing (prepared food).
• Target Market: Rural/suburban, middle-income consumers seeking convenience.
• Risk of Disintermediation: Low, as Casey’s owns real estate and logistics, reducing reliance on third parties. Larger players (e.g., 7-Eleven) could acquire Casey’s, but its regional dominance and fresh food focus make it a premium target.
• Market Share Growth: Casey’s 2.5% share is growing faster than the market (mid-single-digit revenue growth vs. 2-3% industry growth), driven by acquisitions and organic expansion.

Competitive Forces (Hamilton’s 7 Powers)

1. Economies of Scale:
• Strength: High. Owned DCs ($100M each, serving 600-1,000 stores) and real estate reduce fixed costs as a % of revenue. Technology investments (kiosks, digital pricing) scale across 2,500 stores.
• Impact: Drives 6-6.5% EBITDA margins (vs. 2-4% retail benchmark) and supports 8-10% margin potential.
2. Network Effects:
• Strength: Moderate. Brand recognition in small towns creates habitual purchasing, amplified by loyalty programs and mobile apps. Word-of-mouth drives new store adoption in adjacent states.
• Impact: Enhances customer retention and in-store conversion rates (25%, with potential to double).
3. Branding:
• Strength: High. Casey’s is synonymous with quality pizza and convenience in its markets, fostering loyalty and trust. Emotional purchases (e.g., snacks, pizza) command premium pricing.
• Impact: Supports 60%+ margins on prepared food and reduces price sensitivity.
4. Counter-Positioning:
• Strength: High. Focus on fresh food (pizza, sandwiches) differentiates Casey’s from traditional convenience stores and QSRs. Owned logistics and real estate create a superior business model that competitors struggle to replicate.
• Impact: Positions Casey’s as the fifth-largest pizza chain and a community fixture, capturing share from fast-food competitors.
5. Cornered Resource:
• Strength: Moderate. Real estate ownership in prime locations (small-town intersections) is a scarce asset due to NIMBY dynamics. Proprietary pizza recipes and private-label products enhance differentiation.
• Impact: Creates a defensible footprint and supports long-term value capture.
6. Process Power:
• Strength: High. Vertically integrated logistics, data-driven inventory management, and kitchen operations enable cost efficiencies and product freshness. Technology (self-checkout, dynamic pricing) optimizes margins.
• Impact: Drives operating leverage and supports margin expansion (1-3% incremental).
7. Switching Costs:
• Strength: Moderate. Habitual purchasing in small towns, where alternatives are limited, creates stickiness. Loyalty programs and mobile apps reinforce retention.
• Impact: Supports high in-store conversion and repeat purchases.

Porter’s Five Forces Summary:

• New Entrants: Low threat due to high barriers (EPA compliance, real estate scarcity, technology costs).
• Substitutes: Moderate threat from QSRs (e.g., Domino’s) and supermarkets, but Casey’s fresh food and convenience reduce switching.
• Supplier Power: Low, as Casey’s scale and logistics control limit supplier leverage.
• Buyer Power: Low, as convenience-driven purchases reduce price sensitivity.
• Industry Rivalry: Moderate, with fragmentation favoring scale players like Casey’s.

Strategic Logic

• Capex Cycle Bets:
• Offensive: Investments in DCs ($100M each) and store retrofits (kitchens, car washes) to drive prepared food sales and margins.
• Defensive: Technology upgrades (kiosks, digital pricing) to maintain competitiveness.
• Economies of Scale:
• Casey’s operates below MES in 70% of its footprint, offering room to add stores without diseconomies. DCs provide fixed-cost leverage, reducing logistics costs as store count grows.
• Vertical Integration:
• Owned logistics (>50% fuel delivery, all in-store products via DCs) reduce costs and ensure quality.
• Real estate ownership enhances flexibility and long-term value capture.
• Horizontal Expansion:
• Acquisitions (e.g., 63 stores in Tennessee) and new builds (100-120 stores/year) target adjacent markets, leveraging existing DCs.
• M&A:
• Synergies from acquisitions (3-4x EBITDA reduction) enhance profitability.
• Risks: Overpaying or integration delays, though Casey’s track record is strong.

Risks

1. EV Adoption:
• Long-term threat to fuel sales (70% of revenue), though EV penetration is <1% in Casey’s markets. Early data suggests EV charging (15-20 minute sessions) could drive higher in-store spending.
• Mitigation: Casey’s is preparing for EV charging stations, leveraging real estate and power infrastructure.
2. Regulation:
• Stricter EPA rules increase fuel storage costs, though Casey’s scale mitigates this.
• Potential restrictions on cigarettes and liquor (key in-store products) could impact sales, though vaping and stable demand reduce this risk.
3. Competition:
• QSRs (e.g., Domino’s) and supermarkets offering convenience options compete for in-store sales.
• Mitigation: Casey’s fresh food focus and community presence create differentiation.
4. Economic Sensitivity:
• Middle-income consumers may reduce discretionary spending (e.g., prepared food) in downturns.
• Mitigation: Low-cost-of-living markets and affordable pricing ($21 pizza meal) maintain demand.

Key Takeaways and Unique Dynamics

1. Hybrid Business Model:
• Casey’s blends low-margin fuel sales (70% of revenue, $0.30-$0.35/gallon) with high-margin in-store sales (30% of revenue, 30-60% margins), with prepared food (pizza, 60%+ margins) driving 70% of EBITDA. This hybrid model balances volume and profitability, making Casey’s a unique player in the fragmented convenience store market.
2. Community-Centric Strategy:
• Targeting small towns (15,000-20,000 population) creates a captive audience with limited competition. Casey’s stores are community fixtures, driving 75% non-fuel traffic and fostering habitual purchasing, unlike highway-focused competitors.
3. Owned Logistics and Real Estate:
• Three DCs ($100M each, serving 600-1,000 stores) provide operating leverage, reducing logistics costs and ensuring product freshness. Real estate ownership (unlike leased models) enables store retrofits (e.g., kitchens, car washes) and captures long-term value, a key differentiator.
4. Prepared Food Differentiation:
• Casey’s is the fifth-largest pizza chain by sales, with 60%+ margins on prepared food. This focus on fresh, affordable meals ($21 for a family pizza) positions Casey’s as a QSR alternative, capturing emotional and convenience-driven purchases.
5. Technology as a Margin Driver:
• Investments in digital pricing, self-checkout kiosks, and inventory management optimize margins and reduce labor costs. Data-driven insights (e.g., demand forecasting by time/weather) enhance operational efficiency, a scale advantage over mom-and-pop competitors.
6. Growth Runway:
• Casey’s operates in 70% underserved areas within its 16-state footprint, supporting 100-120 new stores annually (50% acquisitions, 50% new builds). Acquisitions (e.g., 63 stores in Tennessee) leverage existing DCs, driving mid-single-digit revenue growth and 8-10% EBITDA margins.
7. Financial Resilience:
• Strong FCF ($500M-$600M, 55-60% of EBITDA) and low leverage (1x) support organic growth, acquisitions, dividends, and buybacks. High cash conversion (low NWC) and stable margins (6-6.5%, targeting 8-10%) ensure flexibility.

Hamilton’s 7 Powers Summary

Casey’s competitive moat is built on economies of scale, branding, counter-positioning, and process power, with moderate network effects, cornered resources, and switching costs. Its owned logistics, real estate, and fresh food focus create a defensible position in a fragmented market, with barriers to entry (EPA rules, NIMBY) limiting new competitors.

Market Overview and Valuation

• Market Size: $600B-$700B, with 155,000 stores and low-to-mid single-digit growth.
• Competitive Landscape: Fragmented, with 7-Eleven (8-9%), Circle K (5-6%), and Casey’s (2.5%) leading consolidation. Mom-and-pop stores (60,000-70,000) face cost pressures, driving M&A.
• Valuation:
• Casey’s: $10B market cap, 9-10x forward EBITDA, attractive vs. 14-17x acquisition multiples.
• Peers: 7-Eleven and Circle K trade at higher multiples (12-14x) due to scale, but Casey’s growth potential and efficiency justify a premium.
• Upside: Organic growth (2,500 to 5,000 stores) and margin expansion (6.5% to 8-10%) could drive 12-13x EBITDA, with acquisition optionality adding value.

Conclusion

Casey’s General Stores exemplifies a business that thrives by solving for convenience in underserved markets, leveraging a hybrid model of fuel and high-margin prepared food to drive profitability. Its owned logistics and real estate, focus on fresh food, and technology investments create a differentiated, scalable platform with significant growth potential. By targeting small towns, Casey’s captures loyal customers and benefits from limited competition, while its strong FCF and low leverage provide flexibility for expansion and shareholder returns. The company’s ability to balance operational efficiency with customer-centric innovation positions it as a compelling player in the evolving convenience store landscape.