Why There’s a Billion-Dollar Battle to Own 7-Eleven

Why There’s a Billion-Dollar Battle to Own 7-Eleven

Fruit smoothies, sandwiches, onigiris, bento boxes… Looks pretty good, right? And if you’ve ever visited Japan, you’ve probably sampled 7-Eleven’s finest. Yes, 7-Eleven the convenience store. Where eager tourists make the pilgrimage to see how many meals they can have there a day. They basically serve gourmet convenience. Unlike in the US… Burgers, slushies. Hot dogs. While 7-Eleven perfected its model in Japan, it struggled to replicate it overseas. And that’s at the center of a new battle that could determine the future of the company. Circle K operator Couche-Tard making a bid to take over rival and 7-Eleven owner Seven & i. The takeover proposal by Couche-Tard was kind of a shock, not only to Seven & i itself, but to corporate Japan as a whole. So why is there a billion-dollar battle for 7-Eleven? And what could it mean for the future of convenience stores? In 1927, 7-Eleven started as an ice vendor in Dallas, Texas and gradually became a general merchandiser selling eggs, bread, and milk. A retailer known as Ito Yokado, which had been in operation for close to a century in Japan, discovered 7-Eleven in the US, brought it over to Japan in the 70s. By 2005, it had acquired full ownership, making it part of the broader holding company, Seven & i. Fast forward to the present, and 7-Eleven has become the world’s
largest convenience store chain with 62 million visitors every single day. That’s more than the population of
California and New York put together. They have around 85,000 stores globally. That’s more than Starbucks and McDonald’s combined. Currently, the company is doing business in 20 countries and they have an ambition to increase
that to 30 countries by 2030. And about one in every four of its stores are in Japan, which is where the company was, in many ways, able to perfect its model. You can get a lot of social services, municipal services, sending packages, banking. You can get delicious food. It’s fresh, it’s high quality and it’s affordable. And that’s down to one key thing. Part of the entire supply chain system is the Tanpin Kanri model. It’s even been the subject of a Harvard
case study. A lot of it is automated, so as customers buy products, the backend system understands that one particular store is going to need
more of something than another. Trucks will then pick up these products from one of many distribution centers and deliver them to the corresponding store. They have more than 150 factories dedicated
to making 7-Eleven products in Japan, delivering to their stores every day. But it’s a model that’s proved challenging to replicate in the US. Due to the distance, the country is bigger. You have less stores
that are concentrated in a certain area. That means that stores in the US tend to offer more processed foods
compared to the fresh products found in Japan. In fact, processed foods make up 47% of all sales in the US. That’s almost double
the amount than in Japan, where hot and pre-packaged
fresh food make up a much bigger share. In the US, competition is tough, either from other convenience stores, from quick-service restaurants, or even supermarkets. And then there’s the state of the American economy. A lot of consumers have stopped going
to convenience stores to pick up items because they’re really watching their wallets and choosing instead to go to
discount stores or to buy in bulk elsewhere. All of this has translated into a decline of 7-Eleven sales in the US. And that’s a problem because North America makes up about half of the company’s profit. Which is why it’s been under pressure
to implement reforms. In the US, 7-Eleven has been revamping their stores, introducing new products, improving the food quality
as well as improving the supply chain. It’s also tried expanding to other parts of the world, including into Europe. But it’s been tough. The challenge in making it a global empire is that 7-Eleven, as it exists, are almost different entities depending
on the country you go to. And that boils down to the several ways stores can be operated. One is direct ownership, where the parent company Seven & i operates a certain store. The second is franchising, where an individual store owner purchases the right to use the 7-Eleven brand and its products. And the last one is licenses, where another company gets the right to operate all the stores in a certain country. That’s one reason it’s hard for 7-Eleven to offer a consistent experience across regions. And that’s where these guys come in. Quebec company Couche-Tard, the owner of Circle K stores, wants to buy the Japanese company that operates 7-Eleven. We would like to further invest in the innovation and then take those learnings and deploy that excellence around the world. So the ambition here is very clear. To create the world’s
dominant convenience store empire. Alimentation Couche-Tard sees a mine of expertise as well as store network at Seven & i, so they would want to take advantage of both. They could also bring in global retail practices to Seven & i which are more standardized. The deal, which is still under discussion, would have major implications not only for 7-Eleven, but also for corporate Japan. If this goes through, it will be the biggest foreign takeover
of a Japanese company in history. Even though 7-Eleven did get its start in the US, it’s grown to become a key part of Japanese culture. Which is why a foreign takeover could be a hard sell. There are certain retail experiences that somehow feel different from others. You get this when you walk
into a 7-Eleven store in Japan. That’s the sense of sort of excitement and discovery. That’s really kind of magical. And that’s what everyone is after, both its investors as well as Couche-Tard.

7-Eleven convenience stores perfected their model in Japan, where diverse, fresh-food offerings attract locals and tourists alike. However, the company has struggled to replicate its success abroad, particularly in the US.

Now a new player believes it can do a better job at creating a global convenience store empire. Canadian company Couche-Tard, owner of Circle K stores, has made an unsolicited bid to buy Seven & i Holdings, the parent of 7-Eleven.

The deal would be the biggest foreign takeover of a Japanese company in history. But residual resistance to foreign corporations and 7-Eleven’s place in modern Japanese culture could make the deal a hard sell.

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00:00 Introduction
01:07 History
01:41 Global expansion
02:36 Supply chain in Japan
03:10 Struggles in the US
04:42 Company structure
05:23 Couche-Tard takeover

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