SEVEN-ELEVEN JAPAN CO.

Outline 7-11 Profile 7-11 Japan Convenience store Industry Franchise system Store Information Information and distribution system Discussion Questions

Seven-Eleven Southland Ice Company in 1927, Dawley assembled the com

pany by buying four existing Texas ice factories. From 1930, Thompson.

The main business was the sale and home delivery of ice blocks for use in domestic ice boxes.

1932, in response to customer requests, some stores began to sell groceries on an experimental basis, which were to be the basis for 7-Eleven.

In 1945, the company was renamed The Southland Corporati

on.

Seven-Eleven The convenience stores were rethought and

remodeled in 1945. The stores opened at 7am and closed at 11pm, hence 7-Eleven. Many more were opened and the chain grew.

In the mid-1980s, competition and over-expansion hit profits. A significant number of stores had sales which were well below average.

In 1987, Thompson acquired Southland in a Leveraged Buy-Out resulting in a substantial debt which was to bring down the company.

Seven-Eleven (cont) Southland sold 58 7-Eleven stores in Hawaii to SEJ in

December 1987.

In March 1991, Ito-Yokado (the largest retailer in Japan) and

its subsidiary, SEJ, then owned 70% of Southland.

1999 The Southland corporation 7-Eleven, Inc.

In November 2005, 7-Eleven, Inc. became an indirect

subsidiary of Seven & I Holdings Company (SEJ + Ito-

Yokado + Denny’s Japan)

Seven-Eleven Global Licensees -2006

Territory First Opened Locations Territory First Opened Locations

US 1968 469 Norway 1986 95

Canada* 1969 489 Puerto-Rico 1987 14

Mexico 1971 595 Guam 1987 8

Japan 1971 11,069 South Korea 1989 1,238

Australia 1977 359 Thailand 1989 3,311

Sweden 1978 71 Turkey 1989 79

Taiwan 1980 4,037 Shenzhen, Guangzhou

1992, 1996

250

Hong Kong 1981 705

Singapore 1983 324 Denmark 1993 55

Philippines 1984 265 Beijing 2004 30

Malaysia 1984 700 Macau 2005 5

7-11 Japan- case Established in 1973 Set up first store in 1974 First listed on the Tokyo Stock Exchange

in1979 In 2004, Japan’s largest retailer in terms of

operation income and number of store.

The convenience store industry and Seven-Eleven in Japan The number of convenience stores in Japan

From 1991 to 2002 increased from 19,603 to 42,000 Consolidation>>Top 10 = 90% of all stores

In 2002 Seven Eleven – large & profitable accounting for 21.7% of all convenience stores, but =

31.5% of total sales. In 2004: each store avg. 30% higher sales than other

chain store; no. of growth = 60% of total chain growth

The Seven-Eleven Japan franchise system Company-owned + franchise (60% of rev.) Market-dominance strategy ~ 50~60 / DC High-density strategy – advantages …. 32/47 prefectures have stores, concentrated <1/ 100 applicants awarded a franchise High franchise fees gross profits shares (45% SEJ; 55% store) SEJ & franchise responsibilities

Store information and contents Table: financial figures for Seven-Eleven Japa

n Store size = 150m2, 3000 items

Food, beverage, mag., consumer items, music, CD, …

The food items : Chilled-temperature, Warm-temperature, Frozen, Room-temperature items

Table: financial figures for Seven-Eleven Japan

year 2000 2001 2002 2003 2004

net sales (billion yen)

19642046.

62114

2213.3

2343.2

revenue (billion yen)

327 346.9 365.9 400.7 445.4

ordinary income (billion yen)

140.2 147.2 153.8 159.6 168.9

net income (billion yen)

68.2 78.4 83.2 86.5 91.5

number of stores 8153 8602 9060 96901030

3

Store services-1 In 1987, was the in-store payment of Tokyo

Electric Power bills. In 1995, accept payment for mail-order

purchase. In 1999, payment for Internet shopping. In 2004, ATMs had been installed in about

75% of the total store in Japan.

Store services-2 Other service: photocopy, ticket sales… In 2000, Seven-Eleven Japan established

7dream, an e-commerce company. exploit the existing distribution system stores were easily accessible to most Japanese. 92%of its customers preferred to pick up their

online purchases at the local convenience store.

Seven-Eleven Japan’s Integrated Store Information System

1979 online network without point-of-sales (POS) 1982 introduce a POS system- cash registers 1985 jointly with NEC- PC+ color graphics 1991 integrated server digital network (ISDN),

linking >5000 stores Daily sales data in by 11pm, analyzed overnight

Seven-Eleven Japan’s Integrated Store Information System - hardware system at a 1994 Graphic order terminal—manager Info. & order Scanner terminal- receiving & inventory Store computer- all data transmission device POS register – real-time data on sales, customer,

data analyzed overnight for company, district, and store.

Analysis used to match supply and demand; >50% items are replaced/year; new item tracks 3 weeks; best 3 brands kept.

Seven-Eleven’s Distribution System Combined delivery system Short replenishment cycle - 2-3 times a day Cutoff for ordering, MTO>>DC>>stores Temperature classified trucks, consolidation, quick drop-off Time savings

Reduce the number of vehicles 1970 each store visited by 70 trucks/day, 1994 reduced to 11 2004: 290 plants, 293 DCs, >10,000 stores No inventory at DC

Seven-Eleven Japan

Supplier

Supplier

Supplier

Store

Store

Store

Store

Store

DC

Discussion Question 1 A convenience store chain attempts to

responsive and provide customers what they need, when they need it , where they need it. What are some different way that a convenience store supply chain can be responsive? What are some risks in each case?

Risk High inventory cost

Utility of many DCs

Discussion Question 2 Seven-Eleven’s supply chain strategy in Japan

can be described as attempting to micro-match supply and demand using rapid replenishment. What are some risks associated with this choice?

Risk High transportation cost

Low inventory in store

Discussion Question 3 What has Seven-Eleven done in its choice of

facility location, inventory management, transportation, and information infrastructure to develop capabilities that support its supply chain strategy in Japan?

Facility location︰ Adhering to its dominant strategy,7-11 Japan

opened the majority of its new stores in areas with existing clusters of stores.

Filling in the entire map of Japan is not 7-11’s priority. They look for demand where 7-11 stores already exist, based on the strategy of concentrating stores in specific areas.

Inventory management： 7-11 offered its stores a choice from a set of 5,000 SK

Us (stock keeping units). Each store carried on average about 3,000 SKUs depe

nding on local customer demand. The food items were classified in four categories

Chilled-temp. items Warm-temp. items Frozen items Room-temp. items

Transportation︰ Three-times-a-day store delivery of all rice dishes； Brea

d and other fresh food were delivered twice a day Flexible enough to alter delivery schedules depending on

customer demand. Ex: ice cream. The replenishment cycle time for fresh and fast-food item

s had been shortened to less than 12 hours. four categories of temp.-controlled trucks. Each made del

iveries to multiple retail stores. All deliveries were made during off-peak hours

did not require the delivery person to be present when the store personnel scanned in the delivery.

Information infrastructure： Total Information System ISDN、 POS Graphic order terminal Scanner terminal Store computer POS register

Discussion Question 4 Seven-Eleven does not allow direct store

delivery in Japan but has all products flow through its distribution center. What benefit does Seven-Eleven derive from this policy? When is direct store delivery more appropriate?

1. Pros

Simplify supply network Concentrated management is more efficient Reduce vehicles used

2. Cons Can’t work for vast territory with a sparse

population

Discussion Question 5 What do you think about the 7dream concept for

Seven-Eleven Japan? From a supply chain perspective, is it likely to be more successful in Japan or the United States (or China)? Why?

An e-commerce company. The goal was to exploit the existing distribution system and the fact that stores were easily accessible to most Japanese.

Japan！ Japanese’s habit. 92 % of the customers preferred to pick

up their online purchases at the local convenience store, rather than have them delivered to their homes.

The higher population density

Table: stores and sales for Seven-Eleven Japan

yearnumber

of stores

sales (billion yen)

yearnumber of

stores

sales (billion yen)

1974 15 0.7 1990 4270 931.9

1976 199 17.4 1992 5058 1194.9

1978 591 72.5 1994 5905 1392.3

1980 1040 153.6 1996 6875 1609

1982 1.643 256.5 1998 7732 1848.1

1984 2299 386.7 2000 8602 2046.6

1988 3653 686.3 2003 10303 2343.2

Seven-Eleven In The United States Grow beginning in 1998 Direct store delivery (DSD) In 2000 Combined distribution centers (CDC

s)

7-Eleven United State

Supplier

Wholesaler

Supplier

Store

Store

Store

Store

Store

Risk Complex network High transportation cost Low control of shipment

Study Question 6 The United States has food service

distributors that also replenish convenience stores. What are the pros and cons to having a distributor replenish convenience stores versus a company like Seven-Eleven managing its own distribution function?

Using 3PL (USA) Pros

Concentrate on main business Lower cost

Cons Less control of distribution

Seven-Eleven (cont)

Seven & I Holdings 164/Fortune Global 500 in 2006

Wal-Mart 2; Carrefour 25; Target 29; Tesco 59;

Kroger 73

As 2006, 30,000+ stores worldwide

6000+ in the United States (1000+ by

company, 3,500 stores by franchisees, 533

stores by territory licensees)

27,900+ stores elsewhere.

Seven-Eleven United States Licensees

Licensee Name Territory First Opened

Locations

Garb-Ko, Inc. Michigan, Indiana, Ohio 1968 107Handee Marts, Inc. Pennsylvania, Ohio,

Maryland and West Virginia1969 65

Seven-Eleven Hawaii, Inc.

Hawaii 1989 106

Resort Retailers Utah 1988 7Southwest Convenience Stores, Inc.

Texas, New Mexico 1993 170

Prima Marketing West Virginia, Pennsylvania, Ohio, Kentucky

2002 78

2006

Seven & I Holdings

1920– Yakado Men’s Wear 1958– Yokado Co. 1965– changed to Ito-Yokado 1972– first Family restaurant 1973– supermarket, Denny’s Japan (licensed from Denny’s of US),

York Seven (licensed from Southland of US) 1978– York Seven Seven-Eleven Japan 1982– SEJ installs the world’s largest POS 1985– POS are installed in all stores 1991– acquires 69.98% of Southland 1996– established in Chengdu, Shi Chuan, China 2004– Seven-Eleven (Beijing) 2005– Seven & I Holdings: SEJ, Ito-Yokado and Denny’s Japan

Seven & I Holdings (cont)

Companies Type stores

SEJ + Seven-Eleven + Seven-Eleven (Beijing)

Convenience Stores 10,901 + 5,814 +

20

Ito-Yokado + Chengdu Ito-Yokado + Hua Tang Yokado Commercial

Superstores 180 + 2 + 2

Denny’s Japan + Famil Restaurants 582 + 338

York Mart + York-Benimaru + Beijing Wang fu jing Yokado Commercial

Supermarkets 57 + 113 + 2

Robison Department Store Department Stores 3

Oshman’s Japan + Mary Ann Specialty Stores 5 + 53

IY Foods K.K. Manufacturing and processing 1

IY Bank Finance 10,468 ATMs

Shiba Park Publishing Publishing 1

2005