Supermarket operator Roundy's (UNKNOWN:RNDY.DL) is truly a mixed bag. On one hand, it's got a tremendous asset in the form of its Mariano's brand, which has been posting solid growth. On the other hand, the bulk of the company is wrapped up in its other four major brands, which include underperforming Pick 'n Save and Copps locations spread across the Midwest.

In addition, intensifying competition from retail juggernaut Wal-Mart Stores (NYSE:WMT) threatens Roundy's dreams of growth for its Mariano's brand in and around Chicago. As a result, what's an investor to make of Roundy's present and future?

Roundy's: A tale of two grocers
There's no denying the success of Mariano's in Chicago, which is why Roundy's is aggressively building out its Mariano's store count. During the fourth quarter, Roundy's opened two additional locations, bringing the total number of Mariano's stores to 13.

Roundy's will only expand on this strategy going forward due to its purchase of several former Dominick's locations from Safeway. Roundy's purchased 11 Dominick's locations, which it will transition to its Mariano's brand. In all, Roundy's expects to have a total of 29 Mariano's stores in the Chicagoland area by year-end. To help shore up capital to fund this expansion, Roundy's suspended its dividend.

Mariano's is generating $1 million in average weekly sales per store. At the end of 2013, the 14 Mariano's stores open accounted for an estimated $615 million in sales, according to management's fourth-quarter conference call. That represents just 16% of Roundy's total 2013 sales. As a result, while it's clear that Mariano's is doing extremely well in its market, it's also true that Mariano's accounts for a relatively small portion of Roundy's overall portfolio.

In all, in 2013 Roundy's posted a 2.7% decrease in same-store sales, which measures sales at locations open at least one year.

Complicating matters further is that larger competitors are now abundantly aware of the success Mariano's is having in the Chicagoland area and aren't resting on their laurels.

Will competitors eat Roundy's lunch?
Growth at Mariano's has been so promising that management is confident the Chicagoland area can support as many as 45 to 50 Mariano's in four or five years. This will be critical to Roundy's long-term prospects. Of course, as Mariano's experiences strong success in Chicago, it's attracting the attention of Wal-Mart, which plans its own major inner-city expansion. Wal-Mart's traditional suburban supercenters are stagnating, and the retailer desperately wants to make inroads in urban areas where it doesn't yet have a sizable presence.

Wal-Mart initially tested its Neighborhood Markets and Walmart Express stores in three markets, including Chicago. These locations are doing well, reflecting changing consumer preferences. As Wal-Mart acknowledges, consumers in urban areas prefer the convenience of smaller stores closer to home. In fact, same-store sales at Wal-Mart's Neighborhood Market locations grew 4% for fiscal 2014. It saw enough success to prompt the company to plan on adding as many as 300 small stores this year. That's double the original forecast it provided in October.

Carefully weigh the risks
Another major consideration is that Roundy's maintains a bloated balance sheet. The company has $737 million in long-term debt on the books. That's up from $685 million at this point last year, which is being allocated for the absorption and development of the Dominick's locations. This could prove beneficial to shareholders over the long term should the Mariano's expansion take hold.

Obviously, though, this is resulting in rising interest expenses that are severely impacting profits. Roundy's expects interest expenses to total $60 million in 2014, which represents a significant increase from last year's $48 million in interest expenses.

Roundy's stock may seem tempting since it collapsed from $10 per share to $6 per share in a matter of a few weeks. In addition, it's got an extremely valuable asset in the form of its Mariano's brand, which continues to develop strong customer loyalty in and around the Chicago market.

At the same time, Roundy's continues to be burdened by its debt load and its other store brands in the Midwest that are not performing well. Furthermore, while Mariano's has undoubtedly been successful in Chicago, competition is about to heat up from Wal-Mart. Put it all together, and investors should carefully consider whether the potential reward is worth the risk when it comes to Roundy's.