Report on Case Study

Case Study: Seven-Eleven Japan

Unit: International Marketing

Unit Coordinator: Alan Hirst

Student Name: Mukesh Kulal

Student Id:2818510

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Question being addressed:

Discuss the reasons that led Seven-Eleven Japan to enter Hong Kong through an international licensing agreement instead of opening their wholly opened store?

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Introduction:

History of Seven Eleven:

The Southland Ice Company is credited with the birth of the convenience store in May 1927, in the Oak

Cliff section of Dallas, Texas. An enterprising employee of Southland Ice Company realized that

customers needed to buy things such as bread, milk and eggs after the grocery stores were closed. The

employee began offering milk, bread and eggs on Sundays and evenings when grocery stores were

closed along with ice. This significantly cut back on need to travel long distances to the grocery stores for

basic items. The new business idea produced satisfied customers and increased sales, and convenience

retailing was born.

The company's first convenience outlets were known as Tote'm stores since customers "toted" away

their purchases, and some even sported genuine Alaskan totem poles in front. In 1946, Tote'm became

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7-Eleven to reflect the stores' new, extended hours - 7 a.m. until 11 p.m., seven days a week. The

company's corporate name was changed from The Southland Corporation to 7-Eleven, Inc. in 1999.

Today, 7-Eleven is the undisputed leader in convenience retailing.

History of Seven Eleven Japan:

In 1973 Seven-Eleven’s parent company Southland Corporation sensing an opportunity in the Japanese

market entered into a licensing agreement with Ito-Yokado, a large Japanese supermarket chain

operator.

In 1974, the first Seven-Eleven convenience store was opened in Tokyo. This concept was successful and

it grew to become the largest convenience store operator in Japan. Till 1979, Seven Eleven had opened

591 stores in Japan. In 2007 Seven Eleven had grown to 12,034 stores.

In 1987, Southland sold its shares of Seven Eleven Japan to Ito-Yokado to avoid being acquired by a

Canadian company. In 1990 financial problems led Southland to sell 75% of its stock to Ito-Yokado. This

led to the transfer of its 7000 company owned stores in 21 countries to the Japanese company. The

name of Southland Corporation was later changed to Seven-Eleven Inc.

Introduction to Seven Eleven:

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Seven Eleven :

Seven eleven has a worldwide network of 36,842 stores around the world. Seven eleven has been the

leader in franchising and licensing in the convenience store industry for more than 40 years. The

company entered franchising in 1964, signed its first United States area licensing agreement in 1968,

and signed the first international license agreement with Mexico in 1971.

As of December 31st 2009 Seven Eleven operates in 16 countries. The countries along with their stores

are listed below:

Japan 12553 stores

U.S.A. 6515 stores

Taiwan 4744 stores

Thailand 5270 stores

South Korea 2186 stores

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China 1670 stores

Malaysia 1103 stores

Mexico 1177 stores

Canada 457 stores

Australia 446 stores

Singapore 484 stores

Philippines 393 stores

Norway 191 stores

Sweden 177 stores

Indonesia 1 stores

Denmark 129 stores

Seven Eleven Japan:

Seven Eleven Japan opened their first store in 1974 after licensing agreement with Ito-Yokado. It was

highly successful after opening in Japanese market. In 1982 Seven Eleven became the first company to

introduce a point-of-sales (POS) system. In Japan Seven Eleven Stores have high brand value. Seven

Eleven was the first successful company to launch a convenience store in Japan. Due to their hospitality

and quick response to consumer need, Seven Eleven has been highly successful on the Japanese soil.

Seven Eleven Japan stores are open seven days a week, 365 days in a year and most of them operate 24

hours around the clock. The sales per store of Seven eleven Japan are greater than any of their

competitors.

As of December 31st 2009 Seven Eleven Japan has 12,600 stores across Japan

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The chart displays the total no of store sales Seven Eleven Japan has achieved through from 1974 to

2008. The chart displays a steady increase in the sales.

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19741976

19781980

19821984

19861988

19901992

19941996

19982000

20022004

20062008

0

500

1000

1500

2000

2500

3000

Total Store Sales

The chart below displays the total no of stores Seven Eleven Japan has opened during the period 1974 to

2009.

19741976

19781980

19821984

19861988

19901992

19941996

19982000

20022004

20062008

0

2000

4000

6000

8000

10000

12000

14000

No. of Stores

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Need for convenience:

Convenience is known as anything that saves or simplifies work, adds to one's ease or comfort, etc., as

an appliance, utensil, or the like. Humans have always been the consumers of convenience. The facilities

that offer us ease or comfort and relieve us are known as convenience services.

The factors which affect humans to go in need for convenience are:

1.) Time: Time at which arising need can be satisfied.

2.) Distance: Distance which is to be travelled to satisfy that need.

3.) Availability: Whether the convenience to satisfy the need is available.

Convenience Stores:

A convenience store is a small store or shop that sells items such as candy, ice-cream, soft

drinks, lottery tickets, cigarettes and other tobacco products, newspapers and magazines, along

with a selection of processed food and perhaps some groceries.

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Convenience Stores rely heavily on point of sale.

For Convenience Stores Customers data such as Customer’s ages, gender, as well as next day’s

weather forecast is important data that should be monitored. Stores place all their orders

online.

• Stores place all orders on-line.

• As their store sizes are limited, they have to be very careful in choosing what brands to

sell

• Since products are delivered as needed, stores do not need large stock areas.

• Most items available in larger supermarkets can be found in Japanese convenience

stores

Point of sale (POS) or checkout is the location where a transaction occurs. A "checkout" refers

to a POS terminal or more generally to the hardware and software used for checkouts, the

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equivalent of an electronic cash register. A POS terminal manages the selling process by a

salesperson accessible interface.

The POS unit handles the sales to the consumer but it is only one part of the entire POS system

used in a retail business. “Back-office” computers typically handle other functions of the POS

system such as inventory control, purchasing, receiving and transferring of products to and

from other locations. Other typical functions of a POS system are to store sales information for

reporting purposes, sales trends and cost/price/profit analysis. Customer information may be

stored for receivables management, marketing purposes and specific buying analysis. Many

retail POS systems include an accounting interface that “feeds” sales and cost of goods

information to independent accounting applications.

Early electronic cash registers (ECR) were programmed in proprietary software and were very

limited in function and communications capability.

There were various fast selling and slow selling goods in the store which the company had to

keep track of. It couldn’t have prevented fast-selling products from becoming sold while trying

to avoid having slow selling goods left on the shelves. There were variations in every product.

Product life cycles were reduced; consumer’s tastes were changing rapidly. In order to keep

track of various fast selling goods as well as of slow selling goods, The Company introduced

point of sale system (POS) which it lent to the franchisees free of charge.

So in 1982 the first POS system was introduced in Japan for storeowners.

In the system, information was entered on the following elements: the items purchased; the

time of purchase; the type of customer; and the place where the item was purchased.

Seven Eleven Japan was the first retailer in the world to introduce this kind of POS system as a

marketing tool. The company introduced this POS system as a marketing tool. The item-by-

item control is considered as a key point among the four important criteria. Earlier, the

inventory of Seven Eleven stores was controlled by means of product categories, such as

prepared foods, noodles in a cup, and so on. Control by category wasn’t enough to responding

to customers’ needs.

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Nowadays the Japanese consumer tastes have changed. They won’t buy the similar product but

only the particular brand they want. Observing varying consumer tastes, Seven Eleven Japan

found it appropriate to introduce item- by-item control through the use of POS.

Electronic POS software can be run on any computer with an Internet connection. Electronic

POS software is hosted on secure servers in multiple data centers with real-time backups. With

high speed connections becoming more prevalent, Electronic POS solutions have become more

reliable. Additionally, the lower cost makes Electronic POS an attractive option to many

independent retailers.

Information was being collected at the stores and in the head offices to analyse the consumer

trends and the variations in consumer trends found in different regions. Information about

various times and movements in the markets are collected by merchandisers at head office and

after analysing it, they send report to stores. The stores also used to store and analyse the

weather information.

In 1991 Seven Eleven Japan used ISDN networks to collect and analyse daily POS data on every

single item.

The POS systems have been used to identify consumer trends and also to enhance product

differentiation. They have also been used to increase productivity and reliability of cahier

operations. IT has been used to collect sales data which was being used to improve

merchandising and item-by-item control process. Information obtained from POS was used for

consumer trend analysis.

Seven Eleven Japan information system is considered one of the most highly evolved in the

Japanese retailing industry. At the head office it is possible to access data from every store,

every district, or every zone. Each store computer has access only to its own store data.

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Entry into Hong Kong through licensing agreement:

Foreign Market Entry Modes:

The choice to enter a foreign market should generally be determined by the following factors:

1) Overall market attractiveness

2) Political and operational risks involved

3) The government requirements

4) The time pressures

5) The internal capabilities of the firm to enter and develop local resources, assets and

competencies in order to gain and sustain competitive advantage.

6) The costs/ benefits analysis and the expected return on investment.

Fig: Foreign Market entry Modes.

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Wholly owned subsidiary Acquisition Joint Venture License

FranchiseAgent

Distributor Office

Entry Modes

Government

Policies

Country Risks

Market Attractiv

eness

Strategic

CapabilitiesInternal

Capabilities

Timing

Source:Lasserre, P. (2007). The process of globalisation. In: Global Strategic Management. Hampshire: Palgrave Macmillan. p196.

When a foreign direct investment into a country is not feasible for a company, it still can be

present in a particular country by forms of agreements such as in the form of a license.

Due to regulatory difficulties before 2004, very few international companies have a successful

franchise in China yet. Most actually own their stores, often through a joint venture with a local

partner. In February 2005, the Ministry of Commerce of China has issued new rule on operating

franchise and opened its retail market more widely, allowing foreign firms to hold 65% shares in

joint ventures in that sector.

Cultural differences of China have a big impact over the businesses operating over there.

When foreign companies operate on Chinese soil, the Chinese government keeps a tab on the

operations performed by these companies.

Seven Eleven Japan lacked the information or expertise to solve the cultural difference problem

that the target market was putting forward. Seven Eleven considered it appropriate to have

collaboration with a local company that can solve the localization problem as well as adhere to

the Chinese government rules.

Seven Eleven Japan even tough being a big retailing company considered the investment into

China too risky so it considered licensing agreement as the safest option to enter the Chinese

market.

Licensing Agreements are contractual agreements by which a company (the licensor) transfers

to another company (the licensee) its product and/or process technology with the right to

exploit it commercially. The brand name of the licensor may or may not be part of the licensing

agreement. The licensor receives financial compensation in the form of royalties and an upfront

lump sum payment. Royalties can be calculated as a percentage of sales or as a fixed amount

per unit sold. In addition to the transfer of technology, the licensor may send its engineers to

help in the technology transfer and functioning. It may also receive some form of technological

fees. Finally, within a licensing agreement, a licensor can contractually force the licensor gets

the benefits and profits associated with the sales.

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Franchises are another form of indirect contractual agreement through which the franchiser

grants the franchisee the right to use its name and receive a financial compensation similar to

the licensing agreement (fixed plus royalties). The franchiser generally forces the franchisee to

adopt a certain number of operating policies so that it can maintain a standard level of quality

associated with its brand name. Examples of international franchises can be found in the

hospitality industry (Hilton, Accor), fast food (McDonalds) and distribution (Benetton, GAP).

Seven Eleven has operated in Hong Kong since 1981 under the ownership of Dairy Farm. Dairy

Farm is a leading pan-Asian retailer which processes food, wholesales food and personal

hygiene products in the Pacific Region and China. Dairy Farm operates supermarkets,

hypermarkets, health and beauty stores, convenience stores, home furnishings stores and

restaurants under well-known local brands.

Seven Eleven operates franchises in Hong Kong through their partner Dairy farm. Dairy Farm

has got a good experience of local market of Hong Kong and has been operating various brands

under various types of licenses. Seven Eleven is offering localized solutions to the Hong Kong

market through the expertise and knowledge of Dairy Farm. This has led Seven Eleven to be

more successful in Hong Kong. Seven Eleven is offering its retailing expertise to Dairy farm

which in turn is customizing it for the Hong Kong market.

Conclusion:

To stay ahead in the race of competition Seven Eleven has to always remain ahead and find new ways of

offering convenience to consumers. They have to be constantly updating their knowledge about the

difference in patterns of consumer behaviour. Due to the extensive and advanced usage of Inbtegrated

Information Systems in Seven Eleven they are constantly being updated and it in turn helps to offer

better consumer service and effective retailing. Due to its continued growth and expansion Seven Eleven

has been ranked in Entrepreneurs Franchise 500 service levels.

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References:

Seven-Eleven Japan Co. Ltd.. ([no date]). Company Milestones. Available: http://www.7-eleven.com/AboutUs/Milestones/tabid/76/Default.aspx. Last accessed 28 February 2010.

Leigh Sparks. ([no date]). Seven-Eleven Japan and The Southland Corporation: a marriage of convenience?. Available: http://www.emeraldinsight.com/Insight/ViewContentServlet;jsessionid=76430CF81BA2ECCCDB00F36FBD1AA513?Filename=Published/EmeraldFullTextArticle/Pdf/0360170406.pdf. Last accessed 28 February 2010.

Seven-Eleven Japan Co. Ltd.. ([no date]). Total Store Sales and Total No. of Stores. Available: http://www.sej.co.jp/english/company/g_stores.html. Last accessed 01 March 2010.

Seven-Eleven Japan Co. Ltd.. ([no date]). Total Store Sales and Total No. of Stores. Available: http://www.sej.co.jp/english/company/n_stores.html. Last accessed 01 March 2010.

Wikipedia. ([no date]). Convenience store. Available: http://en.wikipedia.org/wiki/Convenience_store. Last accessed 28 February 2005.

Wikipedia. ([no date]). Convenience store. Available: http://en.wikipedia.org/wiki/Convenience_store. Last accessed 28 February 2005.

Lasserre, P. (2007). The process of globalisation. In: Global Strategic Management. Hampshire: Palgrave Macmillan.

Seven-Eleven Japan Co. Ltd.. ([no date]). Total Store Sales and Total No. of Stores. Available: http://www.sej.co.jp/english/company/s_growth.html. Last accessed 01 March 2010.

Seven-Eleven Japan Co. Ltd.. ([no date]). Total Store Sales and Total No. of Stores. Available: http://www.sej.co.jp/english/company/s_growth.html. Last accessed 01 March 2010.

The Kitchen Sisters..([no date]) .Hidden Kitchens.Available:-http://www.kitchensisters.org/hktexas/hk_texas_icehouses.htm.Last accessed 01 March 2010.

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