The 7-Eleven Retail Primer – Part 1
7-Eleven – the globally omnipresent retailer – launched in India last week via a partnership with Reliance Retail and there were many hurrahs and kudos all around. Industry folks had discussed their business case multiple times in retail forums. ‘Globally-traveled’ customers – who always found them reliable & convenient for their staples purchases in newer lands – always wondered why they access a similar proposition in India. Yes, the 7-Eleven proposition was trustworthy enough to establish a patronage – which they now hope to replicate in the Indian market.
Outside In explores the 7-Eleven retail primer and hopefully captures some of the key elements that make them tick… every single day…
India Launch and ‘Format’ Update
The first 7-Eleven store was opened in Marol (Andheri East) in Mumbai. The store, roughly around 600 square feet in size houses daily essentials such as packaged foods & beverages, personal care and home care products along with some food and beverages being sold at the store
The store houses products from across FMCG majors but also houses Reliance’s private labels such as Snac Tac, its instant noodle brand. In its India-customized QSR avatar, it will even offer vegetarian as well as non-vegetarian food – with a small seating space that could house about 10-12 people and offer washroom facilities
The food available at the 7-Eleven stores includes ‘Indian’ snacks such as Samosas, French Fries, Vada Pav, Sandwiches and Rice Bowls. 7-Eleven will also serve tea, coffee, and some cold beverages. As suggested at launch, their intention is to offer breakfast, lunch, snacks and dinner – and the store intends to be open 24/7 when things have completely normalized
This India-focused 7-Eleven format seems to be a blend of Classic ‘Top-20/Top-50/Top-100’ Staples store with ‘organized’ mom-and-pop tea/coffee/snack shops anywhere and everywhere on the roads. It will be an interesting story to track… but that is for some other day I guess
For today, let me use some of my old notes (and some new ones!) on articulating what really makes the “global 7-Eleven (the store as well as the organization) click” – across thousands of stores and multitude of countries – each with their own characteristics and challenges – unified with a solid value proposition – Convenience!
The 7-Eleven Value Proposition (for which it has been awarded the 3rd Porter Prize in 2003! – when it was still present only in Japan)
7-Eleven provides those "little necessities" in everyday life to the local customers of each store
Open 24 hours a day, 365 days a year
"The 7-Eleven store is my refrigerator" is an often-heard expression that describes the nature of a 7-Eleven store, where you can immediately get that little item you want at that moment
It's available at a store just around the corner. Quite simply, these stores offer convenience
7-Eleven's average daily sales per store attests to the uniqueness of its merchandise and the degree to which it matches customers' preferences
A Unique Value Chain
1) Product Development
In order to offer merchandise that responds to latent customer demand, 7-Eleven works jointly with manufacturers to develop new products to be put on the store shelf
For example, in the case of development of a plastic container for an instant Chinese noodle served at a well-known and immensely popular noodle shop, a merchandising team was formed. This project team comprised representatives from noodle shops, a freeze-dried noodle manufacturer, a soup manufacturer, a manufacturer of the ingredients in the noodle dish, and a container manufacturer
The activities of such a team are not limited to product development, but also cover detailed planning of sales promotion and the adjustment of commercial and physical distribution flows. One such team discovered that the taste of cooked rice dishes deteriorates faster at temperatures both above and below 20 degrees Centigrade. The team went on to develop special vehicles for transporting cooked rice dishes that allow the food to be kept warm at the specified temperature
This team merchandising approach has been utilized for a wide range of products, including boxed lunches, rice balls, sandwiches, packaged side dishes, snacks, soft drinks, beer, and toys. As a result, original products only available through 7-Eleven currently account for 50% of the company's total sales
Merchandise development activities at 7-Eleven are not limited only to physical products but also include services, such as the collection of public utility charges, made possible through the leveraging of the store's three types of networks (information, transaction and physical distribution networks) as a platform
2) Merchandise Proposals
Ordering by stores is done from a list of recommended merchandise sent from 7-Eleven HQ and new merchandise items are added to this list every week. The HQ typically adds 80 new items a week and a total of 4,000 new items are recommended each year. Furthermore, about 50% of these new items are original merchandise developed as part of merchandising team efforts
Focus on Bestsellers: They do not add variety just to fill up shelf space. It will allocate more shelf space to a best-selling canned coffee product (say), even if it meant reducing the number of different brands to be sold
3) Store Network Expansion
Opening of a 7-Eleven store is based on a franchising system, and done through the intensive recruitment of franchisees within a limited geographic area (utilizing an area-dominant strategy). By pursuing an area-dominant strategy, 7-Eleven gains such benefits as higher brand/store recognition in the area, more frequent customer visits, efficiency in physical distribution, enhanced efficiency of services to support franchisee stores, and more effective advertisement and sales promotion activities
As a result of efficient physical distribution, namely due to an area-dominant strategy and the communal use of physical distribution channels by suppliers, 7-Eleven can schedule deliveries at precisely controlled temperatures
4) Ordering/Merchandise Selection/Inventory Management
Merchandise Selection and Display Locations are frequently varied according to local events, changes in season and weather, and customer preferences. As a result, 70% of the merchandise is replaced during the course of one year
What makes it possible is firstly the proactive ordering undertaken by each store. To facilitate ordering, all employees, including part-timers (there are 20 part-timers per store on average), are responsible for placing orders, changing displays and stocking the shelves
Secondly, 7-Eleven achieves extremely high accuracy in distinguishing between strong selling items and poor performers. It has created a system to grasp in real time the inventory situation for each merchandise item in every store. It can identify those items that do not move at all, and can tell whether an item has sold out in two hours or eight hours, for example
Ordering-basis Hypothesis Formulation and Verification: Store staff in charge of ordering (part-time staff included) are encouraged to talk with customers and find out about factors relating to the neighborhood in which a store is located that might affect the sales volume of a particular items in the immediate future Details that might have an impact on products sales include the duration of construction work in town or an athletic meet among local schools. It also provides easy-to-understand on-line graphic presentations of weather forecasts, publicizes major events in the region, and offers POS information and new merchandise information. Integrating all this information, the staff member in charge of ordering formulates hypotheses about what kind of customers buy which kinds of items under which circumstances. Orders are placed based on the hypotheses formulated. The staff member then reviews actual sales after the event, and revises his or her hypotheses for the next ordering opportunity. This cycle is constantly repeated in each store. The second factor in management via inventory information is a post-facto response, allowing the company to respond to changes that have already occurred. The third factor in ordering by hypothesis is forecasting changes that are likely to occur in the future.
Their average Inventory Turnover is 7-8.5 Days
5) Outbound Logistics
They build a dedicated physical distribution system that can carry and deliver the products of a number of manufacturers, and it includes specialized trucks equipped with temperature controls, so that frozen food can be transported at minus 20 degrees Centigrade, chilled goods and beverages at 5 degrees, and cooked dishes at 20 degrees
Deliveries are run 3 times a day for chilled and cooked items, so that deliveries arrive just before the peak of sales for such items. However, the total number of deliveries per day is kept below 10 times per store. Physical distribution management at 7-Eleven has resulted in better temperature control, the shortest possible lead-times, and improved inventory efficiency, enabling the freshness of food products in the store to be ensured
6) Activity Map
In Conclusion
The 7-11 Primer: Key Elements of 7-Eleven's Strategy include –
Policy of offering every little thing required between the time one wakes up in the morning and the time one goes to sleep at night,
A franchising approach,
An area-dominant store network development strategy,
A policy of refusing to handle projects that fall outside the scope of the franchiser-HQ role
Agreeing to work together with partners in different industries, and inventory management by each SKU item
Refusal to appeal to customers with low prices. Unlike many private-brand products sold through other retail chains, even the original merchandise developed through the team merchandising process is not sold at a price that undercuts those of comparable national brands. In principle, neither does it practice discount sales
In order for each store to offer merchandise that meet customer needs with limited shelf space and the stockyard inside the store, it emphasizes the selective screening of merchandise that sells, rather than offering customers a broad selection
It does not expand its store chain network through directly operated stores
It does not sacrifice efficiency in physical distribution by expanding the geographic scope of its operations
It does not design and open a store with a big floor space beyond what can be managed by a store manager and a few part-time staff
It only performs tasks consistent with its role as core HQ for convenience store franchisers. Its activities are mostly limited to franchisee support, merchandise development, information sharing and IT infrastructure development and maintenance
PS: While reading up on everything 7-Eleven this week, I discovered a lot of compelling stuff which has lead to make this piece into a 2-part series. So, there will be some more 7-Eleven coming up next week as well… While we have known them for a while, I am more impressed about their practices than even before. These are the joys of looking at things…Outside In…
References and Sources:
7-Eleven India Launch Update: https://www.cnbctv18.com/photos/retail/indias-first-7-eleven-store-opens-in-mumbai-11064562.htm
Porter Prize: https://www.porterprize.org/english/pastwinner/2003/12/03145411.html
Indian School of Business – My Own Case Study Notes on 7-Eleven
Inventory Turnover: https://jindal.utdallas.edu/~metin/Or6366/Folios/IntroStrategy/scseveneleven.pdf
7-Eleven Annual Reports