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CHAN Pui Yuk
A Framework of Core Competencies of Convenience Store: a Case study in Hong Kong
A Framework of Core Competencies of Convenience Store: a Case
study in Hong Kong 1
Chan Pui Yuk Shi Xinping Yuen Sheung Man
Department of Finance and Decision Sciences, School of Business,Hong Kong Baptist
University, Hong Kong
Abstract: This study explores the core competences of convenience stores in the supply chain context,
where 7-Eleven, a typical convenience store in Hong Kong, is used as a studied organization. The objectives
of this study are 1) to identify core competences of convenience stores; 2) to establish a framework of the
competences for convenience store in a supply chain context; 3) to compare and contrast the operations of
7-Eleven in USA, Japan and Hong Kong.
Key words: Convenience Store, Core Competencies, Supply Chain Management, Hong Kong
Introduction
According to National Association of Convenience Store, the definition of convenience store can be
defined as a retail business with primary emphasis on providing the public a convenient location to quickly
purchase from a wide array of consumable products (predominantly food or food and gasoline) and services.
7-Eleven pioneered the convenience store concept back in 1927 at the Southland Ice Company in Dallas,
Texas. Nowadays, leading convenience store chains, such as 7 Eleven and Circle K, provide quality fresh
food, beverages, trendy consumer items and services around the clock.
Core Competencies
According to Prahalad and Hamel [12], core competencies of a corporation are collective learning and
intangible assets in the organization, especially, coordination of diverse products and service skills (business
know-how), the synergy of marketing and logistics management knowledge in routine operations,
relationship development and management, and integration of multiple streams of technologies and
techniques. Appendix 1 summarized different strategic management approach and their salient features.
In resource-based view, a firm is understood to be a bundle of assets and capabilities. The competitive
advantage is acquired by accumulating assets and capabilities as strategic resources. [3],[15]
Competence-based perspective argues that core competencies are the source of sustainable competitive
advantage. Core competencies are collective learning and unique capabilities are manifested in business
activities and processes [12],[13]. The dynamic capabilities approach claims that the competitive advantage
comes through leveraging the managerial and organizational processes of a firm, and is shaped by the
strategic positioning of its assets and available paths. The “dynamic” is defined as “the capacity to renew
competencies so as to achieve congruence with the changing business environment”[14].
An ultimate important agenda for an organization is to build up their unique core competences from
competitors in its operating industry. Every company has the potential to build its core competencies but
failed to do so because top management is unable to conceive its company as anything other than a
collection of discrete commercial activities. The acceleration of retailing competition in global wide scale
has changed the nature of retailing since the 1990s, and the competition between Wal-mart and K-mart is a
typical example.
Today, convenience stores are using competitive advantages derived from many spectrums, such as
excellence in customer services, effective information technology and systems (POS, ERP, VMI and WMS),
supplier management, combined push and pull strategies, quick responsiveness to market and customer
changes, regional supply chain network and using third party logistics service providers. Those competitive
advantages differentiate some leading chain stores from others. Thus, continuously striving for excellence
makes these leading chain store sustainable development and build up their unique core competencies [4].
However, little research was conducted to reveal what are the core competences of convenience stores, and
how to develop them into sustainable organizational strength. This study attempts to fill the literature gap by
addressing and exploring these issues.
Case studies are carried out in a leading chain store company branch, that is, 7 Eleven in Hong Kong in
1
Chan Pui Yuk, 03414426@hkbu.edu.hk; Shi Xinping, xpshi@hkbu.edu.hk;
Yuen Sheung Man, syuen@hkbu.edu.hk 3
1
CHAN Pui Yuk
A Framework of Core Competencies of Convenience Store: a Case study in Hong Kong
two ways: 1) analyzing contents of publications such as annual reports, corporate websites, industry reports
and newspaper articles; 2) interviewing some store managers and division supervisors of the chain stores in
Hong Kong.
7-Eleven’s History and General Background
7-Eleven, Inc., founded in 1927 in Dallas, Texas, is the world's largest operator, franchisor and licensor
of convenience stores with more than 27,900 units worldwide, including 5,800 in the United States and
Canada, the c-store retail pioneer serves six million customers a day.
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
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 with more than 27,900 stores operating in the U.S. and 17
other countries and total sales of more than $36 billion in 2003.
Each store focuses on meeting the needs of busy shoppers by providing a broad selection of fresh,
high-quality products and services at everyday fair prices, along with speedy transactions and a clean, safe,
friendly shopping environment.
7-Eleven is known internationally for Big Gulp fountain soft drinks, Big Bite hot dogs, Slurpee
beverages, and Café Select fresh brewed coffee. The stores have expanded their food service offerings with a
proprietary line of deli items and baked goods, which are prepared and delivered fresh daily. 7-Eleven also
offers convenient services based on each neighborhood's individual needs, including automated money
orders, copiers, fax and automatic teller machines, long-distance phone cards and lottery tickets, where
available.
7-Eleven, one of Hong Kong's leading convenience stores was established in 1981 which are operated
by Dairy Farm International Limited, now provides quality fresh food, beverages, and trendy consumer
items and services around the clock.
Operations and Strategies of 7 Eleven, Hong Kong
This section summarizes the operations and marketing strategies at 7-Eleven, Hong Kong through the
site visits of several stores/distribution centre and the face-to-face interviews at the company.
Innovative and open-minded management philosophy is one of the important factors for core
competencies. Top management is willing to accept new ideas and innovation such as replenishment of
Octopus card (smart cash card) and e-shopping for college textbooks, ATM cashier of HSBC and Standard
Chartered Bank. They are willing to change their sales and operation strategies to the business environment
and customer demands such as sales strategies of newspapers’ coupons.
Optimized logistics and supply chain management include just-in-time (JIT) logistics system, integrated
distribution system and outsourcing logistics services. JIT logistics system provides a rule of
“multi-categories and few inventories”, frequent and on-time delivery. 7-Eleven uses integrated distribution
system (i.e. cross-docking distribution center in Kwai Chung and information network) to carefully track
sales of items and offers short replenishment cycle time such as rice boxes and freeze Chinese “dim sum”. A
third-party logistics service provider is responsible for management the daily delivery services that let
7-Eleven concentrate their core business, i.e. sales and services.
Connection refers to the physical and virtual network with suppliers and other chain stores. For chain
stores, it requires just-in-time supply and speedy turnover of their inventory. In this dimension, information
system, at least POS system becomes a critical pivot for sourcing products, keeping close contact with
suppliers and processing information. Convenience stores attribute a significant part of its success to a
comprehensive store information system installed in every outlet and linked both to suppliers and the
distribution centers. Graphic order terminals, scanner terminals, store computer with well-established ISDN
network and point-of-sales system has allowed convenience stores to better match supply with demand
[8],[10].
7-Eleven is a well-known leader in franchising industry. More than 250 outlets are franchised stores in
7-Eleven, Hong Kong. Franchisees play important key roles in a successful operation of convenience store.
A well developed and comprehensive training and management program is provided to all potential
franchisee applicants. A set of strict franchise rules, such as in-stock, cleanliness and speedy service, is
guided the franchisee in order to guarantee the high quality of services and operations [11].
Location orientated expansion strategy of 7-Eleven are based on location analysis, rule of “convenience
to customers”, analysis of financial and sales record and forecasting urban planning and development.
Recently, 7-Eleven understood that government stated that mass transit railway system (such as MTR and
KCRC) is most important transportation system in Hong Kong. In order to capture larger market share and
2
CHAN Pui Yuk
A Framework of Core Competencies of Convenience Store: a Case study in Hong Kong
provide convenient customer services from railway system, 7-Eleven acquired with Daily Stop Store from
South China Morning Post Corporation (SCMP)[6].
Categories management of 7-Eleven is based on customer demand and convenience to buy and get.
Several rules are followed for sourcing: daily necessary products such as bread and milk, light and tidy
product such as battery, high turnover products such as newspaper, customer favorable products such as
drinks, high qualified products such as P & G and Coca Cola etc. 7-Eleven also categorized the products in
different value, i.e. high, middle and low values in order to have different marketing and inventory
strategies.
7-Eleven had several successful strategic marketing strategies in order to increase sales and inventory
turnover. Recently, 7-Eleven, Hong Kong launched the sales promotion for Hello Kitty 30 year anniversary
celebration. Customer can get a Hello Kitty magnet free with buying more than HK$20 at a time. This sales
promotion campaign attracted more customers to shop at 7-Eleven and increased total sales and profits
sharply. Innovative product and service development also enhanced the core competencies of 7-Eleven.
Micro waved lunchboxes, photo printing services, mobile phone battery charging service, photocopying and
faxes service are pioneered and introduced by 7-Eleven in Hong Kong.
7-Eleven treated an excellent customer service as one of their core competitive advantages. They
introduced an “in-stock, cleanliness and speedy service” guideline in order to enhance excellent customer
service. 7-Eleven also implement a customer service appraisal and training program to improve the
individual staff’s performance. Customer relationship management refers to the buyer-supplier relationship
management in chain stores. It is an interdependent relationship, and the management of it requires constant
search for win-win solutions on the basis of mutuality and trust [5]. 7-Eleven has developed a positive
service image in local retailing industry, and it has won customers’ trust in the past years services. Staff of
7-Eleven also participated in Good Salesman Competition organized by Hong Kong Retailer Association in
order to motivate the staff to excel its service to customers. When 7-Eleven launches some relationship
management programmes, it often wins customers’ participation and support, and through such programmes,
it becomes more closer to customers, and knows more about customers’ concerns, needs and comments than
its competitors, in such way, 7-Eleven enhances its relationships with customers, it is not effective, however,
for 7-Eleven to use customer relationship management software to analyze customer profiles and identify
targeted customer niches, and then design some tailored-made programmes, because the operational nature
of chain stores does not usually have detailed customer profiles.
Framework of Core Competencies in Convenience Store Industry
After conducting desk research and interview with company’s staff, eight factors of core competencies
are summarized. They are: innovative and open-minded management philosophy, optimized logistics and
supply chain management, integrated information system, franchise system, location orientated expansion
strategies, value categories management, strategic marketing and excellent customer services.
In order to justify the relationships and the framework, eight propositions have been proposed. Figure 1
provides the framework and likely relationships. First of all, innovative and open-minded management
philosophy enhances a core competency of strategic management in convenience stores. Secondly,
optimized logistics and supply chain management strengths a core competency of logistics and distribution
in convenience stores. Thirdly, integrated information system reinforces a core competency of information
management in convenience stores. Fourthly, franchise system reinforces a core competency of partnership
and finance in convenience stores. Fifthly, location orientated expansion strategy enhances a core
competency of operational flexibility in customer convenience. Sixthly, Value categories management
reinforces a core competency of customer value in convenience stores. Seventhly, strategic marketing has a
positive association to a core competency of market dominance in convenience stores. Finally, excellent
customer service enhances a core competency of customer loyalty to convenience stores. Table 1 shows the
propositions of the factors with a core competency.
3
CHAN Pui Yuk
A Framework of Core Competencies of Convenience Store: a Case study in Hong Kong
Table 1: Proposed Propositions of Eight Factors with a Core Competency of Convenience Store
Propositions
P1: Innovative and open-minded management philosophy enhances a core competency of strategic
management in convenience stores.
P2: Optimized logistics and supply chain management strengths a core competency of logistics and
distribution in convenience stores.
P3: Integrated information system reinforces a core competency of information management in convenience
stores.
P4: Franchise system reinforces a core competency of partnership and finance in convenience stores.
P5: location orientated expansion strategy enhances a core competency of operational flexibility in customer
convenience.
P6: Value categories management reinforces a core competency of customer value in convenience stores.
P7: Strategic marketing has a positive association to a core competency of market dominance in convenience
stores.
P8: Excellent customer service enhances a core competency of customer loyalty to convenience stores.
Innovative & Open-minded
Management Philosophy
Excellent Customer
Service
Optimized Logistics &
Supply Chain
Management
P1
P2
P8
Strategic Marketing
Core Competencies
of C-Store
P3
Integrated Information
System
P7
Value Categories
Management
P4
Franchise System
P6
P5
Location Orientated
Expansion Strategy
Figure 1: Research framework of core competency of convenience store
Comparison of Core Competencies of 7-Eleven in USA, Japan and Hong Kong
Table 2 shows the comparison of core competencies of 7-Eleven in USA, Japan and Hong Kong. From
the comparison, 7-Eleven, Inc. in USA have implemented capability sourcing analysis which helps maintain
the core business and reduce the cost and loss in 1990s. Sourcing becomes a main strategy for maintaining
their core competencies. In Japan, excellent logistics and SCM, customer-oriented marketing strategies,
effective use of information technologies, Keirestu model with a tight and close partnership make 7-Eleven,
Japan have a great success in convenience store industry. These strategies and management philosophies
also strengths their core competencies and enhance their leadership in Japanese market. While 7 Eleven in
Hong Kong, new product and service development, innovative marketing campaigns and market dominated
strategies are used to maintain and enforce their core competencies in the industry.
4
CHAN Pui Yuk
A Framework of Core Competencies of Convenience Store: a Case study in Hong Kong
Table 2: Comparison of Core Competencies of 7-Eleven in USA, Japan and Hong Kong
Management Philosophy
USA
Capability sourcing
strategy [7]
Japan
Keiretsu model of tight
partnerships in supply
chain [7]
Logistics and Supply
Chain Management
Outsourcing, Combined
Distribution Centre [7]
Integrated Information
System
Franchise System
Proprietary Store's
Information System
Franchise System and
Company-owned store
Global Convenience
Combined Distribution
System [1]
Three Triple A Supply
Chain Management [9]
The fifth information
integrated system [1]
Two type of franchise
system [1]
Market dominance
strategy of high-density,
clustered store openings
Differentiation based
sales and turnover
Original products with
Location Oriented
Expansion Strategy
Value Categories
Management
Strategic Marketing
Various categories
management
Variety of product and
services
Customer Service
Quality Control with
training of University of
7-Eleven
Customer-oriented
Hong Kong
Innovative and
Open-minded;
“Local-orientated market
dominant” strategy [6]
3PL services, and
distribution centers
E-Trading system (Hong
Kong Government)
Franchise System and
Company-owned store
Convenience to
customer
“Three-level” categories
management
New products and
services with promotion
campaign
ICS guideline
Findings for strategic management approaches
Based on the research model and case studies, we can classify that core competencies of 7-Eleven in
Hong Kong is combination of three strategic approaches, mainly a dynamic capabilities approach in order to
have the capacity to renew competencies so as to achieve congruence with the changing business
environment in Hong Kong convenience store industry.
Recommendations
In order to maintain the competitiveness of 7-Eleven in convenience store industry, several
recommendations can be provided.
High Qualified Customer Service
Redefining the role of customer service in retailing business to go beyond the store level, and come into
the supply chain, creates many new issues for retailers. It is suggested that 7-Eleven must place an ever
increasing reliance on the performance of their supply chain partners. Convenience stores expect complete
order fill, short and reliable order cycle time, accurate and timely information, and rapid error correction on
the part of vendors and warehouses. In order to achieve these goals, 7-Eleven needs to establish closer
relationships with their supply chain partners, encouraging excellent communication channels and quality.
Management of Retail Technologies
There have been many significant changes in the use of information technology in retailing to provide
improved customer service and inventory management. The growth has been so tremendous that it is
difficult, but essential, for retailers to keep abreast of advances. In the future, opportunities for further
technological advances and increased efficiency and utilization of information technology lie in improving
integration of these different technologies.
It is important for convenience stores to carefully consider modular capabilities and compatibilities of
internal information systems in order to make investments in such technology. Logistics, merchandising,
stores, finance, and all the functional areas should have a shared information system so that consistent and
accurate information available throughout the organization. If the firm's information system is not
functioning well internally, there is no point in linking up with external partners.
Integrated Supply Chain Concept with Trust and Information Sharing
5
CHAN Pui Yuk
A Framework of Core Competencies of Convenience Store: a Case study in Hong Kong
Convenience Stores are to integrate supply chains and supply chain technologies into their company.
Top retail management must realize that logistics can be an important contributor to customer service and
profitability if it is integrated with other functions. Internal interdependencies must be managed through
sharing of information and responsibility within the company functional departments.
In addition, top retail management must accept that supply chain partners have a major impact on each
other's operations, depending on the systems that they have in place. Channel partners with very unique,
complex systems may have excellent internal integration and flow of information. However, the complexity
and uniqueness of the system may make it very difficult for an outside partner to interface with the system.
Trust and alliance building are very important in supply chain information exchange. The retailer may
share proprietary information with the vendor which can help the vendor to provide better customer service
to the retailer. However, information sharing requires confidence that the information will not leak to
competitors, or be used as leverage by the vendor against the retailer.
In the next stage of this research, we will send out survey questionnaires to companies to evaluate the
degree of criticality and importance of the factors identified in the interviews and site visits. With a better
understanding of the issues in core competencies, management will be able to make critical decisions and
allocate resources that are required to make convenience store operations an excellence.
Conclusion
The framework from this study provides a conceptual guidance for research on core competencies of
convenience store, and further empirical and industry practices will have potential to develop a
benchmarking scale for convenience store in SCM performance. The scale can also provide a preliminary
foundation for facilitate research in SCM operations in wider spectrum of convenience store industry.
Finally, knowledge of core competencies can contribute to managerial and business consideration and
planning for operations in convenience stores. A comparison of core competencies of 7-Eleven in USA,
Japan and Hong Kong is provided in the eight factors perspectives.
Recommendations for further research and operation strategy are suggested based on these outcomes,
such as innovative products and services development, information technology, for improving and
expanding the core competencies of convenience store.
References
[1] 7 Eleven, Japan (2004) 7 Eleven, Japan - Corporate Outline [www document], Retrieved 11 April 2005,
http://www.sej.co.jp/english/investor/irtool/co2004_e.html
[2] 7 Eleven, Inc (2005) 7 Eleven, Inc – Corporate Profile [www document], Retrived 11 April 2005,
http://www.7-eleven.com/newsroom/backgrounders.asp
[3] Barney, J. B. (1991), Firm resources and sustained competitive advantage, Journal of Management, Vol.
17, No.1, pp. 99-120
[4] Berman B. and Evans, J R., (2003) The Retail Management: a Strategic Approach, Prentice Hall, NJ.
[5] Christopher, M., (2005) Logistics and Supply Chain Management, 3rd edition, Financial Times, UK.
[6] Diary Farm Press Release: Dairy Farm Acquires Daily Stop Convenience Stores in Hong Kong [www
document] (16 September 2004), Retrieved 11 April 2005,
http://www.dairyfarmgroup.com/shareholder_info/press/p040916.pdf
[7] Gottfredson, M., Puryear, R. and Philips, S. (2005) Strategic Sourcing: From Periphery to the Core,
Harvard Business Review, Vol. 83, No. 2, February 2005.
[8] Hong Kong Government: Digital 21 Strategy: E-commerce case – 7 Eleven, Hong Kong [www
document] (8 September 2004), Retrieved 12 April 2005,
http://www.info.gov.hk/digital21/eng/ecommerce/refcase2002/7eleven.html
[9] Hau L. Lee, (2005) The Three Triple-A Supply Chain, Harvard Business Review, Vol. 82, No. 10,
October 2004
[10] Ishikawa, Akira & Nejo, Tai, (1998) The Success of 7-Eleven Japan: Discovering the Secrets of the
World’s Best-run Convenience Chain Stores, World Scientific, Singapore.
[11] Lee, C.S., (2001), ‘Enterprise: Retail: Convenient Revolution’, Asiaweek, October 19, 2001:1-3, Hong
Kong
6
CHAN Pui Yuk
A Framework of Core Competencies of Convenience Store: a Case study in Hong Kong
[12] Praharad, C.K, and Gary Hamel, (1990) The Core Competence of the Corporation, Harvard Business
Review, Vol. 68, No.3, May-June.
[13] Sanchez, R. and Heene, A. (1997), Reinventing Strategic Management: New Theory and Practice for
the Competence-Based Competition, European Management Journal, vol.15, no.3, pp.303-317
[14] Teece, D.J., Pisano, G., and Thomas, H. (1997), Dynamic Capabilities and Strategic Management,
Strategic Management Journal, vol.18, no.7, pp509-533.
[15] Wernerfelt, B. (1984), A Resource-Based Review of the Firm, Strategic Management Journal, Vol 5, pp.
171-180.
7
CHAN Pui Yuk
A Framework of Core Competencies of Convenience Store: a Case study in Hong Kong
Appendix 1
Table 3: Comparison of the Contemporary Strategic Approaches
Resource
-based
view
Concept of a
firm
Competitive
strategy
A bundle of
resources and
capabilities
comprising:
” Tangi
ble
asset
s
” Intan
gible
asset
s
” Capa
biliti
es
Activities
Controlling
and
exploiting
strategic
resources
manifested in
assets or
capabilities
Attributes
of
resources/c
ompetencie
s
”
Develop
ment
method
Develop
ment
environ
ment
Examples
Develop
ment of
intangibl
e assets
Internal
Convenie
nce
Locations
Internal
and
external
Optimize
d SCM
”
”
”
Compete
nce-base
d
perspecti
ve
An open system
of asset stocks
and flow
comprising:
” Tangi
ble
asset
s
” Intan
gible
asset
” Develop
ment and
integrati
on of
intangibl
e assets
and
capabilit
” ies
Deploying,
protecting,
and
developing
competencies
resulted from
the
integration of
assets and
capabilities
8
CHAN Pui Yuk
A Framework of Core Competencies of Convenience Store: a Case study in Hong Kong
”
s
” Capa
biliti
es
Managerial
process
”
Robust (for
new
market)
Dynamic
capabiliti
es
approach
A system
formed by
processes,
routines, and
resources
comprising:
” Tangi
ble
asset
s
” Intan
gible
asset
s
” Capa
biliti
es
Organizational/
Managerial
processes
Deploying
and
exploiting
capabilities
embedded in
processes,
and continual
reshaping of
the portfolio
of assets
” Develop
ment and
integrati
on of
intangibl
e assets
and
capabilit
” ies
”
”
9
Internal
and
external
Excellent
services,
Marketin
g
Strategies
CHAN Pui Yuk
A Framework of Core Competencies of Convenience Store: a Case study in Hong Kong
Dynamic
10