July 24, 2014 12:00 am JST

Diverging from the conventional shop

NAOKI MATSUDA, Nikkei staff writer

A Seven-Eleven store in Jakarta

TOKYO -- Every day, 7-Eleven scatters a few new shops around the world. As of the end of March, the number of stores displaying the orange, green and red logo came to 52,811, up 54% from six years earlier.

     A lot of those stores opened in Asia. The aggregate number of 7-Elevens in Thailand, South Korea, Taiwan, China excluding Hong Kong, Malaysia, the Philippines, Singapore and Indonesia jumped 78% over the six years to 24,943.

     In Asia, ducking into a convenience store seems to have become a part of daily life.

     While the three-color awning above all of these stores might look the same, vastly different businesses have sprung up inside the stores.

     In Japan, 7-Elevens sell quick meals as well as sandwiches, rice balls and other refrigerated snacks. Outside Japan, only a small percentage of 7-Elevens sell complete lunches and dinners. It's a cultural thing. In Thailand, for example, prepared meals that need to be microwaved would have to compete with all the sidewalk kitchens right outside the door.

U.S. origin

Today, 7-Eleven is a part of Japan's retail megagroup Seven & i Holdings. But the business started in the U.S. state of Texas, in 1927, as Southland Ice. Initially, it sold ice for people's ice boxes -- the precursor to the refrigerator -- but later added eggs, milk and other foods and beverages.

     In 1946, 7-Eleven was adopted as the store name to reflect the chain's business hours -- from 7 a.m. till 11 p.m., seven days a week.

     Japan's first 7-Eleven opened its doors in 1974, in the Tokyo neighborhood of Toyosu. Toshifumi Suzuki, now chairman and CEO of Seven & i Holdings, had noticed the potential of the convenience store business in the U.S. and signed a licensing contract with Southland to open that first Japan store and all that would come after it.

     It turned out that the convenience store business was a perfect fit for Japanese culture.

     Well, maybe not that perfect. At least not at first. Suzuki and his company would have to do a lot of work to get Japanese consumers into his new stores ... and then get out of their way.

     "The 7-Eleven store sign and the accounting method were the only things we got" from the licensing deal, Suzuki said. Suzuki might not have known it at the time, but what he really got was a logistics nightmare.

     While the U.S. had 4,000 or so 7-Elevens by 1974, Japan was starting from scratch. Where would the stores get all their merchandise? The easy answer was "from suppliers." And so it was that the number of trucks delivering merchandise to stores during the 7 a.m. to 11 p.m. business hours soon reached up to 70 a day.

     All those deliveries created congestion and other headaches.

     To enable store managers and clerks to focus on sales, York Seven (now Seven-Eleven Japan) got together with all those wholesalers and created a system that allowed a single truck to deliver products from numerous companies. This made it possible for stores to frequently order small quantities of a wide range of items without driving up costs; it also reduced the number of delivery trucks to a few per day. Soon, other retailers would envy the chain's efficient distribution system.

     By 1980, there were more than 1,000 7-Elevens in Japan. But the U.S. parent was in serious decline.

     Southland's financial health deteriorated after the company tried to diversify into real estate and other businesses. Unable to honor the redemption of its corporate bonds, the company in 1990 filed for bankruptcy protection under U.S. federal law. The Ito Yokado Group and Seven-Eleven Japan, which have since become part of Seven & i Holdings, snatched it up.

     In 1991, the Japanese retail conglomerate acquired a 70% interest in Southland, turned it into a subsidiary and renamed it 7-Eleven Inc.

Services, services

To grow, Seven-Eleven Japan had to constantly develop new products, keep all those ready-to-eat snacks and meals cool while they were on delivery trucks, refine its high-efficiency business model of clustering multiple stores in the same area and maintain quality standards.

     While Seven-Eleven Japan sells prepared meals and other original food products, it does not have its own food-processing facilities or distribution centers; it lets its suppliers make those investments and deal with all that stuff.

     That has allowed the operator to make the most of its stores. It started an ATM-only bank and put ATMs into most of its stores. The shops also serve as pick-up points for deliveries from online retailers and drop-off points for consumers who might, say, want their ski gear delivered to the lodge they'll be staying at over the weekend.

     Some 7-Eleven stores are also in the meal-delivery business.

     And the group is driving up profits by developing its own private-brand products and putting them in 7-Elevens as well as Ito Yokado supermarkets.

     Having established a clear lead over its domestic rivals -- No. 2 Lawson is almost 5,000 stores behind -- Seven & i Holdings has set its sights on bringing these convenience store efficiencies and profit-drivers to the rest of the world.

     Most of the 52,000-plus 7-Elevens around the globe are run by area franchisees who have signed licensing agreements with 7-Eleven Inc.

     The ethnic Chinese conglomerate CP All operates 7-Elevens in Thailand, which has the third most shops of any country, 7,651, to Japan's roughly 16,000 and the U.S.'s 8,163.

     Taiwan's 7-Eleven licensee has close ties to Seven-Eleven Japan and has even opened stores in the Philippines and the eastern part of China, mostly in the Shanghai area.

     In China, multiple franchisees, including Seven-Eleven (Beijing), operate stores.

Japanese methods

While the licensee model has helped the chain explode around the world, a close examination reveals that daily per-store sales in some overseas markets languish at less than a quarter of those at Japanese 7-Elevens, which pull in an average of 664,000 yen per day (about $6,500).

     To sustain global growth, boosting revenue at the laggards and improving business at all existing global locations are becoming increasingly important goals for Seven & i Holdings.

     So the Japanese conglomerate is taking its Japanese ingenuity back to where the chain began -- the U.S., where 7-Eleven Inc. was made into a 100% subsidiary in early 2000.

     "We used to be the teacher," a 7-Eleven Inc. executive said, "but now it's time for us to do some learning from Seven-Eleven Japan."

     That learning even includes some Japanese vocabulary, like tanpinkanri. Tanpin means "every single thing," and kanri "control." The tanpinkanri inventory management system tracks every single item in real time.

     Another change at U.S. 7-Elevens is being made to the product lineup. The stores have started selling sandwiches and other perishable foods that need to be delivered daily. The shops had been relying on selling products with long shelf lives.

     In 2012:

  • Six Japanese, including executives, were dispatched to the U.S. to make 7-Elevens there more Japanese. Now ready-to-eat meals and sandwiches are being mass-produced at dedicated factories, stores are taking all-at-once deliveries of products sourced from multiple suppliers, and the chain is simultaneously opening multiple stores in chosen markets.
  • A Japanese-style model store was opened in South Korea, where 7-Elevens have been struggling to lift sales. Development of lunchbox and other original products has also begun.
  • Seven-Eleven Japan established a global business promotion department in 2012. Its 13 members are now supporting the South Korea initiative, and some will be sent to Dubai in the lead-up to the opening of the first 7-Eleven there next summer.

Neighborly

Seven Emirates Investment -- wholly owned by Dubai's royal family, including crown prince Sheikh Mohammed Bin Zayed Al Nahyan -- will open the store under a licensing agreement with 7-Eleven Inc. If the store proves a success, the operator plans to offer franchise opportunities, with the goal of building a 100-store network by the end of 2017.

     Four Japanese managers will be on the ground to help the Dubai 7-Eleven get off the ground.

     So right from the start, know-how in refrigerated meal preparation and delivery as well as help in opening multiple stores at the same time will be available.

     Just like in Japan, the Dubai 7-Eleven operation will tie up with suppliers whose processing facilities and distribution centers will deal exclusively with the convenience store operator. Seven & i Holdings is hoping to make Dubai a model for the chain to follow when it enters new markets.

     In the past, a lot of 7-Eleven licensees were only after that famous tri-color awning and logo. Once the signage went up, the operators would run the stores as they saw fit.

     How different is Dubai? "Prince Zayed made a strong request that the convenience store be operated Japanese-style," a Seven-Eleven Japan representative said.

     As Seven & i Holdings brings the Japanese convenience store formula to other parts of the world, however, it has to mind cultural differences -- from product lineup to store layout -- rather than go into cookie-cutter expansion mode.

     Seven-Eleven Japan succeeded because it did not simply copy U.S. stores. Instead, it found ways to meet Japanese consumer needs. And this is exactly the attitude it needs to employ in its new global push.

     Looking around larger scale store formats in the international retail industry, it is clear there are only slight differences. Go into almost any shopping mall anywhere in the world, and you will find many of the same global brands. Wal-Mart Stores of the U.S., Carrefour of France and other giant general merchandisers also tend to run their stores under fairly standardized business formats regardless of location.

     But the convenience industry is different. Convenience stores rely on their neighbors' making a habit of ducking inside, even if it's only to read a comic book before going home. And since 7-Elevens will likely displace small mom-and-pop shops as the chain expands in emerging markets, it is crucial that the stores reflect the community around them.

     They'll have to strike a delicate balance.