7-Eleven pioneered the convenience store concept way back in 1927 at the Southland Ice Company in Dallas, Texas. In addition to selling blocks of ice to refrigerate food, an enterprising ice dock employee began offering milk, bread and eggs on Sundays and evenings when grocery stores were closed. This new business idea produced satisfied customers and increased sales, and convenience retailing was born.
Today, 7-Eleven is the undisputed leader in convenience retailing with more than 27,900 stores operating in the U.S. and 17 other countries and total sales of more than $36 billion in 2003.
Approximately 3,200 of the company’s 5,300 stores in the United States are operated by franchisees, and an additional 485 are operated by licensees. 7-Eleven, Inc., its licensees and affiliates operate more than 27,900 7-Eleven and other convenience stores in a.o. Japan, Australia, Mexico, Taiwan, Sweden, Turkey, Malaysia, China .
The purpose of this paper is twofold: examining the internationalization process of 7-Eleven as a whole and assessing if 7-Eleven would be able to enter the German market.
I have chosen Germany as a new market because of the fact that 7-Eleven is already present in a few European countries, therefore having some experience in this type of market, but to a much smaller extent than its presence in Asia. In my opinion, a successful entry in the German market will enable 7-Eleven to the knowledge gained from this experience to enter other, similar, markets in Europe as well.
In chapter 1, an in dept look will be taken into 7-Eleven as a whole, assessing the internationalization process by taking a look at the company’s history, its pattern of internationalization and strategies.
In chapter 2, the most successful market of 7-Eleven, Japan, will be examined in order to get a deeper understanding of why this market is so profitable and to what extent 7-Eleven’s practices have been adapted to the Japanese market.
In chapter 3, the German market will be assessed on aspects as environment, legal and political factors and cultural values in order to determine if Germany would be an interesting market to enter. At the end of the chapter will also be assessed if some aspects of the successful example that has been set by 7-Eleven Japan can be used to make the market entry in Germany more worthwhile.
Chapter 1 7-Eleven and its International Expansion
In this chapter, the internationalization process of 7-eleven will be looked at in more detail. After a brief overview of the history of 7-Eleven as a whole, the approach to internationalization will be discussed on the following topics: reasons for expansion, international mode of operation, localization push factors, market entry modes, and pattern of expansion. Just recently there has been an important change in 7-Eleven’s ownership structure which will be discussed here as well.
7-Eleven pioneered the convenience store concept way back in 1927 at the Southland Ice Company in Dallas, Texas. In addition to selling blocks of ice to refrigerate food, an enterprising ice dock employee began offering milk, bread and eggs on Sundays and evenings when grocery stores were closed. The company’s first convenience outlets were known as Tote’m stores since customers “toted” away their purchases, and some even sported genuine Alaskan totem poles in front. In 1946, Tote’m became 7-Eleven to reflect the stores’ new, extended hours – 7 a.m. until 11 p.m., seven days a week. The company’s corporate name was changed from The Southland Corporation to 7-Eleven, Inc. in 1999. Today, 7-Eleven is the undisputed leader in convenience retailing with more than 27,900 stores operating in the U.S. and 17 other countries and total sales of more than $36 billion in 2003 .
More than 5,800 7-Eleven and other convenience stores are operated and franchised by 7-Eleven, Inc. in the United States and Canada, and they serve approximately six million customers each day. Each store focuses on meeting the needs of busy shoppers by providing a broad selection of fresh, high-quality products and services at everyday fair prices, along with speedy transactions and a clean, safe, friendly shopping environment.
7-Eleven is known internationally for Big Gulp fountain soft drinks, Big Bite hot dogs, Slurpee beverages, and Cafй Select fresh brewed coffee. The stores have expanded their food service offerings with a proprietary line of deli items and baked goods, which are prepared and delivered fresh daily. 7-Eleven also offers convenient services based on each neighborhood’s individual needs, including copiers, fax and automatic teller machines, long-distance phone cards and lottery tickets, where available.
Approximately 3,200 of the company’s 5,300 stores in the United States are operated by franchisees, and an additional 485 are operated by licensees. 7-Eleven, Inc., its licensees and affiliates operate more than 27,900 7-Eleven and other convenience stores in Japan, Australia, Mexico, Taiwan, Singapore, Canada, the Philippines, Sweden, Denmark, South Korea, Thailand, Norway, Turkey, Malaysia, China and the U.S. territories of Puerto Rico and Guam. The company entered franchising in 1964, signed its first United States area licensing agreement in 1968, and signed the first international licensing agreement with Mexico in 1971. In 2004, 7-Eleven opened a new licensed operation in Beijing, China .
The article of Daniels & Radebaugh mentions 4 reasons for international expansion. In the case of 7-Eleven, the objective is mainly to expand sales. The market in the US was almost maxed out and was closing more stores than new ones were opened in 2003. In my opinion there is also a second reason for international expansion. On an international scale, 7-Eleven doesn’t have a real competitor and by going abroad 7-Eleven benefited well from its first mover advantage, not only financially but it was also able to establish 7-Eleven as a real brand name (f.e., while in Japan, the words ‘7-Eleven’ were used to appoint any type of convenience store).
The worldwide corporation of 7-Eleven is managed from a multinational perspective, in which approaches can differ per country. In some countries, the licensees fall directly under 7-Eleven US, mainly because of the developmental state of the country (like in Thailand), but are managed locally by a regional office. In other countries, the licensing agreement has been bought by a company that in turn oversees all of the licensees domestically (as in Japan).
The food retailing business requires a high level of national differentiation/ local responsiveness. In my opinion, this also explains the use of licensing. A company like 7-Eleven has to take a lot of factors into account in each country. The way the Japanese eat, and like their high levels of service everywhere differs completely from the way that the Europeans do, and also, even within a country habits differ in different regions. Then, there are the extensive distribution channels to consider for each country, in order to get the wide variety of products into the stores. With licensing, the demand on management is low, and therefore the risks as well.
Except for the 7-Eleven store formula, every store has a different assortment. As mentioned before, the food retailing business experiences a large localization push, and almost all of the reasons that Laserre mentions in his book apply here. Cultural factors are probably the most obvious, as eating habits differ enormously all over the world, but it applies also to the level of service people are accustomed to in different countries. While people in Europe are accustomed to being treated as individuals that don’t really need help while shopping, Asians are being serviced every step of the way.
As for technical factors, the main driver of localization is the fact that distribution systems vary in each country. Legal factors, however, do not always apply, but they do in Japan. The Japanese government is very strict on not letting foreign companies into Japan and this is the main reason why in this case the whole 7-Eleven concept has been sold to the Ito Yokado Group, while in other countries 7-Eleven USA has its own regional offices.
Licensing agreements by nature are contractual agreements by which a company transfers to another company its product and/or process technology with the right to exploit it commercially . Laserre mentions some reasons to opt for licensing, and in the case of 7-Eleven licensing is used mainly to test the market. In this case, the use of the name 7-Eleven is obligatory but there is no obligation to buy products from certain distributors or manufacturers up to the point that the distribution network has been defined in that country. The benefits of licensing are the low commitment of personnel and capital involved. According to Laserre, the disadvantages of licensing are very important to take into account. Applicable to this case, quality control poses one risk that is likely to happen. And as main strategic disadvantage, Laserre mentions the fact that licensors are very distant from the market and thus have no control over the company’s destiny in the licensee country. In a way, this disadvantage has already occurred in the case of 7-Eleven: the expansion in Japan was so enormous that 7-Eleven Japan became larger than the parent company, and although this didn’t necessarily pose a threat, the effects were huge.
Due to the financial difficulties 7-Eleven USA was experiencing, 7-Eleven became vulnerable to competitors. If it wasn’t for the Japanese, 7-Eleven would have had to sell some divisions, thereby giving up its unique position in the market. Just recently, march 2005, 7-Eleven Japan came to the rescue. Operating under the umbrella of Japanese supermarket group Ito-Yokado Co, Seven-Eleven Japan will acquire a 73.8% stake in the form of US$1.2 billion worth of stock and convertible bonds in 7-Eleven and take complete responsibility for its convenience store operations.
Ito Yokado will in turn transfer its 38% stake in 7-Eleven USA to Seven-Eleven Japan, where it owns a 50.6% share, by end March 2005. Although Ito Yokado had acquired the techniques of convenience store operations from 7-Eleven Inc as a licensee three decades ago, it had helped the US founder restructure its business and relist onto the New York Stock Exchange in 1999. In fact, 7-Eleven USA had reportedly increased its profit figures from US$6.4 million in 2003 to a record US$11.1 million profit for fourth quarter last year, after adopting Seven-Eleven Japan’s sales techniques .
Although this solution is probably the best one for 7-Eleven USA, it didn’t have to sell of any of the core competences, in a way 7-Eleven Japan had become a competitor big enough to gain ownership.
The article of Radebaugh & Daniels mentions a diagram that can determine the degree of international commitment a company has. Here will follow a detailed description of each one of the axes to determine the expansion pattern for 7-Eleven.
Especially over the last few years, 7-Eleven has been searching actively for business opportunities abroad. They started out with Canada and Mexico, which was kind of a safe bet because of the geographic proximity. In 1971, a big decision was made in favor of expansion into Asia. Japan was first, and because of the enormous cultural differences between Japan and USA, the 7-Eleven concept was sold to the Ito Yokado Group. This meant a very low risk for 7-Eleven as a whole and in this way 7-Eleven was able to try out the market in Asia. After Japan, 7-Eleven actively started searching for new markets and opportunities, meaning that on this axis there is a high international commitment.
As mentioned at A, there has been a shift in strategy over the years. When trying out the Asian market, in Japan, they sold the concept at first, but after that 7-Eleven was secure enough to take more risks and in most of the other countries they own their own regional offices, meaning that on this axis too there is a high international commitment.
Because of the use of licensing, and thus keeping the risks to a minimum, on this axis 7-Eleven doesn’t show a high international commitment. On the other hand, because of the fact that 7-Eleven does own regional offices in most countries, there is a level of involvement in that particular country.
At the moment 7-Eleven is present in 18 countries (see appendix 1).
As mentioned before, 7-Eleven is present in 19 countries all over the world and the cultural differences between these countries are immense. Overall, one can say that the international commitment of 7-Eleven is very high. Another reason for this is the fact that the domestic market of 7-Eleven, the USA, is almost dried out and in order to keep profits 7-Eleven is forced to keep on expanding.
7-Eleven is a convenience store chain, currently present in 18 countries. The reason for expansion was mainly that the domestic market in the USA was drying out for 7-Eleven forcing the company to close several stores. As in the USA, 7-Eleven used licensing in order to sell the business concept and as a market entry strategy, meaning a low level of risk to the company as a whole and also meaning a great level of flexibility that was needed to be able to adapt to the differences between the countries. Localization push factors are very strong in the food retailing business. The international expansion, however, didn’t make 7-Eleven financially healthy, and even after a restructuring with the help of the Japanese, 7-Eleven was forced to sell 73,8% of the company to its Japanese counterpart Ito Yokado Group.
The model of Radebaugh & Daniels shows that 7-Eleven scores high, to very high on all of the axes, meaning a deep level of commitment to internationalization. We can see this also when we take a look at the number of countries in which 7-Eleven is currently present.shows that at the moment 7-Eleven is firmly present in Northern America and Asia. 7-Eleven is at the moment also present in Norway and Denmark, but I would say that in Europe there still are a lot of opportunities for expansion worth exploring (see also chapter 3).
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