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 + Ito-Yokado + Denny’s Japan)

Seven-Eleven Global Licensees -2006 Territory First Opened Locations US 1968 469 Norway 1986 95 Canada* 1969 489 Puerto-Rico 1987 14 Mexico 1971 595 Guam 8 Japan 11,069 South Korea 1989 1,238 Australia 1977 359 Thailand 3,311 Sweden 1978 71 Turkey 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 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 Japan 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) 1964 2046.6 2114 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 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 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 Store Supplier Store Supplier DC Store Supplier

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 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 dishes；Bread 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 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?

Pros Cons Simplify supply network Concentrated management is more efficient Reduce vehicles used 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 year number 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 (CDCs)

7-Eleven United State Store Supplier Store Wholesaler Store Supplier

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 Cons Concentrate on main business Lower cost 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 2006 Licensee Name Territory First Opened Locations Garb-Ko, Inc. Michigan, Indiana, Ohio 1968 107 Handee Marts, Inc. Pennsylvania, Ohio, Maryland and West Virginia 1969 65 Seven-Eleven Hawaii, Inc. Hawaii 1989 106 Resort Retailers Utah 1988 7 Southwest Convenience Stores, Inc. Texas, New Mexico 1993 170 Prima Marketing West Virginia, Pennsylvania, Ohio, Kentucky 2002 78

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) 2005 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