Tractor Supply's Secret Sauce Is To Go Where Other Retailers Don't

Dec. 26, 2019 3:35 AM ETTractor Supply Company (TSCO)26 Comments


  • Tractor Supply Company has carved out a unique niche in the world of retail. Its target customers are small farmers and ranchers and those who live a rural lifestyle.
  • The company operates 1,800 stores nationwide and sees opportunities to open several hundred more.
  • Same-store sales and number of customer transactions per store are strong.
  • Tractor Supply Company's business model is by nature e-commerce resistant, but the company has also actively built out its own omnichannel platform.
  • I give my best projection of 10-year yield on cost, as well as estimated annual total returns going forward.

Investment Thesis Summary

Tractor Supply Company (NASDAQ:TSCO) ("TSC") markets itself as a "rural lifestyle retailer," which is pretty much summed up in its signature slogan: "For Life Out Here." The company's stores are located in or near small towns and rural communities, and its products are geared toward small farmers and ranchers, outdoorsmen and outdoorswomen, sports enthusiasts, and pet owners.

Herein lies the very simple secret sauce of TSC's success. It focuses on being "the most dependable supplier of basic maintenance products to farm, ranch, and rural customers." This commitment is reflected in the fact that 47% of total revenue is derived from livestock and pet consumables, followed by 22% from hardware, tools, and various truck products.

Source: 2019 Investment Community Day Presentation

While the major commercial farming and ranching operations have their own supply lines established, small farmers and ranchers and those who enjoy the country lifestyle have traditionally been underserved by corporate retailers. That's where TSC has stepped in. Areas served only by mom-and-pop stores or small farm & ranch chains, if at all, have proven to be TSC's sweet spot, increasingly relying on it for their everyday needs.

This has proven to be an incredibly strong and recession-resistant business model, delivering consistent sales and profit growth over the last two decades (and through two economic downturns).

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It has also fueled massive total return outperformance for the company's shareholders over the last ten years.

ChartData by YCharts

Indeed, TSC's concentration on an underserved customer base and intentional marketing toward them has served the company and its shareholders well. It doesn't try to appeal to everyone but rather to kindle a strong loyalty among those to whom it does appeal.

That is the company's secret sauce, its competitive advantage, and it is the reason why TSC stock is

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

This article was written by

Austin Rogers profile picture
Become a “Passive Landlord” with our 8% Yielding Real Estate Portfolio.

My adult life can be broken out into three distinct phases. In my early 20s, I earned a bachelor's degree in Cinema & Media Arts (emphasis in screenwriting), but I hated working in Hollywood. Too much schmoozing and far too much traffic. So, after leaving California, I earned a Master of Fine Arts in Creative Writing from Western State Colorado University. I loved writing fiction, but it didn't pay the bills.

In my mid-20s, I became a real estate agent and gained some very valuable experience in residential and commercial real estate. But my passion for writing never went away.

Now, in my early 30s, I write for Jussi Askola's excellent marketplace service, High Yield Landlord, as well as its sister service, High Yield Investor. I also perform freelance research for a family office that owns and manages over 40 net lease commercial properties in Texas and Arkansas. Writing about finance and investing scratches that creative itch while paying the bills - the best of both worlds.

I'm a Millennial with a long-term horizon and am fascinated with the magic of compound interest and dividend growth investing. I also have an interest in macroeconomic trends, though I am but an amateur in that field.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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