Reinventing Convenience

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Reinventing Convenience

Bob Jenkins, vice president of international development for Dallas-based 7-Eleven Inc. has one of the most interesting jobs in the industry -- "ambassador of convenience," if you will.

The very existence of his position illustrates how far his company has come since it first struck gold selling milk, bread and eggs from a lowly ice dock in Oak Cliff, Texas in 1927.

"In Japan, Japanese consumers say, 'Oh, yeah, 7-Eleven is a Japanese concept.' Our Taiwanese consumers would say it had to be invented in Taiwan," Jenkins explained. "'This is my 7-Eleven, and if it's my 7-Eleven, it must have been created for me here' -- that's really what we want our local customers to believe."

His excitement is evident as he continues: "We still have tremendous growth potential around the world. I like to use the comparison to McDonald's; they finished 2001 with a little over 28,000 restaurants in 120 countries. 7-Eleven has 23,000 stores in 19 countries -- huge potential for growth. There are so many untapped markets we haven't touched yet."

As 7-Eleven celebrates its 75th anniversary this year, the company finds itself as much at home in other countries as in the United States.

Take Japan, for example. During a standard lunch hour, a 7-Eleven customer in Tokyo can grab a quick box of sushi, download MP3s onto a minidisk, pre-order a few DVD's, purchase tickets for a baseball game and print out high resolution photos taken during his latest vacation.

When that customer returns later in the afternoon, 40 percent of the store will be entirely reset, featuring a selection of fresh take-home produce, fish and meats.

To many U.S. retailers, this scenario might sound like a futuristic pipe-dream. Yet for the operators at Seven-Eleven Japan Co. Ltd., product mixes that rotate by daypart, along with a staggering array of in-store services, are daily work necessities required to meet consumer demand.

While the Japanese market isn't necessarily a harbinger of things to come in the United States, Seven-Eleven Japan is a crystal ball of sorts. And if one examines the flurry of activity at the heart of the 9,000 store organization — where store-specific product mixes are shipped three times per day using a real-time ordering system, and retailers turn their entire inventories 50 times per year — a picture of convenience retailing's global future begins to emerge.

7-Eleven is beginning to integrate some of its overseas strategies into its U.S. marketing efforts. Its new "Store of the Future" in Plano, Texas showcases new technology and a diverse foodservice offering to drive business throughout the day, said Kathy Walsh, director of information systems for 7-Eleven. "We are working with a U.S. prototype that can be modified to fit the needs of customers in our core U.S. markets," she said.

Fresh Ideas
7-Eleven is reinventing its foodservice program by test-marketing its new "Big Eats" line, an upscale variety of hot and cold sandwiches that complements the Big Gulp and Big Bite lines.

Converting 5,800 domestic stores to a new foodservice program will be an unwieldy task, but 7-Eleven's global scope offers the company a bird's-eye view of the massive potential of an improved offering. In Japan, for example, fresh foods account for about 40 percent of sales; in Sweden, 25 percent. For a large, public company in an industry starving for margins, capitalizing on such potential is imperative.

"When I looked at 7-Eleven, I saw a company that has thousands of stores, serves 3 billion people annually, but has foodservice penetration to only about 3 million of them," said Des Hague, director of fresh foods. "This is virgin territory and a wonderful opportunity to create something that could revolutionize the way we look at food."

7-Eleven's plight is different than that of most retailers. The company already has a loyal consumer base that visits the convenience stores and forecourt three or four times a week.

"With foodservice, you're usually trying to drive people into your door," Hague said. "Our challenge is that we've got all these people and they just don't think we're a viable foodservice option right now. How do we turn that around? That's what really excited me about the opportunity at 7-Eleven."

With his long and distinguished career in foodservice, Hague is exactly what 7-Eleven was looking for to put a fresh face on a tired, albeit successful, program.

Hague first gained experience in his family's restaurant business in northern England. From there he moved around Europe working for Burger King and Pizza Hut. When the Berlin Wall came down in 1991, Hague was one of the first European-based foodservice purveyors to introduce Western food culture to Poland, Czechoslovakia, Hungary, Bulgaria and Russia.

Under Hague's guidance, Pizza Hut Poland now has one of the world's largest and most successful delivery businesses, nearly 4,000 deliveries a week. "And when we got there, they were doing roughly 600 a week," he said. "So we — and we're talking about a six-month period — turned the business around completely by capitalizing on efficiencies and economies of scale to build a strong infrastructure."

Hague is now excited about the challenge of building a new brand. "The challenge of changing the way consumers view 7-Eleven's foodservice program and the challenge of getting customers to view 7-Eleven as a daily option for breakfast, lunch and dinner," he said.

The Big Eats line was developed following a five-step process:

Developing Products Customers Want
"The convenience store industry has sort of a bad history as far as foodservice goes," Hague said. "How are you getting customers to try the products? How do you spread the word about new and improved products?"

To achieve this objective, Hague and the 7-Eleven foodservice group embarked upon detailed and lengthy focus groups and consumer research. "We didn't want to be in a position where we put a lot of money into product development only to find out it's not what customers want," he said.

Leveraging Brand Equity
7-Eleven knows it has strong brand equity in U.S. households because of its exposure to consumers. "We believe that there will be more equity in 7-Eleven-developed brands if we have the things to deliver against the 'store was developed for you' concept," Hague said. "The essence of foodservice is to make sure the brand stands for something customers can trust."

Better Packaging
If there is one area in which the convenience store industry hasn't excelled, it's been in developing attractive, upscale packaging to showcase foodservice products. 7-Eleven has been no exception. "We haven't done a great job," Hague admitted.

"People buy with their eyes first and then taste," Hague said. 7-Eleven is working the packaging angle by using technology to create ergonomically designed cartons that keep products such as pizza and pastries warm without requiring the consumer to actually touch the food item.

"If you're going to launch a product like hot bakery sticks with cinnamon you don't want to just shove it in the bag and force the consumer to eat it with a napkin," Hague said.

7-Eleven is prepared to pay higher costs up front to get the right solution for the consumer. Using gourmet breads and meats combined with condiment stations that include 10 offerings, the Big Eats program spares little expense.

At the store of the future many of the chain's initiatives are evident. "Soft heat" coffee dispensers that keep product fresher longer. The fountain soft drink dispensers have 18 beverage choices plus flavor additions of lemon, vanilla and cherry to customize drinks. A six-barreled Slurpee machine also provides more flavor choices.

7-Eleven's coffee offering illustrates how the company manages its foodservice on a market-by-market basis.

For example, cinnamon is available in California and New York only. Hazelnut decaf is marketed in New England. Blueberry creme and hazelnut are available in about two-thirds of 7-Eleven stores primarily in markets where coffee sales are strong, such as New York, Chicago and Los Angeles.

"Foodservice items need to be fun and creative, but the shame of the c-store food business is that we have offered them plain ham and cheese sandwiches for too long," said Hague.

"That's got to end," he said. "And that's our main challenge — to win on quality, win on flavor profile, win on packaging, and win on brand development. This is a real shift in strategy because this is going to involve designing stores a little differently and retrofitting existing stores. But we are ready for the challenge."

This five-step approach has 7-Eleven on the right track. During the fourth quarter last year, foodservice sales jumped more than 10 percent.

"It's very hard to turn around a 5,800-store chain in 16 weeks," Hague said. "But we've done that. We've been the number-one growth category in non-services for the company for the first time in its history."

Though Hague stopped short of offering any sales projections for the next 12 months, he said. "Fresh food will absolutely grow measurably in our business."

21st Century Enterprise
While the decision to grow the foodservice business is viewed as a positive step forward, not every decision has worked out.

When an ill-advised leveraged buyout in 1987 led to Southland's bankruptcy less than four years later, the company's largest licensee, Japan-based IYG Holding Co., came to the rescue, purchasing more than 70 percent of Southland's shares.

Yet perhaps more importantly than the infusion of much-needed cash, Southland's reorganization involved borrowing heavily from their foreign shareholder's technology-driven business model.

Like so many other American inventions, such as the television, the VCR, the computer and the automobile, exportation has served the 7-Eleven model well, opening doors to new efficiencies, broadening domestic horizons through an ongoing interchange of ideas with other cultures.

Seven-Eleven Japan is arguably the most technologically savvy c-store operation in the world. The company's retailers have been working with point-of-sale integrated electronic order books since 1982; today, they use software to make daily merchandising decisions based on the weather.

"During my first trip to Japan as a member of the senior management team," said 7-Eleven's president and CEO Jim Keyes, "[Masatoshi] Ito, the chairman of Seven-Eleven Japan, presented me a book called The Machine That Changed the World, and gave it to all the other senior officers of 7-Eleven Inc. for the U.S.

"We thought, 'This is unusual for we're here to talk about convenience stores,'" Keyes said.

The team gradually realized the message Ito was trying to communicate: 7-Eleven's U.S. operations were suffering from a mindset similar to that of U.S. automakers in the 1970s.

Keyes explained, "Our first approach toward changes involved design. We said, 'We're going to change the look. We're going to change the appearance. We're going to change the colors.' And it was much like the U.S. automobile companies that would wrinkle a fender and change the design, but never fundamentally change the capabilities of the car."

In contrast, what 7-Eleven Japan had done was take the basic convenience store box, completely dissect it and redesign every bit of the business from the distribution of goods, to the kinds of goods, to the way people manage products and categories within the store. And that produced a better business model.

"We had to really get down to individual items and redesign the business from the inside out," Keyes said.

Opening Bell
7-Eleven's drive to become an industry leader in technology is clear. And positive results are beginning to take shape, although 7-Eleven has been somewhat bruised by Wall-Street investors impatient to see more immediate results from the company's ongoing infrastructure upgrades.

"We're just trying to raise the level of our game," said Keith Morrow, executive director of information systems. "We've had a pretty sophisticated system for several years, but now, we're trying to increase the velocity of getting actual information in the hands of people that need it, more real time — because it's been traditionally more of a batch and a transactional type of a system.

"Last year in the fourth quarter, we rolled out a system for our store managers that we call the 7-Eleven home page," said Morrow. The back-office systems, although more detailed than most, are similar to many other high-end scan-data based systems. What is unique is the way that 7-Eleven plans to use these "home pages" for communication.

"We have traditionally had weekly national conference calls that went out to all of our field consultants and peer consultants," Morrow said. "Now, we're bringing the store into that process with the home page [using e-mail and teleconferencing capabilities]; managers are being made aware of new items, of how to better use their daily accounting reports and receipt information.

Utilizing data from the systems, 7-Eleven is working toward a more streamlined delivery process that will incorporate its vast network of local distribution centers. 7-Eleven retailers in the U.S. can soon look forward to a situation similar to the one in Seven-Eleven Japan; stores will be more tailored to their local market, and operators will receive store-specific deliveries at least once per day.

"We call it the merchandising engine, but it's really the entire system of collaborating with the suppliers all the way to the in-store check-in and merchandising with pricing tools and planograms," said Morrow. "It involves the whole product life cycle, phasing in the new products, line buy management, all of that."

The most visible of 7-Eleven's technological initiatives, however, will be its V-com Internet-enabled kiosks. As the kiosks are rolled out nationally during the next year, customers will begin using the electronic service centers for check cashing, money orders, ATM services and soon, telecom services. Morrow hopes that they will eventually use the kiosks for much more.

"At its core, the business model works with financial services, but there's all sorts of possible extensions. It's got two really powerful, secure servers in it," said Morrow. "It can interconnect with any system anywhere with the way we built the switch on the back end, any partner. So the possibilities are relatively endless, based on where the customer preference starts guiding us."

"The power comes when we can literally distribute various types of media and audio [such as MP3s], digital video and film processing, ticket ordering, and those sorts of things become more viable. The possibilities are really only limited by our imagination."

Morrow and team have taken proactive steps to ensure acceptance of the machines. Using greeters, the company is introducing customers to the kiosks in new markets. "There's certainly an adoption curve," he said. "We've just got to see how much of that we're going to have to do once we introduce the machine in an area."

Tomorrow The World
As 7-Eleven continues to refine its offering in the States, worldwide expansion continues to help the company define its mission and clarify what, exactly, "convenience" means.

At 75, the company seems truly poised for rebirth in the United States, even as it sets out to conquer corners around the world.

"7-Eleven has a system that's exported worldwide; it's an adaptable system," said Jenkins. "Market concentration, managed distribution and good quality fresh food programs, high technology driven use of information at the store level. Those are the key fundamentals.

"That's what it is," he continued. "Tying all of those things together is what the 7-Eleven system is. We sell convenience."