Texas C-store Chains Face Increased Competition

CORPUS CHRISTI and SAN ANTONIO, Texas -- Although a booming Texas economy is clearly a positive, it has caused increased competition for convenience store operators Susser Holdings Corp. and CST Brands Inc., according to a Wells Fargo Securities LLC equity research report.

According to the report, authored by Wells Fargo Senior Analyst Bonnie Herzog and two associate analysts, there is more retail square footage with fuel and promotional activity related to key merchandise categories in Texas in recent months. Safeway Inc. and The Kroger Co. alone have added 60 percent in total square footage of stores with fuel offerings since 2008, the report noted.

Susser, operator of Stripes and Sac-N-Pac stores, will be specifically affected by this increased competition, stated Herzog. "While we continue to believe in the long-term story of [Susser], and believe the strength of its Laredo Taco Co. will support earnings over time, given the near-term pressure we expect to remain through the peak selling season, we are reluctantly downgrading [Susser] to 'market perform' from 'outperform,'" she wrote. Herzog reduced earnings-per-share estimates for the c-store retailer as well.

Wells Fargo did not downgrade the rating for CST Brands. However, the report did note that Susser and CST Brands have recently been particularly aggressive in their pricing strategies to drive customer traffic.

"We believe [Susser] and CST have been forced to lower prices to maintain share, to the detriment of merchandise margins," Herzog wrote in the report.

Since the report was released yesterday, shares of both Susser and CST have dropped.

Corpus Christi, Texas-based Susser Holdings Corp. has more than 560 c-stores in Texas, New Mexico and Oklahoma.

San Antonio-based CST Brands operates 1,040 U.S. Corner Store locations, many of which are located in the Lone Star State.