7-Eleven is not only the world's largest convenience store chain but also the biggest retailer around the globe by store count. Operating more than 56,600 stores in 18 countries, the company's reach and brand is matched by few others.
Investors looking for trading news on the Slurpee slinger may be disappointed, however, as the American division of the company was taken private in 2005 and has remained that way since. 7-Eleven Inc,, the American side of the business, was bought out that year by Seven-Eleven Japan, which had been a majority shareholder of 7-Eleven at the time.
Japan has more 7-Eleven locations than any other country in the world with more than 18,000, compared with about 10,000 in North America, and Seven-Eleven Japan is now owned by the Seven & I Holdings (OTC: SVNDF), a publicly traded Japanese corporation, a $37-billion company that owns the 7-Eleven brand a number of operating subsidiaries around the world. It also owns several other retail businesses, including superstores like Ito-Yokado, department-store chains like Sogo & Seibu, specialty stores, and financial services, some of which support the retail businesses. About 40% of Seven & I's revenue, which totaled $51.6 billion in the most recent fiscal year, comes from its convenience stores, so the company offers decent exposure to the 7-Eleven that Americans are familiar with. The stock has gained 40% in the past five years, underperforming the 85% gain in the S&P 500.
However, there are similar plays in more familiar businesses that could appeal to investors interested in the convenience-store chain.
Image source: 7-Eleven.
Another form of convenience
In many ways, the publicly traded company 7-Eleven most resembles is McDonald's (MCD 1.05%). Both are global brands that have tens of thousands of stores around the world, building their reputations on cheap, tasty food and convenience, and have also relied on franchising as a business model. McDonald's has more than 35,000 locations around the world, making it the third largest chain by store count behind 7-Eleven and Subway. All three companies are among the biggest franchisors in the world.
Like 7-Eleven, with its Slurpees and Big Gulps, McDonald's has also risen to success through its own branded products, including the Big Mac, Egg McMuffin, Chicken McNuggets, and other trademark products. McDonald's shares have surged over the past two years as the fast-food giant has refranchised stores, rolled out all-day breakfast, expanded its McCafe line, and relaunched its Dollar Menu.
In addition to fresh-baked goods such as pizza, hot dogs, doughnuts, and taquitos, 7-Eleven is also well known for its coffee. The chain sells 1.1 million cups a day, and coffee is its most popular proprietary product.
That makes coffee chains like Dunkin' Donuts-parent Dunkin' Brands (DNKN +0.00%) and Starbucks (SBUX 0.86%) also look like reasonable substitutes for 7-Eleven, as both are also global brands built on speed and convenience. Though Starbucks targets a higher-end customer, both coffee chains employ a similar model to 7-Eleven and are direct competitors with 7-Eleven in regard to morning customers.
Think smaller
While there aren't any publicly traded convenience-store chains on par with 7-Eleven, there are smaller ones that investors can consider. Casey's General Stores (CASY +1.24%) may be the best-known example. The gas-station and convenience-store chain has about 2,000 stores across the Midwest, has been expanding with a focus on high-margin, prepared-food products like its popular pizza, and now sells a range of fast-food items, including cheeseburgers, chicken tenders, and sausage sandwiches.
Casey's stock has underperformed the broader market this, but the company continues to post solid growth at a time when lower traffic has challenged much of the restaurant industry. As a gas station operator, Casey's has a traffic driver that typical fast-food chains don't. Comparable sales increased 3.1% in the most recent quarter, though the company has noted a softening in traffic that led it to reduce guidance in the September report.
Another convenience-store option is Murphy's USA (MUSA 0.28%), an Arkansas-based chain, but unlike Casey's, Murphy's is highly reliant on tobacco sales. As smoking rates decline, so have comparable sales, which have fallen 1.5% through the first three quarters of this year. Nonetheless, the stock is up nearly 30% this year, though its performance has been middling.
Investors hoping for a piece of 7-Eleven may want to stick with the tried-and-true winners in the fast-food industry. McDonald's is dominating at a time when U.S. restaurants are struggling, and its strong performance has bucked the conventional wisdom about healthy-eating trends. Meanwhile, Starbucks just opened its new Roastery in Shanghai, its largest store ever, as the coffee king continues to dominate in China, where it plans to open 500 stores a year.
Like 7-Eleven, both are industry leaders, and they should remain that way for the foreseeable future.
