Three Things (10/21)

7-Eleven's Fresh Food Push

Hot dogs vs. health … American convenience stores are shifting their inventory strategies, offering more fresh, made-to-order meals and healthier snacks. Brands like 7-Eleven and QuikTrip are expanding menus to appeal to customers looking for affordable, quick meals while also competing with fast-food giants like McDonald's, per Associated Press reporting. 

As cigarette sales and soda consumption decline, this pivot is designed to bring in new customers seeking more variety. In 2023, cigarette unit sales dropped by 6%, although the category remains a significant revenue driver, bringing in $54 billion per year.

Leading convenience stores in the United States as of April 2023, by number of stores

Source: Statista

In the U.S., Japanese-owned 7-Eleven (Seven & I Holdings) dominates the market with over 12,000 stores, followed by Circle K (owned by Couche-Tard) and Casey’s General Stores (CASY). These chains are pushing to rebrand convenience stores as destinations for fresh food, taking inspiration from Japanese convenience stores (konbini). 

U.S. convenience store sales hit over $328 billion in non-fuel sales in 2023. Japanese stores bring in about $74 billion annually, with margins that are often better than U.S. counterparts due to their wide variety of quality, ready-to-eat meals. 

A National Institute of Health study shows that frequent visits to U.S. convenience stores correlate with poor diet quality and increased hypertension. However, in the U.S., the shift towards better food is driven by consumer demand for convenience and affordability, not necessarily healthier options. 

Offering a mix of fast foods and healthier options remains a delicate balance as the industry evolves. A shift towards healthier options, including fresh products, would mean changes to how C-stores approach inventory management and supply chain. After all, a Twinkie can sit on the shelf a whole lot longer than an apple.

Legal Showdown Threatens WordPress Sites

Tech tensions … The battle between WordPress co-founder Matt Mullenweg and web hosting service WP Engine has intensified, putting the future of websites relying on WordPress in jeopardy. WordPress, the platform that powers over 43.5% of all websites, has been at the center of this conflict since last September, when Mullenweg blocked WP Engine from accessing the WordPress open-source repository.

Some context: WP Engine is a hosting service that helps websites run on WordPress. The dispute arose because WordPress, a free and open-source software, claims WP Engine profits from its platform without giving back to support its development. Things escalated when WP Engine responded by filing a lawsuit and requesting an injunction to restore its access to WordPress.org, citing damages to its business and users.

Businesses that rely on WP Engine for hosting could face disruptions, including the inability to update or maintain critical plugins like “advanced custom fields,” which are critical for things like product specs and real estate listing details. The broader implications are significant given WordPress’s enormous presence on the web, with more than 835 million sites using its software.

If unresolved, this feud could weaken confidence in WordPress’s stability, prompting businesses and developers to seek alternatives like Squarespace (SQSP), Wix (WIX), and GoDaddy (GDDY), which are up 47%, 47%, and 60% YTD, respectively.

This week on Wall Street

Earnings to Election … Here’s what to look out for in the week ahead.

Key Earnings on Deck

This week, several major companies will release earnings reports that are likely to stir market activity. On Tuesday, General Electric (GE), Lockheed Martin (LMT), and Verizon (VZ) headline the list of reporting companies. Other key reports follow on Wednesday, with Tesla (TSLA), Boeing (BA), and Coca-Cola (KO) set to announce their quarterly results. Spirit Airlines (SAVE), Southwest Airlines (LUV), and Boston Beer Company (SAM) will close out the week on Thursday. 

Economic Data to Watch

In addition to earnings, crucial economic data is expected this week. On Wednesday, the National Association of Realtors will release the latest Existing Home Sales report. Forecasts predict a modest increase from the previous month’s 3.86 million sales to 3.88 million. The Services PMI and Manufacturing PMI are due on Thursday, and are expected to show continued strength, with the Services PMI forecasted at 55.0 and the Manufacturing PMI at 47.5 (Source: National Association of Realtors). Investors will also be looking ahead to Friday’s final release of the Michigan Consumer Sentiment Index, which is expected to remain flat at 68.9.

Election Impact and Market Predictions

The U.S. presidential election is now just 14 days away. Historically, stock market performance has predicted 83% of elections, with a rising S&P 500 often signaling an incumbent party win. Some experts are forecasting that the S&P 500 could reach 6,200 by year-end, which would translate into a 30% annual gain and the largest since 1997. Billionaire Stanley Druckenmiller — who previously funded Nikki Haley’s campaign — is predicting this year will be a 17% outlier, as he recently stated that Wall Street is “very convinced” former President Trump will return to the White House, citing movement in bank stocks and crypto as indicators. Still, an October survey from The Wall Street Journal shows economists believe Trump’s economic policies would lead to higher inflation and deficits compared to Vice President Harris’s plans.

One more thing: The last full-sized K-Mart in the mainland U.S. closed yesterday in Bridgehampton, New York. The closure marks the near-complete shutdown of the once-massive discount retailer which had 2,000 locations in the U.S., leaving only a small store in Miami and a few locations in Guam and the U.S. Virgin Islands.