Do Supermarkets Need to Worry About the New General Store?

The growth of the one-stop shop could hurt retailers everywhere.

Mar 10, 2014 at 2:00PM

Like the fast-food and full-service restaurants that are changing up their menus and dining rooms to cash in on the profitable fast-casual dining experience, supermarket operators like Wal-Mart (NYSE:WMT) are also changing up their shopping experience to mimic the growing convenience store-style format that's proving to be equally successful, if not more so.

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Source: Wal-Mart.

As C-stores offer more shopping options and, well, convenience to consumers, consumers are choosing C-stores for a greater proportion of their dining and shopping experiences. According to the market researchers at Technomic, 34% of consumers say they would have visited a restaurant had they not purchased a prepared food from a C-store on their most recent visit. 

They have become the go-to one-stop shop for consumers on the go. You can increasingly find groceries; fresh, prepared foods; and even fill up your gas tank since the Association for Convenience & Fuel Retailing says 123,000 of the 149,000 C-stores at the end of 2012 had gas stations attached to them. 

Yet one convenience store operator seems to be bucking the go-small trend. Sheetz, a privately held operator found primarily along the East Coast, is going in the opposite direction by opening a new 15,000 square-foot restaurant and grocery store, one that's triple the size of a typical Sheetz unit. One thing it won't have, however, is gas.

The marriage of dining and grocery shopping itself is not new. Whole Foods Market has successfully melded the two concepts together as has Tim Horton's, while other supermarkets like King's are developing restaurant-style dining experiences as well. In essence, rather than specialty stores, whether dining or shopping, we're seeing the renaissance of the general store, a place where all your needs can be met.

Think of Casey's General Stores (NASDAQ:CASY), which operates more than 1,700 stores across 14 Midwestern states, offering a selection of food, beverages, consumer products, automotive products, and even gasoline. Or Cracker Barrel (NASDAQ:CBRL), which also has that old-timey feel in the general store you walk through before getting seated in the dining room.

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The C-store remains the hot market right now, and while I recently said we won't see 7-Eleven, Wawa, or Marathon Petroleum's Speedway chain turn their stores into fast-casual restaurants like Chipotle Mexican Grill or Panera Bread, we may just see them start looking more like your neighborhood grocery store. If Wal-Mart can open up 42,000 square-foot Neighborhood Markets stores and 15,000 square-foot Walmart Express shops, we can expect the C-stores themselves to seek to bulk up their footprints as well.

It also suggests supermarkets could be pressured by this new avenue of competition. It's why Wal-Mart is quickly expanding its smaller-format stores.

Sheetz says its grocery store will feature fresh food options, including subs and sandwiches, along with prepared foods and a full-service espresso and smoothie bar. This is similar to the move by pharmacy giant Walgreen several years ago, which began developing a line of fresh-food counters in its stores.

There will be plenty of time for investors to pick a winner as the players are all trying to understand the changes under way, but the better established Casey's or Cracker Barrel might be best positioned to capitalize on the trend that shows how fast-food chains remain the most at risk. The real beneficiary, however, may be the consumer who finds that the best mix of choice, price, and convenience are all located at the new general store right around the corner.

The end of an era?
As Wal-Mart slims itself into smaller sized stores, investors need to ask themselves if this is indeed the end of an era. It may be, but regardless of how Wal-Mart fares, there are two retailers with especially good prospects. Take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Chipotle Mexican Grill, Panera Bread, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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