Issue #62: Convenience Stores Get An Upgrade?

Convenience Stores Get An Upgrade?

Many trends in the United States start in New York City, or any big city, and then spread to the rest of the country. However, there is one trend that, despite being prevalent for decades, has not rapidly spread throughout the country. That is the concept of a bodega, a convenience store that has more than just non-perishable food and medicine. For a deep dive into Bodega’s, be sure to check out #Issue 56. A bodega’s product mix typically contains hot food prepared fresh on the grill, cold food ready to be heated up right away or consumed cold, grocery staples, household staples, pharmacy staples, and a selection of snacks. The key part of the assortment that differentiates bodegas from regular convenience stores is the prepared foods. It was only a matter of time before more chains caught on, beyond the Wawas of the world, and this week was the kickoff. Let’s break them down:

RaceTrac Buys Potbelly

RaceTrac is a convenience store/gas chain operating 800+ convenience locations and 1200+ fueling locations, doing about ~$20B in annual revenue, mostly in the Southeast United States. Potbelly is a sandwich store chain with 445 locations, mostly in the Midwest/Northeast. This week, RaceTrac agreed to acquire Potbelly for $566M. I am super interested in this move. Despite being founded in 1977, Potbelly has recently ramped up its location growth. It has publicly stated goals of hitting 2,000 stores, the gold standard for any fast casual/QSR (quick service restaurant). In terms of assortment, I feel that it is super complementary. The RaceTrac/RaceWay stores do not have an assortment that is super innovative in the space, like a Buc-ees, but rather a simpler, traditional c-store assortment. As discussed with bodegas, hot food is all the rage in c-stores, and it is exciting to see it spread. Plus, sandwiches are a great on-the-road food, so the occasion alignment is there. Overall, I am very bullish on the move, however, I do have some pause about the name recognition overlap in the RaceTrac markets. However, that is a very overcomable barrier. At the end of the day, it is about getting a sandwich prepared in front of you, regardless of the name. I wonder how RaceTrac will leverage digital ordering here, too?

7/11 Expands US Assortment to Include Hot Foods

Take a search on YouTube, TikTok, Instagram, whatever your preferred video platform is, and look at the 7/11 convenience stores in Japan. Now think about how that compares to your 7/11 in the United States, and it is different. Instead of selling gas or being linked to a gas station, the assortment is much broader, fresher, and healthier. The prepared foods are especially a highlight, and there has been a lot of chatter/requests to bring them to the United States as well. This week, the NYT interviewed the head of the company that oversees all 7/11s, and he indicated that the plan would be to replicate the prepared food success from Japan in the United States. 7/11 management is under significant pressure after the management team rebuffed the acquisition offer from Alimentation Couche-Tard. This expansion will come at a cost, however, requiring $13B investment to build out thousands of in-store restaurants and beef up the supply chain. I think this is the right move, butit feels like it may be too little too late for 7/11, unfortunately.

Sephora Launches Products By Two Large Influencers

This past week, Sephora, the beauty retailer owned by LVMH, made headlines by partnering with two very popular celebrities/creators to add their products to the stores. Let’s dive in!

First, the creator you probably have not heard of, Salish Matter, a YouTuber with an audience of 35M people, mostly made up of 8-16 year old girls. She launched a Sephora-exclusive skincare brand, Sincerely Yours. This brand was co-founded with an experienced beauty executive, Julia Straus, who was the former CEO of a skincare brand. Sincerely Yours features a product line of facial mist, sunscreen, face wash, and moisturizer all under $30 retail. The products debuted at the American Dream Mall in New Jersey, at the Sephora flagship location. Since Salish was planning on appearing, crowds were expected, but maybe not to the tune of the 87,000 that showed up, prompting the event to be shut down early. For some context, that is almost double the number of people who showed up for a Mr Beast Burger event at that same mall.

Second, Hailey Bieber, a model and Justin Bieber’s wife, launched an eCommerce only beauty brand, rhode, in 2022. In the past 12 months, it has done over $212M in revenue without having a retail presence. Plus, it was acquired by beauty brand e.l.f. for $1B this year. Now, Sephora has struck a partnership to launch the product in all of its locations in the United States and Canada, with the UK launch coming soon. Clearly, a connection to the acquisition as e.l.f. is looking to boost the return on its purchase. E.l.f is not in Sephora, but retail is a big part of their strategy. To close - a fun tidbit - on the Sephora app and website, there have been 2M unique searches for the product, clearly a significant amount if mentioned in the press release.

College Enrollment Falling Off, How Will This Impact Retail?

In college towns, less enrollment is certainly not great for retail, everywhere else, TBD.

Level99 Raises Additional Capital

All the way back in Issue #29, I featured Level99 an entertainment center featuring challenge-based rooms (similar to escape rooms), food, drinks, and a brewery. I was excited about it because I strongly believe in-person experiences and events are on the rise, and I felt Level99 offered a premium experience to satisfy these needs. Clearly, investors agree too! Thanks to a reader for passing along the news, but this week Level99 announced it has raised $50M from Act III Holdings, the investment firm run by Panera Bread founder Ron Shaich. With only three locations open, it is super impressive to see Level99 able to secure the capital. The capital will be used for expansion, with a fourth location slated to open in 2026, plus a robust pipeline of openings, including inside a Disney theme park. I would expect location growth to ramp up significantly, but given the size of these locations, it is very possible that each location is able to do tens of millions in revenue annually.

Zabar’s Using Toast POS

This week, I needed just one item, so I stopped by the closest grocery store to me, Zabar’s. For those unfamiliar with Zabar’s, it is a NYC institution, a Jewish-style grocery store featuring an amazing selection of prepared foods, coffee beans, and more. When I went to checkout, what stood out to me was that they were using the Toast POS terminals you would typically see at a restaurant. I know Toast has been expanding into other spaces besides restaurants, but this is one of the first times I have seen it in the wild. Given their large prepared food business, I wonder if the website portion was the true selling point. It will be exciting to follow along and see Toast expand nonetheless!

Additional Links:

1. Macy’s partners with Amazon to leverage Amazon’s advertising capabilities to put ads from Amazon’s network on the Macy’s website (read more here)

2. College app Fizz announces partnership with Gopuff to sell groceries in the Fizz app, powered by Gopuff (read more here)

3. Feast & Fettle partners with Levain Bakery to sell their multipack to Feast & Fettle customers (read more here)

4. DoorDash partners with Amazon in Canada to offer DashPass to Prime subscribers (read more here)

5. Kroger reports second-quarter performance and raises guidance for the year, expecting strong performances (read more here)

6. Walgreen’s is expanding its party assortment following the bankruptcy of Party City (read more here)

7. Walmart announces expansion to South Africa (read more here)

8. Chewy is focusing on growing its membership program (read more here)

9. Gen Z may cut back on holiday spending, which would hurt spending overall (read more here)

10. UNFI opens robotic distribution center in Florida (read more here)

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