Delivering Essentials at Doorsteps: The Digitalization of Convenience Stores
Convenience and drug stores have long played an important role in consumers’ day-to-day lives, offering medicines, hygiene items, DVDs, and snacks. They typically perform well in high-traffic areas and can be found at most street corners of major cities across the United States and internationally. With the rise of delivery apps and services like Uber Eats (UBER) and DoorDash (DASH), basic necessities that don’t often warrant a trip to a grocery store can be delivered to consumers' doorstep.
While the now-defunct Internet start-up Kozmo.com pioneered quick and efficient delivery for basic necessities in the 90s, today, many convenience stores and delivery platforms are offering online delivery options for everyday essentials. For investors, young consumers will be important to watch in this space. Zebra’s global shopping study found that 90% of millennials, 84% of Gen Z, and 53% of baby boomers are using mobile orders for delivery of convenience and other food deliveries – a significant YoY increase across generations.
Consequently, drug and convenience stores like Rite Aid (RAD), CVS (CVS), Albertsons (ACI), Walgreens (WBA), and 7-Eleven (US: SVNDY) along with various other online players have added or expanded focus on shoppers being able to purchase items online and have them delivered to their homes.
Investing in convenience deliveries
One of the most notable examples of delivery of convenience items is 7-Eleven, which recently brokered a relationship with delivery platforms DoorDash and Postmates in an effort to bring customers a mobile experience that will increase convenience and sales. Starting with a limited-time $2.99 delivery fee, 7-Eleven offers everyday basic items including "convenience packs" for date nights or hangover mornings.
As of May 24, 2023, 7-Eleven’s stock stands at $22.84 with an average price of $25.95. Analysts predict a one-year median target of 26.18. The stock also holds a Buy rating since May 2023. With the 2021 Speedway convenience store acquisition, and 7-eleven’s efforts to expand into an international market, the company is expected to see more growth in the coming future which can benefit investors.
Having only launched in a few major cities but quickly expanding not only locally but also internationally, DoorDash is taking its own leap into the convenience market. DashMart is a one-stop shop for thousands of items such as medicines, bread, eggs, ice creams, energy drinks, and more. The company has partnered with 7-Eleven, Wawa, Casey’s General Store, and Circle-K to deliver these household necessities to consumers’ doorsteps.
Over the past decade, the company has actively expanded its presence in the international market. In 2022, DoorDash acquired the Finnish delivery service Wolt Enterprises, creating a presence in a total of 27 countries, including Germany, Sweden, Hungary, and Israel.
The company is also doing well in terms of the number of orders and earnings. DoorDash beat the 2023 Q1 orders forecast with a total of 512 million orders in the January-March period – a considerable number compared to Wall Street’s forecast of 493 million orders. This is positive news for investors looking to buy. As of May 8, 2023, DA Davidson has maintained coverage of DoorDash with a Neutral recommendation. The shares of this Zacks Rank #2 (Buy) have seen no net change in the past year. The stock closed at $66.0 on May 24th.
In another recent development, Grubhub and Rite Aid partnered to offer delivery services of thousands of Rite Aid products straight to customers' homes – eliminating the need for people to visit a Rite Aid store to get over-the-counter medications. A Grubhub survey showed that 47% of respondents wish to avoid travel when sick and prefer deliveries.
Rite Aid, however, is seeing some difficult headwinds after a sluggish YoY performance in the third-quarter fiscal 2023. Revenues also declined 2.3% compared to last year. However, on the brighter side, the company has seen increased momentum at its subsidiary Elixir, and is providing more pick-up and drive-through options for consumers, including a zero delivery fee on eligible prescription orders. These efforts could still bode well for investors in the upcoming years.
The rise of in-house delivery store apps
Not all convenience and drug stores are choosing to partner with large delivery platforms. Some have opted to stay in-house and release their own apps or online stores to sell their products. Instacart’s recent rollout of its dollar hub store was designed to maintain access to discounts and perks for its shoppers and partners. Kroger (KR) and Instacart have also partnered to launch Kroger Delivery Now – a nationwide 30-minute delivery convenience store option available on Instacart's Convenience hub and fulfilled by Krogers. The valuation metrics of Kroger stock currently show a possible undervaluation, although Zacks gives the stock a VGM score of A and a #2 ranking – both indicators favor a good pick for value investors.
Walgreens and CVS are currently among the largest convenience stores offering prescription and over-the-counter medications. The CVS app offers prescription medication delivery and management to its customers. However, both companies were impacted due to lower than expected demand for COVID-19 vaccines and testing kits. The 2023, Q2 Walgreens earnings showed a 20.3% decrease in earnings per share (EPS) and an adjusted EPS decrease of 27.2%. In terms of sales, the company saw a 3.3% increase compared to last year.
Walgreens is expecting promising future prospects, especially after having successfully closed an $8.9 billion deal of Summit Health acquisition in Nov 2022 – making it one of the largest players in primary care. However, the stock has been sinking for the past couple of months and closed at $29.93 on May 30th. Analysts are predicting a one-year median price target is $39.91 with a high estimate of $46 and a low estimate of $35.
The future of convenience is changing
Digitalization has changed the operations of convenience businesses and recently helped keep them afloat during the pandemic. In an incredibly fast-paced society, getting basic necessities delivered to one’s doorstep is not just convenient, but also prudent.
The leaders in the convenience space are aware of this shift in consumer mentality. They are putting in the work to meet customers where they are comfortable by shifting gears to mobile apps, generous loyalty programs, and stress-free delivery systems. All of these developments are worth a look for investors.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.