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7-Eleven Case Study: The Untold Story of the World's First Convenience Store

Updated: Oct 12, 2023


Introduction


7-Eleven is a super convenience store chain that has 78,029 stores in 19 countries as of November 2021. They were the first to brand themselves as a convenience stores chain, totally differentiating themselves from the competition. Now, did the idea just come to them? In fact it actually was a random occurrence that caught on and was capitalized upon by them. Though it was the first of its kind, 7-Eleven had its ups and downs along its journey, but while other competitors bit the dust on these Chrono events; 7-Eleven was saved by its Japanese counterpart and started to thrive after Japanese intervention.


First Growth Phase

7 eleven store

During 1927, 7-Eleven started out as four Dallas-based ice companies, merging to form the Southland Ice Company. At first, they included some major grocery items such as eggs, milk, bread and also gasoline at some stations. Also, longer working hours as compared to super markets provided a competitive edge for this company. (Mechanical Refrigerator was available only after 1926)

Southland Ice Company briefly came to be known as the Totem Stores, after one of the store managers in Texas planted a totem pole near his store. The name caught on and they decided to place one totem outside every store and unify the stores under the name Totem stores.

7 eleven roots

7 eleven southland ice company

Southland Ice Company also went through bankruptcy in 1931, during the times of The Great Depression, but it got back up quickly with the help of a banker from Dallas W.W. Overton and Southland Ice Company came under the ownership of board members. During its bankruptcy, the operations were allowed to keep running while the Company sold its legal bonds and reorganized the structure.


In 1933, the Southland Ice company hit a major benchmark for growth when the prohibition on sales of beer was removed and they could now sell beer as well. Subsequently, three years later in 1936, Southland found a more stable footing with Oak farm dairies and started constructing Oak farm dairies around the Southland stores network of logistics.

first 7 eleven

Southland Ice company also began to offer free movie tickets in return for six of its milk-bottle caps, focusing on selling more of Oak farms dairy products.


In 1946, Southland Ice Company renamed its stores as “7-Eleven” as it indicated the working hours were between 7 am-11 pm. Between the 1950 -1960s they expanded their product lining which included rug shampooers, Television sets, floor polishers etc.

7 eleven logo

7-Eleven owed its growth to an innovative mindset and keeping in touch with their customer demands as they changed. This, they achieved through customer feedback mechanisms deployed at different points of contact. Also, the end of World War II caused the population to move from urban areas to the outskirts; 7-Eleven managed to capitalize on this situation by opening different stores at strategic locations which were primarily located in the outskirts of the city. With this strategy, they were able to attract a huge number of on-the-go customers.



After 1973, Southland moved its borders beyond its North-American provinces by letting out franchises in Japan (7-Eleven Japan; from here on mentioned as SEJ) in exchange of royalty payments. This move freed up growth prospects for 7-Eleven in a major way, as it freed up capital for further investments and the parent company was less burdened with logistics management of the franchise stores.


First 7-Eleven Store in Japan

First 7-Eleven Store in Japan













Gasoline became the major source of profit for 7-Eleven by 1972; which accounted for more than 25% of total sales. By 1973, the company had an annual revenue of $1.4 billion and net earnings of $23 million from almost 5000 stores throughout most of the United States and Canadian provinces.


The company expanded beyond food, drink, and convenience into other fields, purchasing such businesses as Chief Auto Parts (1978). Because many of its stores also served as automobile filling stations, Southland bought CITGO Petroleum in 1983 as a supplier. The company sold off 50 percent of its stake in CITGO in 1986.


Decline Phase (1980 -1992)


During the 1980s, the competition took a peak as supermarkets started opening till late, and more and more gasoline stations started converting into small convenience stores. This point in the case study highlights a tragic point in the life cycle of 7 Eleven. The company had failed to invest in Information Technology, therefore it could not keep pace with changing customer demand and inventory management. Also diversified investments made it harder for the company to push back on loans.


During the hayday of corporate raiders in the 1980s, the Canadian financier Samuel Belzberg threatened a hostile takeover of Southland. In response, the Thompson family took the company in a private leveraged buy-out in December 1987. Many subsidiaries, including Chief Auto Parts, were sold off in order to pay the heavy debt that resulted from the repurchase of shares. Even so, the company went bankrupt for the second time in 1990, the same year that it sold the remaining 50 percent of CITGO. It emerged the following year with 70 percent of its stock owned by the Ito-Yokado Co., a Japanese retailer, and 7-Eleven Japan, the company’s Japanese licensee.


7 eleven logo

Growth Phase II (Starting from 1992): Seven Eleven Japan


After 1992, with Ito-Yokado owning more than 61% of the total business, 7-Eleven Inc. (from here on written as SEJ: Seven Eleven Japan) thrived under the guidance of Toshifumi Suzuki.


Toshifumi Suzuki had already had a successful run with SEJ during the course of 1973-1992. His strategy relied on common distribution systems, and infrastructures to support the scaling of the business and mostly because of its “fresh food” concept.

Fresh food regularly accounted for 40% of its sales in SEJ.


At first, the idea of applying the SEJ manoeuver in the US market garnered a substantial amount of skepticism but after the model was tweaked to suit the needs of US-based consumers, it did prove profitable.


In contrast to Japanese consumption patterns, US citizens had historically viewed the 7-Eleven stores as pit stops for cigarettes, gas, drinks, etc. Southland had earlier experimented with fresh foods like hamburgers and submarine sandwiches but had failed due to poor logistics regarding distribution, sales and payroll; which proved to be unfeasible.


Over the years SEI has gained popularity with Big eats, Deli sandwiches and originals such as Gulp, Big-gulp, Super Big-gulp, etc. Following in the footsteps of SEJ, SEI also started focusing on Fresh food and started building infrastructures around it to support the sales and scaling of fresh food. SEI also made an effort in management systems by hiring experienced professionals from food sales backgrounds and started creating a network of proprietary fresh food items.


By 2002, the Infrastructure was nearly complete and operating. After that, they shifted their focus to merchandising, and new product releases. By 2003 company had created a fresh food supply network of 13 commissaries, 11 bakeries, and 22 distribution centres that served 80% of the company stores with fresh food daily.


SEI started out with CDCs in 1994, with well-curated routes which were optimised to their finest to generate more profits. To ensure quality of the products they sorted their products into four different categories pertaining to their temperature. Also, the trucks were supported with dual temperature control units that could store dry food items and other chilled items.


SEI faced a minor setback as it was hard to convince vendors and suppliers to opt for Common distribution. Major companies like Pepsi, Coca-cola, Frito-Lay etc. downright refused to use their mode of distribution. Also, loyalty could not be expected from all the partners and some refused to provide logistics and analytics.


Bill Norris, CEO of Constance food group was a major partner. CFG supplied on a non-proprietary basis approximately 230 7-Eleven stores on Long island with fresh sandwiches, salads and other items. CFG also provided SEI with logistics in Long island and other sales analytics.


Under the new food supply system, the suppliers were bonded into a contractual agreement that 7-Eleven will only buy from these suppliers. Now the SEI had forged solid relationships with the elemental relatives of its business on the basis of mutual trust. All parties worked together and actively shared information regarding its business. With this 7-Eleven had spread its wings to take on a new flight.


In 1993 SEI had bagged a prominent supplier, Charlie Burman, CEO and owner of Bakery Express- Mid Atlantic, who had been supplying fresh donuts on consignment on a daily basis to 600 7-Eleven stores in Baltimore, Washington.


The company had established five cross-functional teams, each led by a category manager, to create new food items that would attract on-the-go customers. The teams performed product development, commercialization, marketing, merchandising, and store execution.


Conclusion


7-Eleven had garnered attention since 1927 and has helped many suppliers to earn their daily bread. As the company grew older and went down a downtrend, these loyal suppliers and franchise owners helped SEI along the way to bring about major reforms as it emerged from bankruptcy.


The change required in order to garner success was a huge one, as it basically meant a cultural transformation in business and marketing scenarios in a grander scheme or in other words, 7-Eleven was saved by their loyal suppliers and vendors who remembered how 7-Eleven gave them good business during their own harsh times.

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