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 company 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 Corporation.

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 + ItoYokado + Dennys Japan)

Seven-Eleven Global Licensees -2006

Territory US Canada* First Opened 1968 1969 Locations Territory First Opened 1986 1987 Locations 95 14 469 Norway 489 Puerto-Rico

Mexico
Japan Australia Sweden

1971
1971 1977 1978

595 Guam
11,069 South Korea 359 Thailand 71 Turkey

1987
1989 1989 1989

8
1,238 3,311 79

Taiwan
Hong Kong Singapore Philippines Malaysia

1980
1981 1983 1984 1984

4,037 Shenzhen, Guangzhou 705

324 Denmark 265 Beijing 700 Macau

1992, 1996
1993 2004 2005

250

55 30 5

7-11 Japan- case

Established in 1973 Set up first store in 1974 First listed on the Tokyo Stock Exchange in1979 In 2004, Japans 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 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

In 2002 Seven Eleven large & profitable

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 Japan Store size = 150m2, 3000 items

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

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

Table: financial figures for SevenEleven Japan

year net sales (billion yen) revenue (billion yen) ordinary income (billion yen) net income (billion yen) 2000 1964 327 140.2 68.2 2001 2046.6 346.9 147.2 78.4 2002 2114 365.9 153.8 83.2 2003 2213.3 400.7 159.6 86.5 2004 2343.2 445.4 168.9 91.5

number of stores

8153

8602

9060

9690

10303

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 Japans 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 Japans Integrated Store Information System - hardware system at a 1994

Graphic order terminalmanager 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-Elevens 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
Store Supplier Store Supplier DC Store

Supplier Store

Store

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-Elevens supply chain strategy in Japan can be described as attempting to micromatch 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 7-11s 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 SKUs (stock keeping units). Each store carried on average about 3,000 SKUs depending 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 dishesBread 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 items had been shortened to less than 12 hours. four categories of temp.-controlled trucks. Each made deliveries 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 ISDNPOS 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 Cant work for vast territory with a sparse population

2.

Cons

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

Japaneses 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 SevenEleven Japan

year 1974 1976 1978 1980 number of sales (billion stores yen) 15 199 591 1040 0.7 17.4 72.5 153.6 year 1990 1992 1994 1996 number sales of stores (billion yen) 4270 5058 5905 6875 931.9 1194.9 1392.3 1609

1982
1984

1.643
2299

256.5
386.7

1998
2000

7732
8602

1848.1
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 (CDCs)

7-Eleven United State

Store Supplier Store

Wholesaler Store

Supplier 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 Less control of distribution

Cons

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

2006

Licensee Name
Garb-Ko, Inc. Handee Marts, Inc.

Territory
Michigan, Indiana, Ohio Pennsylvania, Ohio, Maryland and West Virginia

First Opened 1968 1969

Locati ons 107 65

Seven-Eleven Hawaii, Inc.

Resort Retailers

Hawaii
Utah

1989
1988

106
7

Southwest Convenience Texas, New Mexico Stores, Inc.

Prima Marketing West Virginia, Pennsylvania, Ohio, Kentucky

1993
2002

170
78

Seven & I Holdings

1920 Yakado Mens Wear 1958 Yokado Co. 1965 changed to Ito-Yokado 1972 first Family restaurant 1973 supermarket, Dennys Japan (licensed from Dennys of US), York Seven (licensed from Southland of US) 1978 York Seven Seven-Eleven Japan 1982 SEJ installs the worlds 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 Dennys Japan

Seven & I Holdings (cont)

2005
Companies SEJ + Seven-Eleven + Seven-Eleven (Beijing)
Ito-Yokado + Chengdu Ito-Yokado + Hua Tang Yokado Commercial Dennys Japan + Famil York Mart + York-Benimaru + Beijing Wang fu jing Yokado Commercial Robison Department Store Oshmans Japan + Mary Ann IY Foods K.K. IY Bank Shiba Park Publishing

Type Convenience Stores

stores 10,901 + 5,814 + 20

180 + 2 + 2

Superstores

Restaurants Supermarkets Department Stores Specialty Stores Manufacturing and processing Finance Publishing

582 + 338 57 + 113 + 2 3 5 + 53 1 10,468 ATMs 1