One of the best known United States convenience store chains is going to get a bit smaller.
Seven & I Holdings,, the Japanese company that owns 7-11, announced this on its earnings call. The reason given: declining cigarette sales.
This comes as the United States, like much of the world, is still dealing with high prices that are crushing household budgets. At the same time, the chain also suffered a slowdown in traffic.
Unfortunately, this is a wave that is likely to continue.
Convenience does not mean cheap.
It is easy to spend a fortune in these stores. Most enter to pick up something basic like a bottle of water or a 12 pack of beer. These prices are usually close to what other locations sell them for.
However, if you are there for other things such as food, it can get rather costly. The quality also is not there.
Another chain that is moving towards its day of reckoning is Starbucks. This is also a "boutique" type chain, where even a basic cUupof coffee is a few dollars.
7-11, in my uneducated observation, is doomed. The reason why I state this is because of what competition is doing.
When I look at the stores, they are old and run down. Compare that with Cumberland Farms, Quiktrip, and Wawa, we see a major difference. Those locations are newer and many offer cooked food. This means they are slotting above the convenience store hot dog and a low end sit down place like IHOP.
This is something that 7-11 has not transitioned to.
It is interesting what the company claims is the reason for the decline in sales. Could this be the first business that is taken down by a lack of cigarette sales?
Additionally, the convenience market has noticed a decline in demand for cigarettes. “From January to June, we gradually improved sales each month... excluding cigarettes,” DePinto said, according to Seeking Alpha. The sales of cigarettes has gone down by 26% in the past five years, with smokers either opting for other nicotine products or quitting.
Here we have a very interesting take. I do not know the validity of it in the sense that perhaps this was a large enough margin generator to do some serious financial damage. However, it is not as if this decline happened in 3-6 months.
The numbers of smokers has declined steadily over the past decade.
To its credit, the company is looking at making some changes.
“Growing our proprietary products is an important part of our future. This platform offers our customers a wider assortment of hot food and specialty beverages,” DePinto said. The company intends to add bake-in-store items, self-serve roller grills, grab-and-go cases, espresso, cappuccino, iced coffee and lattes.
This could enhance the quality of what is offered. Will it be enough? As stated, in my area, 7-11 are also the oldest stores on any street corner, with other chains surpassing them in the physical context.
How much will it cost to revamp all these stores? A company like Wawa is expanding like crazy. While it only has 1,000 stores, it is located in basically ta handful of states. The penetration in those markets, however, is overwhelming.
We will have to watch and see how this industry unfolds. While this is not going to see a massive amount of technological disruption in the near term, other factors are at play.
