At the Cutting-Edge of Innovation

Convenience stores in Japan — particularly those of the country’s leading operator, 7-Eleven Japan, based in Tokyo — operate at a level of efficiency and innovation far beyond what’s commonplace in the rest of the world, according to two veteran convenience store industry executives who recently visited the Asian nation.

Guy Strayer, foodservice director of Country Fair Inc., the Pennsylvania-based chain of 72 stores, and Australasian Association of Convenience Stores (AACS) CEO Jeff Rogut were invited by Asahi TV of Japan to participate in filming a behind-the-scenes look at the operation and inner workings of the Japanese convenience store industry, including exclusive access to the stores, factories and innovation center of 7-Eleven Japan.

What they witnessed in February was a highly professional industry that’s focused on the customer experience, and at the cutting-edge of innovation, according to Rogut.

“It was an enlightening experience,” Strayer told Convenience Store News.

Convenience stores are a major contributor to the Japanese economy. “They are a part of everyday life for the Japanese. They are visited frequently. They are influential in a social and political context, and they are run by some of the most successful convenience operators on the planet,” Rogut wrote in his association’s recent newsletter to members.

In Japan, Strayer and Rogut visited a new 7-Eleven store; toured the c-store retailer’s factories that produce food products exclusively for its 18,000 stores; and checked out the company’s innovation and distribution center.

Here are some highlights of their trip:

IMMACULATE STORES

The new 7-Eleven store in Japan they visited was clean and well-organized, with clear signage and bright, well-lit shelves, and a spotless sales counter.

Food cabinets displayed fried chicken, doughnuts and steamed buns, while two coffee machines (one for hot, the other for iced) used the company’s own exclusive beans for grinding.

Rogut noted that an open, heated, shelved display with different teas can also be used as a chiller in the summer. There are separate hot water kettles for customers who buy cup noodles to take away.

Then, there are open food displays with more fresh foods — rice balls, sandwiches and lunch boxes, for instance — on glass shelves that can be pulled forward for ease of stocking and rotation.

Opposite these is the bakery offering, with fresh, wrapped products surrounded by softer, warmer lighting. Bread is sold in either loaves, packs of four slices or packs of six slices, providing real choice and convenience, Rogut observed.

The Japanese stores carry a full display of salty snacks, but have less emphasis on confectionery than their American or Australian counterparts. Magazines and newspapers are still strong sellers in Japan, and seasonal promotions like Valentine’s Day are huge.

Chilled beverages, including beer and wine, are well-represented, while frozen take-home meal solutions complement the fresh food offerings.

More than 70 percent of the store’s products are 7-Eleven branded, and Rogut noted that the brand of 7-Eleven Japan’s holding company, Seven & i Holdings — the same parent company of the U.S. 7-Eleven chain — is promoted on the storefront.

CUSTOMER SERVICE

“One of the most striking observations I made during my visit was the approach of staff in the store,” recalled Rogut. “While there are obvious cultural differences from the Australian retail experience, the energy and commitment of the employees I engaged was really impressive.”

Rogut described a culturally different service experience. At a change of shift, he observed three employees gathered in the back office. They each recited the company pledge before running through “smiling techniques” and different methods for greeting and thanking customers.

“They actually practiced smiling,” he said, “and it is very successful.”

The retailer’s success is owed not only to a focus on customer service, but also actually knowing the customer. For each transaction, the cashier enters the gender and approximate age of the customer, using two rows of keys clearly marked for easy identification to ensure speed of data entry.

“Imagine how powerful this information would be,” commented Strayer. “To identify products by customer demographics and by the demographics of the shoppers to a store.”

Both Rogut and Strayer were impressed by the simplicity with which this important data is collected.

FRESH FOCUS

Hot and cold fresh food is delivered to the store three times a day, seven days a week.

“This means they are inventorying and ordering at each store for 300 fresh SKUs,” said Strayer. “And, if you’re counting, that means they are receiving delivery and rotating product three times a day, and pulling out-of-date product even more often.”

These products sold fresh are checked nine times daily by staffers. “This strict attention to detail highlights just how strong the emphasis on fresh products is,” added Rogut.

The 7-Eleven Japan distribution center services around 1,000 stores. About 100 trucks were being loaded at the time of Rogut’s and Strayer’s visit. The trucks are monitored, with routes set via GPS so that the timing of deliveries can be recorded.

For cold items, the temperature in every vehicle can be monitored.

TIME TO MAKE THE DOUGHNUTS

On a manufacturing plant tour, the two foreigners were able to review 7-Eleven’s doughnut program. Strayer reported that orders come in from the stores in three dayparts. The plant sets their production based on those orders.

The doughnuts are packaged and delivered in four-packs from the third-party bakery to 7-Eleven’s distribution center, and then delivered to the stores from there.

“The plant was not the most efficient, both on the design aspects and the short production runs,” observed Strayer. “They were not willing to discuss sanitation protocols, though the facility was among the best I’ve seen. The exception was the totes, which did not look clean.”

The product itself is good and is primarily cake doughnuts, according to Strayer. “They market eight flavors, primarily with some combination of chocolate and a topping.”

BEHIND CLOSED DOORS

Strayer and Rogut also got the rare opportunity to sit in on two of 7-Eleven Japan’s weekly meetings with suppliers. Rogut reported that each category team meets with their suppliers weekly to review products, discuss new formulations and sample new innovations.

These meetings are typically held in off-site locations, and the first one they attended focused on noodle quality in lunch boxes. In the room, there were 35 suppliers to 7-Eleven waiting; each had a temperature-controlled cooler containing their products for review.

Each product was then tasted, measured and recorded. Decisions were made about how they might be improved. It was clear that consensus was the guiding principle.

In the other meeting, attendees discussed new mayonnaise products for the 2.5 million rice balls sold annually through 7-Eleven Japan stores. There were about 12 suppliers in this meeting, along with the 7-Eleven Japan representatives. Each supplier’s products were tasted, commented on and then voted on by everyone. The supplier of the winning products, following a 9-to-3 vote, secured a new contract away from the incumbent supplier of well over 20 years.

“There’s much at stake in these meetings,” said Rogut. “Big gains, big losses. Every room in the center I visited hosts meetings weekly covering the various fresh food categories. The absolute commitment to the quality of the products was plain to see.”

Strayer said his takeaway from both of the extended meetings is “that they make inroads in improving their product, but really don’t focus their marketing on these changes, at least not to potential new customers. I hope to remember this lesson with our own program.”

Rogut concluded his observations of 7-Eleven Japan should inspire Australian c-store retailers. “While our industry is without the natural advantages of urban population density compared to Japan, we can learn something from 7-Eleven Japan’s total commitment to quality, innovation, systems, processes and, importantly, people in our own efforts to drive continued success.”

“7-Eleven Japan is a machine,” added Strayer. “I don’t agree with all of their methods of business, some of which may just be cultural. But the worst that I saw was good business methods. When adding all of the aspects that I saw, they are the best c-store operator I know of.

“The overall impression I have is simple: I can’t imagine that they’ve missed any fundamental aspect in their business model,” he continued. “I think the equivalent in the U.S. is one of our Study Group partners, Kwik Trip. I have to believe that they have had an opportunity similar to mine to experience what I have learned [in that weeklong trip].”

Strayer concluded: “The simplest and potentially greatest way for us to understand the fundamentals of who our customers are is to determine how we can mimic the data collection of who is purchasing our goods at time of tender.”

Each category team meets with their suppliers weekly to review products, discuss new formulations and sample new innovations.