Woolworths Limited takes on 7-Eleven

Credit: Seth Werkheiser

Woolworths Limited (ASX: WOW) is taking on convenience stores such as 7-Eleven, opening smaller format Metro stores around Australia.

Woolworths Metro in York Street, Sydney opened this morning and is the smallest of the supermarket retailer’s 15 Australia-wide metro stores.

Metro stores are designed to cater to the time-poor consumer, offering a range of fast food, ready-made meals and grab-and-go solutions. “It’s important we are placing ourselves right in the path of our customers to make it a truly convenient place to shop,” a Woolworths spokesperson said. With centrally-located apartment living rising, an ageing population and growing demand for convenience, there’s definitely a market for services such as Woolworths Metro.

The convenience store industry is estimated to be worth around $4.5 billion in 2020-21 according to IbisWorld. The two major players, 7-Eleven and Metcash Limited’s (ASX: MTS) Lucky 7 hold an estimated 20 market share.

Supermarkets are already taking on the fast food sector and quick service restaurants with their range of gourmet ready-to-eat meals. Expanding those products into smaller stores even closer to where shoppers and consumers will be, is likely to pay off big time – as it has in the UK already.

Rival Coles – owned by Wesfarmers Ltd (ASX: WES) is also aware of the trend and recently introduced more than 40 new fresh ready-made meals, ranging from salads and soups to curries, pizzas and pasta – all offering an alternative to the quick service restaurants and takeaway stores.

However, it’s unlikely to be a huge threat to the fast food industry, and players like KFC-franchisor Collins Foods Ltd (CKF), Pizza Capers and Crust Gourmet Pizza owner Retail Food Group Limited (ASX: RFG), and Domino’s Pizza Enterprises Ltd (ASX: DMP). Those are slightly different markets and offerings, and there’s more than likely room for them all.

Woolworths is also reportedly looking to grow the number of mid-sized stores of around 1,000sqm it runs around Australia.

Foolish takeaway

It’s clear that Woolworths is looking to expand into a market that has yet to be fully tapped, and where budget rival Aldi doesn’t yet compete. It should also allow Woolworths to cut its margins in its larger supermarkets, but make it up on volume in other sectors.

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Motley Fool writer/analyst Mike King owns shares in Wesfarmers and Woolworths. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. 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. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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