7-ELEVEN, INC.
In mid-January, 2005, Jack Stout, the Asset Management Planning Manager at 7-Eleven,
Inc., met with a group of marketing interns. The purpose of the meeting was to describe their
internship project.
Mr. Stout's primary responsibility was to formulate the strategy for where 7-Eleven, Inc.
would open new convenience stores and close existing stores. In 2005, 7-Eleven, Inc. intended
to open around 100 to150 new stores in its present core urban and suburban markets in the
United States. Mr. Stout thought that the marketing interns would welcome the opportunity to
identify markets for new 7-Eleven convenience stores and recommend specific store locations.
Therefore, he proceeded to give an overview of 7-Eleven, Inc., the convenience store industry,
and the internship assignment.
The Company
7-Eleven, Inc. is the world’s largest operator, franchiser and licensor of convenience
stores with over 27,500 units worldwide. The company’s total revenues were about $12.2 billion
in 2004 principally from retail sales of merchandise and gasoline in its U.S. and Canadian stores.
7-Eleven operates and franchises more than 5,300 stores in the United States. About 60
percent of these stores are located in California, Florida, Maryland, New York, Texas, and
Virginia. In addition, 7-Eleven operates and franchises about 500 stores in Canada. Area
licensing agreements and joint ventures cover the operation of around 500 stores in Mexico and
more than 10,600 stores in Japan. Figure 1 shows the distribution of 7-Eleven stores in the
contiguous United States.
7-Eleven Business Model
The 7-Eleven business model consists of five key elements:
1.
2.
3.
4.
5.
A differentiated merchandising strategy;
Utilization of 7-Eleven’s retail information system;
Managed distribution;
Providing a convenient shopping environment; and
A unique franchise model
The cooperation of 7-Eleven, Inc. in the preparation of this case is gratefully acknowledged.
This case was prepared by the JCPenney Center for Retail Excellence, Edwin L. Cox School of
Business, Southern Methodist University, under the supervision of Professor Roger A. Kerin.
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Figure 1
7-Eleven Store Counts by State: January 2005
2
Note: State totals reflect both company-operated and franchised 7-Eleven stores, but exclude stores that are operated by third-party
affiliates under the 7-Eleven brand by license agreement.
Source: 7-Eleven, Inc.
2
Differentiated merchandising strategy. 7-Eleven offers a broad array of products,
including many not traditionally available in convenience stores, to meet the needs of its
customers. These products include high-quality fresh foods that are delivered daily to stores. In
addition, the company sells a number of products that are developed specifically for its stores,
such as 7-Eleven Go-Go Taquitos®, crispy grilled tortillas with spicy Mexican filling. The
company’s merchandise assortment also features items specifically identified with 7-Eleven,
including Slurpee® semi-frozen carbonated beverages, Café Select® coffee, Big Gulp® fountain
beverages and Big Bite® hot dogs.
7-Eleven implements its merchandising strategy through a variety of means. It employs
item-by-item inventory management to keep top-selling items in-stock. In addition, the company
promotes new high-potential items. The company expects its franchisees and store managers to
monitor customer buying patterns to maximize store sales by staying stocked on popular items,
managing product assortment and merchandising effectively.
7-Eleven sells gasoline at more than 2,400 stores. Almost all offer CITGO-branded
gasoline. Because gasoline sales contribute to increased store traffic, 7-Eleven sells gasoline at
its stores wherever practical. The company expects that approximately half of its new stores
opening in the United States and Canada in the foreseeable future will sell gasoline.
Utilization of 7-Eleven’s retail information system. 7-Eleven was the first major
convenience store chain in the United States to use an integrated set of retail information tools.
Effective utilization of the system is the foundation of the company’s business model.
The 7-Eleven retail information system features:

A point-of-sale, touch-screen system with scanning and integrated credit,
debit and stored value card authorization, supported by a centralized price
book;

Daily ordering, supported by five-day forward-looking weather forecasts,
merchandise messages and historical sales information;

Category management and item level sales analysis;

Integrated gasoline and “pay-at-the-pump” functionality;

Automated back-office functions, such as sales and cash reporting, payroll,
gasoline pricing and inventory control, which are connected directly to the
company accounting system; and

The ability to make delivery adjustments and perform write-offs on a handheld unit.
Managed distribution. 7-Eleven works with its vendors and distributors to provide
daily delivery of fresh food and other items to its stores, to lower the cost of delivery, and to shift
deliveries to off-peak hours. Vendors include independently-owned and operated bakeries and
commissaries that provide daily deliveries of fresh foods, such as sandwiches, salads, and baked
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goods, to its stores. In addition, the company uses 24 distribution centers in the United States
and Canada to service approximately 4,900 of its stores. Each center serves about 200 stores, on
average. These centers typically serve stores within a 90-minute drive. The distribution centers,
which consolidate orders from multiple suppliers for daily distribution to individual stores, offer
a number of advantages over other distribution systems, including:

More frequent deliveries of time-sensitive and perishable products such as milk,
bread and fresh foods;

Off-peak, consolidated deliveries that allow store personnel to focus on store
operations and reduce congestion in a typically small 7-Eleven store parking lot
during peak sales times;

More customized deliveries and improved in-stock levels; and

Access to products that traditionally have not been available to individual
convenience stores.
Providing a convenient shopping environment. 7-Eleven seeks to provide its
customers with a convenient, safe and clean store environment. The majority of 7-Eleven stores
in the United States and Canada provide more than 6 million daily customers with 24-hour
convenience, seven days a week. Over the last several years, the company has improved lighting
inside and outside its stores, modernized store signage and installed canopies over the gasoline
pumps. In 2004, around $80 million was spent for store maintenance and the replacement of
store equipment. Figure 2 shows the exterior and interior of a 7-Eleven store which typically
range in size from 2,400 to 3,000 square feet.
Unique franchise model. More than half of the 7-Eleven stores in the United States are
operated by independent franchisees. The company’s franchise model is different from most
others because 7-Eleven owns or leases the stores and equipment used by its franchisees. In
addition, the ongoing royalties that the company receives from its franchisees are based upon a
percentage of store gross profit. 7-Eleven believes this model better aligns company interests
with those of its franchisees and allows the company to provide consistency in the store
environment and shopping experience for its customers. 7-Eleven also provides more support to
its franchisees than most franchisors, including financing, bookkeeping, advertising, business
counseling and other services.
7-Eleven Growth Strategy
7-Eleven has identified four avenues for future growth. They are:
1.
2.
3.
4.
Increasing same-store merchandise sales.
Expanding in existing markets.
Providing greater convenience to customers.
Increasing the value of 7-Eleven licenses and expanding internationally.
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Figure 2
7-Eleven Store Exterior and Interior
Source: 7-Eleven, Inc.
5
Increasing same-store merchandise sales. 7-Eleven seeks to increase same-store sales1
by developing and introducing new products. By using proprietary inventory management and
retail information systems, 7-Eleven’s merchandising team, franchisees, and store managers are
better able to increase same-store sales by optimizing the product assortment in each store.
Allowing individual store operators to manage product assortment is part of 7-Eleven's Retailer
Initiative strategy. Store managers and franchisees are trained in the principles of item-by-item
management – removing slow-selling items and introducing new items every day based on local
preferences.
Expanding in existing markets. 7-Eleven’s store development efforts are focused on its
existing markets to take advantage of population density and traffic. Typically, new stores are
concentrated around the distribution centers, commissaries and bakeries that allow the company
to operate more efficiently. Company management believes that the potential exists for
significant expansion in present core urban and suburban markets, and plans to open
approximately 100 to150 new stores in the United States during 2005. A location analysis for
new stores considers population density, demographics, traffic volume, visibility, ease of access,
locations of other 7-Eleven stores, and economic and competitor activity in an area.
Providing greater convenience to customers. 7-Eleven continually seeks ways to
improve customer convenience through innovative merchandising programs. One such
innovative program is Vcom®, which is 7-Eleven’s proprietary self-service kiosk that offers
check-cashing, money order, money transfer, bill payment and traditional ATM services and
access to Verizon residential telephone services.
Increasing the value of 7-Eleven licenses and expanding internationally. By
continuing to develop its infrastructure, 7-Eleven offers an attractive financial opportunity to
prospective licensees. Infrastructure development will also serve to strengthen the value of the
7-Eleven brand. 7-Eleven’s long-range plans include expanding into countries where it currently
does not have a presence. For example, an area licensing agreement for China was developed in
early 2004.
7-Eleven Products and Services
7-Eleven stores offer a wide array of products and services based on customer demands,
sales potential, and profitability. Broadly speaking, 7-Eleven net sales are split between gasoline
and merchandise (including services). Gasoline typically accounts for about 30 percent of
company net sales. Merchandise (including services) accounts for about 65 to 70 percent of
company net sales.
7-Eleven stores carry anywhere from 2,300 to 2,800 merchandise items. These items fall
into nine general product categories. Figure 3 shows the merchandise (service) sales breakdown
for 7-Eleven stores in the United States and Canada by product category. Of all U.S. retailers, 7Eleven sells the most USA Today newspapers, Sports Illustrated magazines, cold beer, cold
single-serve bottled water, cold Gatorade, fresh-grilled hot dogs, single-serve snack chips and
money orders. 7-Eleven also has the largest ATM network of any U.S. retailer.
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Same-store merchandise sales refers to sales dollars generated only by those stores that have been open more than
one year and have historical sales data to compare the current year’s sales to the same time-frame the previous year.
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Figure 3
7-Eleven Merchandise Sales Breakdown for the Period 2001-2004
(Based on total store purchases)
Product Category
Year Ended December 31
2001
2002
2003
2004
Tobacco
Beverages
Beer/Wine
Candy/Snacks
Non-Foods
Fresh Foods
Dairy
Other
27.0%
23.0%
11.3%
10.9%
8.0%
6.6%
4.8%
4.9%
28.1%
23.0%
11.2%
10.9%
7.6%
6.7%
4.5%
4.6%
29.4%
23.1%
11.4%
10.5%
7.0%
7.2%
4.4%
3.6%
29.1%
23.5%
11.2%
10.0%
6.9%
7.7%
4.4%
3.5%
Total Product Sales
Services
96.5%
3.5%
96.6%
3.4%
96.6%
3.4%
96.3%
3.7%
100.0%
100.0%
100.0%
100.0%
Total Merchandise Sales
7-Eleven Merchandise Category Descriptions
Tobacco includes cigarettes; chewing tobacco; cigars; pipe tobacco
Beverages include fountain drinks; pre-packaged soft drinks (single-serve/multi-pack, bottles/cans);
juices; non-carbonated beverages; bottled water; sport and energy drinks; frozen
carbonated beverages (Slurpee); frozen non-carbonated beverages; coffee; tea; hot
chocolate
Beer/Wine includes beer (domestic/premium/import, bottles/cans, multi-pack/single-serve); wine; wine
coolers; malt beverages; liquor
Candy/Snacks include gum; candy; mints; chips; pretzels; crackers; pre-packaged bakery items (cookies,
donuts, pastries, etc.); pre-packaged meat snacks; other pre-packaged food items
Non-Foods include newspapers; magazines; health care; beauty supplies; personal hygiene; collectibles;
batteries; film; electronics; cards/stationery; school/office supplies; apparel/accessories;
soap; cleaning supplies
Fresh Foods include fresh bakery (donuts, cookies, muffins, pastries); hot dogs; sausages; taquitos; hot
sandwiches; cold sandwiches; deli wraps; salads; fruit (whole/prepared)
Dairy includes milk (single-serve/take home sizes, variety of flavors and fat content); butter; cheese; sour
cream; eggs; ice cream
Other includes bread; packaged groceries; frozen groceries; ice; miscellaneous products
Services include ATM services; check cashing; money orders; postage services; lottery; pre-paid cellular
service; payphone service
Source: 7-Eleven, Inc.
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The Convenience Store Industry
The U.S. convenience store industry consists of a few large companies, such as 7-Eleven,
Inc., a moderate number of mid-sized, regional chains, and many smaller, independent operators.
More than half of all U.S. convenience stores are classified as “one-store operators,” meaning
that they are either owned or franchised by an individual. Conversely, only about one in seven
U.S. convenience stores are owned and operated by a company that owns 500 or more stores.
In 2004, about 131,000 individual convenience stores were operating in the United
States. These stores posted an estimated combined sales revenue of about $400 billion.
Competition
The convenience store industry is highly competitive. In the area of general merchandise
sales, convenience stores compete with national, regional, and local and independent retailers,
including grocery and supermarket chains, grocery wholesalers and buying clubs, fast food
chains, and variety, drug and candy stores, in addition to other convenience stores. In sales of
gasoline, convenience stores compete with other convenience stores, food stores, service stations
and increasingly supermarket chains, hyper-marts and other discount retailers. The rapid growth
in the numbers of convenience-type stores opened by oil companies over the past several years
has also intensified competition.
Customers
About 90 percent of U.S. adults (18 years or older) visit a convenience store at least once
a year. The average number of visits per week for a 7-Eleven customer is 3.5. Twenty percent
of customers visit a 7-Eleven store more than five times per week.
7-Eleven management believes that the characteristics of its customers are representative
of convenience store customers as a whole. Figure 4 shows the profile of 7-Eleven convenience
store customers. Almost 7 in 10 (69%) customers are male and white. A majority of customers
(54%) are unmarried; 54 percent fall into the 25 to 44 age group; and 53 percent have attended or
completed college. Almost three-quarters (72%) of 7-Eleven customers have an annual
household income between $20,000 and $70,000.
Almost 8 in 10 (78%) 7-Eleven store trip visits have a customer’s residence as the origin
or destination. The distance from a customer’s residence to the 7-Eleven store visited is under
10 miles for 84 percent of customers. Nine in 10 customers travel less than 10 miles to a 7Eleven store. The time traveled to a 7-Eleven store is 10 minutes or less for 76 percent of
customers.
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Figure 4
Profile of 7-Eleven Convenience Store Customers
(Customer Distribution by Share of Transactions*)
Gender
Male
Female
Marital Status
69%
31%
Ethnicity
White
Hispanic
African-American
Asian
Other
69%
13%
13%
4%
1%
Age
Under 18
18-24
25-34
35-44
45-54
55-64
65+
4%
20%
29%
25%
15%
6%
2%
Married
Single
Divorced/Widowed
46%
42%
12%
Household Income
Under $20,000
$20,000-$39,999
$40,000-$69,999
$70,000-$99,999
$100,000+
15%
38%
34%
8%
5%
Education Level
Some High School or less
High School Graduate
Technical/Trade School
Some College
College Degree
Post-Graduate Degree
6%
30%
10%
29%
21%
3%
Distance–Home to 7-Eleven Shopped
<1/2 Mile
25%
1/2 Mile to <1 Mile
13%
1 Mile to <2 Miles
12%
2 Miles to <5 Miles
24%
5 Miles to <10 Miles
10%
10+ Miles
16%
Distance Traveled to 7-Eleven
<1/2 Mile
28%
1/2 Mile to <1 Mile
15%
1 Mile to <2 Miles
15%
2 Miles to <5 Miles
25%
5 Miles to <10 Miles
7%
10+ Miles
10%
Trip Route
Home, 7-Eleven, Home
Home, 7-Eleven, Work
Other, 7-Eleven, Home
Work, 7-Eleven, Home
Home, 7-Eleven, Other
Work, 7-Eleven, Work
Other, 7-Eleven, Other
Work, 7-Eleven, Other
Other, 7-Eleven, Work
Time Traveled to 7-Eleven
2 Minutes or Less
26%
3-5 Minutes
30%
6-10 Minutes
20%
11-15 Minutes
11%
16-20 Minutes
5%
21-30 Minutes
4%
31+ Minutes
5%
26%
14%
14%
13%
11%
10%
9%
2%
1%
*Note: Some columns will not total to 100% due to rounding
Source: 7-Eleven, Inc.
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The Assignment (Report and Presentation Due Tue. April 19)
Following the overview of 7-Eleven, Inc. and the convenience store industry, Mr. Stout
outlined the assignment for the MBA’s. The assignment was to employ the SimmonsLocal®
Market Service database and Microsoft MapPoint® software to examine selected 7-Eleven
markets and recommend specific locations for new 7-Eleven convenience stores. Mr. Stout was
particularly interested in store location opportunities in Austin, Texas, where there are currently
36 stores.
Mr. Stout expected the students to prepare a detailed report that would:
1.
2.
3.
Identify a specific location in the Austin market where a 7-Eleven store should be
opened and explain the reasons for the selection. The location should be a
specific street intersection.
Describe the socio-economic profile of the likely customers at the specific
locations. Compare and contrast this profile with that of convenience store
customers.
Recommend at least one new product category or service that the specified store
locations should provide, in addition the product assortment typically carried by a
7-Eleven store. Explain the reasons for this recommendation.
In preparing their report, the students could assume that the new store locations would offer
CITGO-branded gasoline and be serviced by a 7-Eleven distribution center and independentlyowned bakeries and commissaries.
The text portion of the report should not exceed 15 double-spaced pages using one inch
margins and a 12-point type font size. Only those tables and figures used to summarize data
relevant to the analysis and recommendations should be submitted with the report. They should
be properly titled, clearly referenced in the text, and attached to the end of the report.
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