Casting a Big Shadow

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Casting a Big Shadow

By Don Longo, Convenience Store News - 07/07/2008
7-Eleven is practically synonymous with the words "convenience store" -- and not just because it pioneered the convenience store concept in 1927 when a dock worker at the Southland Ice Co. in Dallas began selling milk, bread and eggs on Sundays and evenings when grocery stores were closed. The 7-Eleven store name came into existence 19 years later -- reflecting the fact that stores were open from 7 a.m. to 11 p.m.

Today, there are more than 7,500 7-Eleven and other convenience stores operated, licensed and franchised by 7-Eleven Inc. in North America and they serve approximately 7 million customers a day.

Given its international presence and long-time heritage as a c-store operator rather than a petroleum-based company, 7-Eleven has defined a channel of retailing like few other companies have ever accomplished.

So, when 7-Eleven CEO Joe DePinto says "the time is right to challenge the status quo" of the c-store channel's archaic product distribution system, the entire industry needs to sit up and take notice. DePinto's efforts to streamline the way merchandise is delivered to stores should reap benefits not just for 7-Eleven, but for the entire industry.

It won't be an easy task, though. It will take buy-in from many direct-store delivery (DSD) vendors, as well as their distribution partners, franchisees and perhaps even other retailers. But if any company can force such a change, it is 7-Eleven. The industry's current distribution model puts c-stores at a competitive disadvantage to other channels. And make no mistake about it -- other retail channels are aggressively chasing the convenience shopping occasion.

"Fast-food restaurants, coffee houses, other small-box retailers like drug stores, and new hybrid concepts from giant retailers like Wal-Mart and Tesco are all trying to get into the convenience business," acknowledged DePinto in an interview last month with Convenience Store News. He appears to realize that just having more stores is not going to win the battle. Convenience stores must provide the consumer with fresh, quality products in a quick-in, quick-out environment. They must offer low prices and better service. Getting the industry's distribution network on at least an even footing with other retail channels is a great first step.

Our cover story looks at the changes DePinto is making after two-and-a-half-years as chief executive of 7-Eleven. Despite some success, his job is far from done. Migrating from a combination of corporate-run and franchised stores to a mostly franchise organization makes sense for a number of reasons, and the new "servant leadership" culture is a big improvement over the company's old command-and-control management structure. By moving to an all-franchise model, 7-Eleven places much more decision-making at the local level, where store owners are in the best position to understand what's selling and how to serve the consumer, and "servant leadership" appears to be the perfect way to support these operators.

But some franchisees still need to be convinced. Many express reservations about 7-Eleven's policies and systems. They claim:

-- Some of the new systems force store operators to spend more time in the backroom than at the sales counter;
-- Contractual requirements penalize them severely if they buy more than 15 percent of their merchandise from local sources rather than the centrally-approved list;
-- The current gross profit split no longer reflects the franchisees' increased labor costs; and,
-- National marketing initiatives like "The Simpsons Movie" promo, while drumming up a lot of publicity, benefited only a few franchisees.

If DePinto's efforts are successful, he will revolutionize 7-Eleven, and in doing so, transform the entire convenience store industry.