7 – Eleven commenced operation on 11th July 1927 in Dallas Texas and has gone on to be an industry leader for more than 40 years (http://www.rimag.com). Originally the stores operated from 7am to 11pm, a trading span that was unheard of at the time. However most 7 – Eleven stores now operate 24 hrs a day (www.answers.com). 7 – Eleven has approx 7100 stores in North America and over 30,000 stores world wide. It has the largest ATM network of any other convenience store in the United States. 7 – Eleven have had many convenience store firsts including being the first retailer to sell coffee in take away cups and offering all major soft drinks brands at their fountains. To put the size of 7 – Eleven into perspective they sell 41 million gallons of milk each year, which is enough milk to pour more than two glasses of milk for every person in the United States (www.7-Eleven.com). The diagram below demonstrates the expanse of 7 – Eleven world wide.
Q.1 7 Eleven competes with both other chains of convenience stores and independent stores. What competitive advantages can you identify in this case?
According to the J.D Power and Associates (www.jdpower.com) customer satisfaction survey the following are the most important contributors to customer satisfaction in Japan.
There are 3 key areas encompassing the many aspects that provide 7 – Eleven with their competitive advantage. As you can see from the overview below 7 – Eleven are able to compete and more often than not dominate in each of the key areas identified in the aforementioned study.
Extensive Knowledge of the market
The management information systems utilised by 7 – Eleven allow them to be able to capture crucial data on their customer base, which ensures that are providing customers with the products and services they need and want. Additionally it enables 7 – Eleven to be able to track products and utilise a sophisticated inventory system to provide exactly what the customer wants at the time that they need it. Furthermore it refines 7 – Eleven’s inventory system as they are more accurately ordering and restocking products that they are confident will sell. They have developed a streamlined value chain through electronically transmitting orders and keeping product turnover high. “They are using computer based information systems to connect all the partners in their value added chains directly into flexible manufacturing systems” (Best, 1993, pg. 49).
The management information systems also offers added value as it provides 7 – Eleven with an avenue to monitor staff performance, thus providing them with the ability to continuously provide a high level of customer service.
Technological advances
The time distribution system provides competitive advantage on two fronts, the ability to be able to be utilise the small spaces in Japanese retail outlets and to be able to provide customers with a greater range of products more accurately catering for there needs.
The information available through their management information systems not only assists in building relationships with their customers, it also allows 7 – Eleven’s vendors to anticipate their needs and prepare and deliver items in a faster than expected timeframe (Buchanan, Thunderbird, Simmons, Washington and Lee University, 2004, pg. 6) providing advantage to 7 – Eleven, their customers and their vendors.
Expanding core business
The expansion of the core business into services such as Internet provision and hot fresh meals sees 7 – Eleven providing an alternative service to it customers. This gives customers additional reason to come to 7 – Eleven thus expanding the clientele base.
7 – Eleven uses its management information systems to obtain competitive advantage that not only helps them decide which products to make available to their customer base, it also allows them to determine how they are going to deliver the product, a crucial component to gaining and sustaining competitive advantage (Buchanan, et. al. 2004, pg.1).
In Japan, 7 – Eleven have thoroughly engrossed themselves in the concept of expanding their core business to provide their customers with a one stop shop. They provide alternatives to some of the more difficult aspects of the hectic Japanese life style such as meals, ATM access and a pick up point for Internet shopping. In a cash based society they even provide a cash pick up point for e – commerce goods and services. 7 – Eleven in Japan has truly embraced customer service, which has helped them achieve a distinct competitive advantage in this market.
“7-Eleven has exploited the economies of scope of a customer relationship business by working with a broad range of product and service vendors to define new products and services tailored to the needs of their customers” (www. edgeperspectives.typepad.com).
Q.2 Use the internet to find the major competitors of 7 – Eleven in Japan, the United States and other countries where 7 – Eleven is active. Describe the competition faced by the company.
7 – Eleven has convenience stores in Japan, Australia, Mexico, Taiwan, Singapore, Canada, the Philippines, Sweden, Denmark, South Korea, Thailand, Norway, Turkey, Malaysia, China and the U.S. territory of Puerto Rico (www.7-eleven.com). The following chart depicts the breath of 7 – Eleven across its territories.
In Japan the major competitors of 7 – Eleven are Ministop and Circle K with 1700 (www.ministop.com.ph) and 3000 (www.circlek.com).stores respectively. Compared with the number of stores occupied by 7 – Eleven (www.sej.co.jp) it could be concluded that the neither poses any real threat. Both provide very similar services to 7 – Eleven including the provision of ready to eat food products, internet services and bill payment facilities (www.circlek.com and www.ministop.com). It is worth noting that Circle K is also a major competitor in Hong Kong.
In North America two of the major competitors are B. P North American with 5166 stores including trading names such as AM/PM Mini Market, Amoco, Arco, BP, B Connect, BP Express and Shell Oil Company with 4907 stores (www.csnews.com/csn/images/pdf/CSN_2006_Top100_CStores_Chart.pdf). In
Australia the two major competitors to 7 – Eleven are Caltex with 566 stores and Coles Express with 595 stores (http://www.cstore.com.au/industry/acn/acn2006.pdf). In Australia both Caltex and Coles Express enjoy a higher market share than 7 – Eleven.
All of 7 – Eleven’s competitors use management information systems to assist them with data collection and smooth management of their value chain. The evidence suggests that in Australia and North America, the biggest competitors are those that also provide petrol. In Australia this could be partially attributed to the incentive schemes offered by Coles Express and Caltex, providing a distinct competitive advantage that gets the customer through the door and whilst they are there they pick up their bread and milk and other last minute items. The difference could also be distinguishable due to a cultural difference between Japan and western nations such as Australia and North America. Unlike Australia and North America, Asia does not operate on a car dominated transport system. Due to high levels of congestion and inadequate roads, on the whole Asia does not compare with Australia or America in the car ownership stakes. (Moriaty, P, 2000, para.3) Australia has 522 passenger vehicles for every 1000 people in (www.abs.gov.au) the United States has 776 per 1000 population (http://www.unece.org/stats/trends2005/transport.htm) compared with 374 per 1000 population in Japan (Moriaty, P, 2000, para.6). Perhaps the difference in market domination can be attributed to the difference in a cultural need. 7 – Eleven have managed to find the niche market in Japan but perhaps they have failed to recognise the key aspect of the consumer oriented decision making in Australia and America.
Q3. Which of porter’s five forces are countered by the 7 – Eleven system described here?
With a large and varied operation base, 7-Eleven requires advanced business processes and information systems to keep ahead of rising customer expectations and an increasingly challenging business environment. To accomplish these goals, 7- Eleven maintains a business and technology alignment that produces strategy and tactics that are not only efficient and cost effective but are also capable of delivering competitive advantage.
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The system adopted by 7-Eleven has a consistent and predictable IT infrastructure, one that can adjust to capitalise on changes in the business environment. The Five Forces model of Porter is an outside-in business unit strategy tool that is used to make an analysis of the attractiveness (value) of an industry structure. The Competitive Forces analysis is made by the identification of 5 fundamental competitive forces; the following are countered by the strategic framework for 7-Eleven.
Threat Of New Entrants
The system adopted by 7-eleven maximizes the threat for new entrants the reason being that 7-Eleven has already reached economies of scale through maintaining a strong customer base and brand loyalty. The access to latest technology and capital investments in the same ensures that the barrier for entries for new entrants is huge .The chain also maintains a wide distribution channel thus the likelihood of retaliation from existing players is diminished.
Bargaining Power of Suppliers
With the implementation of inventory control systems such as JIT and production of customised products by specialized companies the supplier base is strong for 7-Eleven. However since these suppliers are not dominant they do not threaten to integrate forward into the industry, the reason being the product line is huge and few specific products do not dominate customer requirements. The broad range of products supplied has seen them forge sound relationships with a plethora of suppliers. Additionally they have achieved a level of horizontal integration with the creation of their own supply companies who make customised products under their own branding.
Intensity of Rivalry
7-Eleven has emerged as a clear market leader in terms of competition with similar convenience stores because of its highly customer focused orientation and implementation of various information systems adding to its differentiation strategy. Rivalry is further reduced because of the switching costs buyers’ face with the presence of customised goods. The organisation does not possess high fixed costs and this discourages competitors from manufacturing with price cuts.
Q.4 Which strategies of those suggested in the various frameworks are noticeable in this case?
7-Eleven Japan is thriving, owing largely to their digitized foundations, IT infrastructures and business processes that automate core capabilities. Building such foundations requires a sound operating model, a solid enterprise architecture, and IT engagement throughout the company. The company bases its business strategy on a retailer initiative. Each 7-Eleven store tailors its products and services to its neighborhood; the retailing environment is highly dynamic and complex.
7-Eleven Business Model
The 7-Eleven business model consists of five key strategies:
1. A differentiated merchandising strategy;
2. utilisation of 7-Eleven’s retail information system;
3. managed distribution;
4. providing a convenient shopping environment; and
5. a unique franchise model (Stout J, 2005).
Differentiated merchandising strategy.
7-Eleven offers a broad array of products, including many not traditionally available in convenience stores, to meet the needs of its customers. These products include high-quality fresh foods that are delivered daily to stores. In addition, the company sells a number of products that are developed specifically for its stores.
Utilization of 7-Eleven’s retail information system.
7-Eleven was the first major convenience store chain in the United States to use an integrated set of retail information tools. Effective utilisation of the system is the foundation of the company’s business model.
Managed distribution.
7-Eleven works with its vendors and distributors to provide daily delivery of fresh food and other items to its stores, to lower the cost of delivery, and to shift deliveries to off-peak hours.
Providing a convenient shopping environment.
7-Eleven seeks to provide its customers with a convenient, safe and clean store environment. The majority of 7-Eleven stores in the United States and Canada provide more than 6 million daily customers with 24-hour convenience, seven days a week.
Unique franchise model.
More than half of the 7-Eleven stores in the United States are operated by independent franchisees. The company’s franchise model is different from most others because 7-Eleven owns or leases the stores and equipment used by its franchisees. In addition, the ongoing royalties that the company receives from its franchisees are based upon a percentage of store gross profit (Stout J, 2005). Apart from this The Just In Time approach for inventory management makes sure that the goods are delivered on time to the point of sales keeping the customer orientation strategy in mind.
Q.5. Which business pressures are evident in this case?
Retailing is a competitive market in Japan. As stated by Lohtia & Subramaniam (2000), in 1994 Japan had 1.5 million retail stores. To put this into context, there were 12 retail stores per 1000 persons in Japan compared to six in USA. “In the countries of western Europe, the number of establishments per 1,000 people was close to seven,” (Tsuchiya & Riethmuller, 1997). While this trend is slowly changing in Japan with the number of retailers declining, the number of convenience stores has been growing. In 1994 there was 48,405 convenience stores compared to 29,236 in 1985. In this same period 7-Eleven has grown from 2,651 stores in 1985 to 5,905 stores in 1994, up to 11,310 (as of February 28, 2006) (www.sej.co.jp, 2007).
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Low availability and high cost Japanese real estate has seen a trend of small food retail outlets across the country. In 1993, “28.3 per cent of stores had a selling area of under 20m2 and 89.2 per cent had a selling area of under 100m2,” (Tsuchiya & Riethmuller, 1997). In addition to the high competition the floor space to display and store stock is very limited in Japan.
In contrast to the typical US distribution channel which is open, independent and margin-driven, Japanese distribution channels have typically been long, complicated networks where it was not uncommon to have as many as four layers of wholesalers. “Such intricacy of the Japanese distribution channel is deeply rooted in the Japanese culture and socio-economic setting that underlies Japanese business customs” (Min,1996). Wholesalers have long controlled the Japanese distribution channel through vertical integration, financial linkage, and reciprocity dealings.
By the late 1980’s 7-Eleven US was losing a lot of money, which continued through to the early 1990’s. It was seen as a franchise system with retailers sharing little more than a common brand name with tired generic products. A lot of stores were not only performing badly, they looked run down and unappealing to the customer. Due to poor management of its supply the ‘fresh’ foods where limited in range and often far from fresh. Pricing was inconsistent with high discounting on some lines and prohibitively high prices on others. It was viewed as a last resort rather than a convenience-shopping experience. 7-Eleven US had got itself into considerable debt and was bankrupt when it had to be rescued by its Japanese franchisee in 1991.
Q.6. Which corporate response activities are evident in this case?
The success of 7-Eleven Japan has set itself as a benchmark. Meyer-Ohl (2004) states that the perception of the convenience store in Japan is of being the most advanced form of Japanese retailing in having considerable success in merchandising backed up with comprehensive systems. The achievements of 7-Eleven have largely influenced this as it is the largest company and most other companies did not achieve the same level of profitability. 7-Eleven Japan has displayed strong growth and today it remains Japan’s most profitable retailer and has a market capitalisation that ranks it in the top three retailers in the world. It has achieved this despite the fact that “the Japanese economy in the 1990s had been in deep recession and many retailers have seen major losses and faced incredible operating difficulties” (Sparks, 2000).
Japan’s success came from a customer driven merchandising system. It’s implementation of a $200 million information system for its stores in the early 1990’s. “The purpose of this system was to (1) discover who their customers were and what they want and (2) create a sophisticated product tracking system,” (Case Study). It based its operations around the information provided.
• Relays its orders electronically to its distribution centres and suppliers directly from its point of sale system.
• 7-Eleven Japan has formed relationships with its suppliers that break the traditional Keiretsu networks of distribution, where wholesalers have had control of the relationship. It has formed strategic relationships with suppliers where it orders directly from them using a ‘Just-in-Time’ approach. It has even created its own companies to manufacture customised products in response to its market trends.
• Monitoring customer preferences from both the point of sale system and staff entering data about the customer as well as any requests customers make for products 7-Eleven doesn’t have. This enables individual stores to change stock from slow moving lines. 70% of products are replaced each year.
• Determining product mix and how much shelf space allocated to each product.
• Rotating stock at least twice each day to suit purchasing trends of customers throughout the day.
• Monitoring staff performance and rewarding high performers.
• Quality control data is collected by a team of 200 inspectors regularly visiting the stores. This is entered into and analysed by a computerized decision support system at headquarters.
• Expanding on its traditional convenience food, beverages and fuel type product offerings with, such as ATM, phones and phone cards, internet kiosks and even beer.
As outlined by Sparks (2000), the Japanese model of convenience stores has been introduced to the United States. 7-Eleven’s core functions are managing the data on what its customers buy and honing its unique merchandising skills. “7-Eleven’s core business is merchandising – the pricing, positioning and promotion of ready-to-eat food, snacks, fuel and sundries (Gottfredson & Phillips, 2005). It improved its systems to enable it to control and make the most of critical capabilities such as stock price to key metrics like inventory turns. While sticking to its core competencies and some core products the Japanese model used market information for a localised approach at the store level in product offering. The slow but strategic changes for 7-Eleven US have been concentrated on the following elements:
• Poorly located and performing stores have been closed.
• The stores have been remodeled, with new designs and layouts. The remodeling has included the introduction of point of sale systems (POS). This enables a customer driven approach where using their feedback for product selection and development.
• Offering a core range which is supplemented by products selected to meet local needs, stocking proprietary or exclusive products where possible.
• Non-food products have been introduced including phone cards and phones as well as additional services through ATMs and trailing of a financial services centre.
• Standardised pricing that is more competitive.
• Re-positioning of the business to have fresh foods and convenience elements to meet modern consumer demands. Daily supply of many of these products through a reconstructed distribution and production chain.
• The combination of new products of a high quality and found only in a 7-Eleven, and backed by trademark development and protection and a more focused advertising strategy is summarized in the company’s “first, best and only” slogan.
• The distribution system itself has been re-engineered and Combined Distribution Centres have been introduced to better manage the flow of products into the stores. A high level of control of the supply chain has been achieved.
• A high quality and advanced retail information system has been introduced, which closely resembles the model in Japan. Many of the business processes were operated manually for a long time to understand the critical elements driving the business. Now with the introduction of technology this process can move further ahead and can aid the store employment and management situation by freeing up staff time. This extra time will enable gathering market information.
Q.7 Does the procedure of collecting customers’ information infringe on their privacy? Why or why not? Is it unethical? Should customers have the right to anonymity, or check that information collected on them is accurate?
The procedure of collecting information about customers does not infringe on their privacy at all. The procedure is very simple and is done by observing customer behaviour and preferences in order to serve them better. It does not involve any sort of interviewing or interference with the customers. It is only an efficient way of running an organisation. As 7-Eleven is well aware of customer preferences and choices it makes it easy for them to make only those products available in ample quantities so as to serve the customers better. It is not at all unethical. Different customers have different choices. As per demography i.e. age, location. Thus 7-eleven keeps a perfect record of demand of products as per their age and location. At different times during a day different products are required by the customers. The information collected is purely from 7-Eleven’s point of view a way of serving them better. There would be no point of having products that do not match the customers need. So every store must be well aware of the demand of customers. If some customer questions the management as to why a particular product is always available and why some other product is not then in such a situation he can be given the reason of the information collected. Besides there is no reason for the customers to interfere with the 7-Eleven way of managing as it does not in any way infringe on their privacy.
Q.8 Surf the Internet to find information about recent IT – related initiatives of 7 – Eleven, both in Japan and the United States. Relate them to “gaining the strategic advantage.”
In its latest effort, 7-Eleven’s procurement staff have developed a tool that makes procurement productive and efficient. It’s an automated system where procurement professionals can manage hundreds more requests for proposals (RFPs) and contracts per person. An important part of 7-Eleven’s procurement initiative is to encourage franchisees to use the new streamlined system and, ultimately, buy from recommended suppliers. Although franchisees can purchase from any convenience-product supplier, the new centralised system enables 7-Eleven to aggregate suppliers and items for consolidated negotiations (7Eleven news room, 2007).
With a solid enterprise IT foundation in place, 7-Eleven has begun adding layers of advanced systems and functionalities to its industry-leading business process and technology strategy. Recent initiatives include a contact less payment option at POS to provide more convenience to 7-Eleven’s customers. Using radio-frequency (RF) technology, these systems enable customers to make quick and secure transactions by holding close to or tapping a reader with an RF-enabled credit card or alternative device, such as a key fob. All other aspects of the contact less payment process are handled in the same way as a traditional credit-card or debit-payment transaction (Anonymous, 2006).
The contact less payment initiative has gone chain wide to 5,300 stores in the U.S. in 2006 in partnership with Chase with Blink, the MasterCard PayPass, American Express’ Express Pay and Visa Contactless systems. Authorisation is accomplished in seconds, and no signature is required for many purchases under $25, making this a speedy, easy, convenient and secure customer transaction. Contactless payment systems are often a first step by retailers into the emerging world of radio frequency identification (RFID), and this may be the case at 7- Eleven. “We anticipate adding RFID technology to other products and services offered at 7-Eleven stores,” adds Rick Updyke, 7-Eleven’s vice president of business development, “to provide even convenience for consumers”( Updyke R., 2006).
Other Initiatives
• Increasing use of an integrated set of retail IT tools to analyze sales on individual items, sales trends and customer preferences to improve product assortment, eliminate slow-moving product from inventory, and increase same-store sales by developing new products, such as the new fresh-food offerings that attract new customers and increase transaction size.
• Expanded use of Vcom, a proprietary multi-function, self-service kiosk that offers check-cashing, bill payment, money order, money transfer, pre-paid credit cards, ATM services and access to residential telephone services (Updyke R., 2006).
Conclusion
Through its long term involvement and study of the market along with its extensive information systems Seven-Eleven Japan has been characterised as a major innovator in convenience store operations. By its continual improvement and sustaining this over a long period of time it has resulted in significant growth. 7-Eleven has used continual improvement in its model of a customer focused information systems approach. 7-Eleven has succeeded in the essential steps for marketing management as outlined by Wen & Peng (2002), market segmentation, market segment targeting, and design and implementation of marketing mix. It has used its information systems combining its POS and staff driven customer profiling to capture market trends to base its selection and stocking of products through to aiding its inventory management and ‘Just-in-Time’ approach. 7- Eleven’s distinct competitive advantage can be attributed to the way the information management system links with the corporate strategy and the operational strategies of logistics, merchandising and day to day store operations (http://www.worldscibooks.com/eastasianstudies/4981.html). From this it has gleaned efficiencies that enabled it to become the number one retailer in Japan at a time of fierce competition and poor economic conditions.
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