TravelCenters of America (NASDAQ:TA), a leading operator of TA- and Petro-branded travel centers in the U.S. and Canada, has successfully positioned itself as a one-stop destination for truck drivers, or truckers. While it also operates convenience stores, or C-stores, at its travel centers, it has a significant edge over C-store operators CST Brands (NYSE:CST) and The Pantry (UNKNOWN:PTRY.DL) in terms of meeting the needs of its core customer base – the truckers.
Location, location and still location
A good location is vital to the success of all retailers, including travel centers and C-stores.
TravelCenters' travel centers are generally located near an exit for the U.S. Interstate Highway System. In addition, half of its locations are in the U.S.' top 10 busiest states in terms of truck traffic. When truck drivers exit from a busy U.S. highway after hours of driving, they will likely see either a TA- or Petro-branded travel center.
In the case of CST Brands, it chooses to concentrate 61% of its domestic stores in Texas, a beneficiary of the booming oil and gas industry. For The Pantry, close to one-third of its stores are in coastal or resort areas, which attract a fair amount of tourists.
A great location without ample parking spaces is useless for truck drivers, who need to park their vehicles, so TravelCenters makes sure that it doesn't disappoint truck drivers streaming in. An average travel center for TravelCenters has sufficient parking for 189 trucks and 100 cars. A good example is TravelCenters' Petro-branded travel center in Bordentown, where its competitor in the vicinity has only about one-fifth the number of truck spaces that TravelCenters provides.
Location is critical to the success of both travel centers and C-stores, and property ownership is one of the ways of protecting your prized locations. For example, CST Brands stands out from its C-store peers for its higher level of property ownership; more than three-quarters of CST Brands' stores are owned, compared with the peer average real estate ownership level of about 52%.
As a result, CST Brands' C-Store peers have a higher risk associated with lease expiry. For example, The Pantry has about one-third of its store leases expiring within the next four years.
Of TravelCenters' 247 locations in the U.S. and Canada, it only owns about 30 of them and leases 185 locations from Hospitality Properties Trust, or HPT. While this may seem counter intuitive to the idea of protecting prized locations through property ownership, it isn't. TravelCenters' close relationship with HPT means that losing its locations is unlikely. TravelCenters is a spin-off from HPT, and its current CEO was formerly the executive vice president of HPT.
Interestingly, TravelCenters also acquired 33 C-stores in December, of which 27 of them included the ownership of land and buildings underlying the stores. This suggests that TravelCenters also realizes the value of real estate ownership in minimizing lease expiry risk.
More than a C-store
TravelCenters' C-stores are much larger than that of its C-store peers, averaging about 4,000 square feet. In comparison, CST Brands and The Pantry's stores are smaller at about 2,250 square feet and 2,900 square feet, respectively. TravelCenters' larger stores allow it to offer a suite of exclusive services geared to the needs of truckers.
CST Brands also knows the benefits of larger stores. It introduced a new store format called "New-to-Industry," where the average store size is significantly larger at either 4,650 or 5,650 square feet.
The interstate truck driver is typically away from home for prolonged periods and isn't allowed to drive for more than 11 hours in a row, in line with federal regulations. As a result, services such as laundry, ATM machines, check cashing, postal services, and wireless Internet access that TravelCenters offers are extremely valued by truckers.
Truck drivers can also get a haircut at barber shops or see a doctor at medical clinics -- everyday necessities that are simply luxuries for people constantly on the road. Even The Pantry, with smaller stores, is trying to provide more value-added services. As of fiscal 2013, The Pantry offers car washes at 252 of its 1,548 locations, on top of the typical ATM and money-order services.
Ancillary services aside, trucks are central to the livelihood of truckers, with any downtime potentially hitting their bottom line. Therefore, any one-stop destination for truck drivers has to provide repair services. TravelCenters has a huge competitive advantage here, with possibly the most comprehensive truck-repair service offerings among its peers.
TravelCenters' repair business comprises more than 3,000 technicians and in excess of 1,000 repair bays. TravelCenters is also the only non-dealer warranty service provider for Daimler Trucks North America, the largest U.S. manufacturer of heavy trucks. In addition, its emergency roadside service network called RoadSquad has the biggest fleet in town, with more than 400 heavy-duty emergency vehicles.
Foolish final thoughts
TravelCenters' superior locations and wide range of services give it a huge competitive advantage over its peers. As the U.S. economy shows signs of recovery, TravelCenters is an attractive play on the economically sensitive trucking industry, given that it is well positioned as a one-stop shop for truck drivers.