Tesco isn't 7-Eleven's biggest threat!

Implications: Neither Tesco nor house brand gasoline are the biggest threats to 7-Eleven.  Here's why?

Analysis: Numbers tell the tale; at least as far as 7-Eleven is concerned. With 43% of their revenue in beverages, 27% in tobacco products, and about 20% from gasoline, the company is hardly a destination for customers looking for either good quality snacks or a healthy meal.

In contrast, that’s exactly where Tesco excels. With an experience curve going back more than 100 years, Tesco, along with its British competitors like Marks and Spencer and Harrods, stand out in the marketing and distribution of fine quality, prepared food. A skill set unrivaled by most US competitors.

For some time, US food processors have recognized the consumer’s demand for prepared foods. It wasn’t that long ago that grocery meat counters looked like butcher shops. Today much of that space is devoted to a variety of prepared meal kits and precooked meats. However, as innovative as the likes of Tyson has been, Tesco has the know how to take the prepared food trend much further. But that doesn’t mean Tesco will steal many of 7-Eleven’s road warriors; that as long as it maintains its current operating standards. But that remains to be seen.

7-Eleven says it plans to franchise its stores to extract a chunk of cash out of the business. But such a change will inevitably mean huge operational problems as they transition to independent ownership. This may give the number 2 convenience store player Couche-Tard Inc, as well as, other eager competitors, the advantage, if service declines under new local management.

House-brand gas may be an issue for some 7-Eleven customers, but for few that dote on their car’s performance, they don’t buy gas there anyway. For the majority of buyers, gasoline is a commodity. They care most about price and availability. Gasoline quality is only an issue when an independent dealer discounts gas that is a “watered-down” blend which isn’t something consumers would expect from 7-Eleven; regardless of the gas brand.

The company’s real risk from selling house-brand gasoline is continuity in supply. Most of 7-Eleven’s traffic for beverages and tobacco which accounts for the majority of their profit is the result of foot fall from customers buying gas. Any interruption in supply would be devastating to the company’s bottom line.