7- eleven supply chian Essay

Jim Keyes. the 4-year veteran CEO of 7-Eleven. is winging his Beechcraft A36 Bonanza. He is go uping to 10. 000 pess. and despite the good conditions he remains watchfully focused on the instrument panel. and on the bright skies around him. “Flying is a great distraction. ” he says. “You can’t think about anything else when you’re in the cockpit. ” It is May 2004. and Keyes has a batch to believe about. Since 2000. he has been taking a successful transmutation of 7-Eleven. the planetary convenience shop retail merchant with 5. 784 shops runing across the United States and Canada and 19. 501 international shops in 17 states.

( See Exhibit 1 for a life of Keyes. ) Concentrating on what he calls “Retailer Initiative. ” Keyes has overseen the transmutation of the company’s distribution theoretical account. the steady redefinition of relationships with cardinal providers. and the incorporation of engineering and data-driven decisionmaking throughout the concatenation. Overall. he is pleased with the successes of his schemes. Net incomes have been lifting. up 15. 6 per centum during 2003. 1 Same-store ware gross revenues have increased for 29 back-to-back quarters through the terminal of 2003.

As a consequence. the company’s stock monetary value grew from $ 9. 14 in April 2002 to $ 16. 91 two old ages subsequently. ( See Exhibits 2 to 5 for company financials and stock monetary value history. ) “We’ve had rather a metempsychosis of the company. ” Keyes says. “but it’s been a slow. steady rebuilding of the company. fundamentally reinventing ourselves. ”3 Despite his many successes. Keyes continues to face big challenges. He faces strong opposition from some of his largest providers to 7-Eleven’s germinating re-stocking and distribution systems. He besides worries about people direction issues: hiring and pull offing a work force in the low-paid convenience shop concern ; and working with franchisees to guarantee execution of cardinal corporate enterprises. In add-on. Keyes must pull off the chain’s increasing international enlargement and its attempts to shift the 7-Eleven trade name in the extremely disconnected domestic convenience shop industry.

This instance was prepared in May 2004 by Eleanor Broad ( MBA ’05 ) . Paul Kihn ( MBA ’04 ) and Steven Schneider ( MBA ’04 ) under the supervising of Professor Alan Kane as the footing for category treatment. instead than to exemplify either effectual or uneffective handling of a strategic state of affairs. Copyright © 2004 Columbia Business School. 1

Keyes degrees off at his cruising height. Despite the lucidity of the twenty-four hours. he feels some turbulency and admirations what disciplinary action he should take.
Convenience Shop Industry
The convenience shop industry represented about $ 290. 6 billion in entire gross revenues in 2002. 62. 4 per centum of which were motor-fuels gross revenues. 4 The industry differentiates itself through convenience – of location and merchandise offerings – and velocity of service. 5 Historically the industry has been extremely disconnected and really competitory with low barriers to entry. Single shop companies account for 60 per centum of the 132. 000 convenience shops across the U. S. 6 There are besides 100. 000 combination convenience-store/gas Stationss owned by major oil companies which are run by a web of independent traders and distributers. 7-Eleven. with 4 per centum of the entire U. S. market. remains the largest corporate entity in the convenience shop industry. 7

Most of 7-Eleven’s direct rivals are regional convenience shop ironss. Circle K has 2. 000 shops in the South and Southwest. Casey’s General Stores operates 1. 800 in the Midwest and The Pantry has 1. 400 shops in the Southeast.

Inefficient supply ironss and “high-low pricing”8 besides characterize the industry. harmonizing to Keyes. Shops need to stock really broad but shallow merchandise mixtures. For illustration. an single shop may maintain merely four bottles of catsup on manus at any given clip. Since 1999 the industry has been undergoing a structural transmutation with consolidation happening through acquisitions and a figure of bankruptcies among the smaller regional ironss. In December 2003. Circle K was sold to Canada’s largest convenience shop concatenation. Couche Tard. In 2004 the Midwestern concatenation Hale Halsell. the parent company of Oklahoma based 115-store convenience retail merchant Git-n-Go. declared bankruptcy. In March 2004. Kansas-based Sav-A-Trip announced it was come ining Chapter 11. 9 Despite these alterations. one-store companies continued to derive market portion. up five per centum from 2001 to 2002. 10

Overall. the convenience shop industry was confronting increasing challenges. Harmonizing to an industry study published in May 2003:
The convenience shop sector is poised for drastic alteration as participants respond to down net income borders and intensified competition. Profitableness and endurance will depend on the ability of convenience shop operators to offer value-added benefits to their convenience services. either by aiming the emotional demands of consumers or by following niche runing schemes. 11

Company Background
The 7-Eleven concatenation was born in 1927 as the Southland Ice Company in Dallas. Texas. From this individual location it shortly began runing convenience shops under the name Tote’m. In 1946. it changed its shop names to 7-Eleven to reflect their new. drawn-out hours of operation from 7 a. m. to 11 p. m. 12 The concatenation continued to spread out quickly. adding gas Stationss to its shops. opening locations across America and franchising overseas. ( See Exhibits 6 to 7 for current domestic and international shop locations. )

In 1983. Southland acquired Citgo. an oil company. in an attempt to prosecute a vertically incorporate scheme with ownership of its ain dairy operations and distribution centres. Keyes. who began his calling with the company at that clip. recalls that the move backfired miserably. “We were great retail merchants but awful refiners and dairy husbandmans. ” he says. In 1987. stymied by debt. the company sold most of its non-retail concerns and its staying 50 percent interest in Citgo. In 1988 direction borrowed to a great extent to purchase 100 per centum of Southland’s stock in a leveraged buyout. However. in 1990. Southland defaulted on $ 1. 8 billion in publically traded debt and filed for bankruptcy protection.

The company persuaded bondholders to reconstitute its debt and take 25 per centum of its stock. uncluttering the manner for the purchase of 63 per centum of Southland in 1991 by IYG Holding. formed by Ito-Yokado ( 51 per centum proprietor ) and Seven-Eleven Japan ( 49 per centum proprietor ) . From 1991 to 1993 gross revenues declined as Southland closed shops. renovated others. and upgraded its ware. In early 2000 IYG raised its interest in 7-Eleven to about 73 per centum. ( See Exhibit 8 for 7-Eleven’s Board of Directors. ) IYG presently owns or guarantees 80 per centum of 7-Eleven’s outstanding debt. The company’s debt to entire capital ratio is merely supra 91 % . Besides in 1999. the corporation changed its name from the Southland Corporation to 7-Eleven. Inc. . in order to better reflect its primary concern. 13

In 2002 the company closed 133 under-performing shops and opened at 127 new locations in North America. At financial twelvemonth terminal. 2003. domestic gross revenues at 5. 784 shops ( 2. 457 of which besides sell gasolene ) was $ 10. 8 billion ( $ 3. 4 billion in gasolene gross revenues ) . ( See Exhibits 9 and 10 for gross revenues trends. ) Interestingly. 7-Eleven’s percentage-of-sales ratios for ware ( 70 per centum of gross revenues ) and gas ( 30 % of gross revenues ) are the opposite of the convenience shop industry’s as a whole.

Worldwide. the company owned. franchised and licensed 25. 796 shops that generated $ 36. 5 billion in gross revenues. 14 ( See Exhibit 11 for planetary shop count growth. ) Company construction There are three types of 7-Eleven shops: corporate. franchised and licensed. The company began franchising in 1964. signed its first United States country licencing understanding in 1968. and entered into its first international licensing understanding ( with Mexico ) in 1971. Corporate shops are owned and operated by the corporation. and run by shop directors who are employees of 7-Eleven. Inc. About 2. 480 of the 5. 784 shops in the U. S. and Canada autumn into this class.

Franchises are run by independent contractors who enter into an understanding with 7-Eleven in order to run one or more shops. 7-Eleven rentals or owns the installations and the shop equipment. which are in bend leased by the franchisee. A typical franchisee pays a franchise fee averaging about $ 66. 000. while the corporation retains ownership of the belongings. works and equipment.

7-Eleven so requires an initial hard currency payment. averaging about $ 83. 000 depending on the country. for the get downing stock list and supplies. 15 In some instances. the company will loan this sum to new franchisees. It is a franchise theoretical account. Keyes says. that provides “the best of both worlds” : the capital and support of the corporation. and the enterprise and sweat-equity of single enterprisers. Approximately 3. 300 shops in the U. S. and Canada are franchised. 7-Eleven besides enters into license understandings with spouses. about entirely in foreign states. 16 A licensee is typically a retailing organisation that owns or leases several 7-Eleven shops in countries where the company does non make concern. In these instances. 7-Eleven does non have the PP & A ; E. and imposes a set of contractual duties on the licensee to guarantee consistence of signage. shop design elements and shop offerings.

The licensee has entree to trade name equity and proprietary merchandises. Specifically. 7-Eleven. Inc. . grants the licence to utilize the 7-Eleven hallmarks. trade frock. and concern information system. The company to boot provides on-going concern consulting services for a fee based on a per centum of monthly gross gross revenues and a committedness from the licensee to turn the 7-Eleven convenience shop concern in a specific geographic country on an sole footing for a fit period of clip. At the terminal of 2003. the company had 19. 501 licensed shops runing internationally. an addition of
about 1. 400 locations over the anterior twelvemonth. In August 2003. Seven Eleven Japan. the largest international licence holder. opened its 10. 000th shop.

The New 7-Eleven

Redefining Retailing
In the Spring of 2003. speech production to the Retailing Leadership category at Columbia Business School. Keyes described the transmutation in retailing he foresaw at 7-Eleven. “In the U. S. . you say 7Eleven and people think gluey floors. surly salespeople and old merchandise. ” says Keyes. “In Japan where convenience shops sell sushi and pantyhose. 7-Eleven is known for service and for fresh. high quality merchandise. ” This vision of the possible for 7-Eleven shops in portion thrusts Keyes’ thoughts for alteration across the company. He continued:

Twenty old ages ago when I was an MBA pupil at Columbia Business School there was no Retail category nor was Retail considered a worthy profession to travel into – that is all altering. Retail is undergoing a monolithic transmutation in the US right now. Retailers are prehending control of their ain fate.

Keyes went on to explicate how about 15 old ages ago Wal-Mart was the size of
7-Eleven. Wal-Mart has since grown to be the largest retail merchant in the universe. “At 7-Eleven we are transporting out our ain transmutation. ” said Keyes. “We have merely merely started. ” Working with the Nipponese proprietors and borrowing to a great extent from thoughts generated by Seven Eleven Japan. Keyes has been taking a major cultural displacement within the company. which he is naming the “Retailer Initiative. ” At the bosom of the enterprise is 7-Eleven’s usage of engineering to authorise the shop operator ( the individual closest to the client ) to do cardinal determinations. Keyes explains: Wal-Mart is really proud of their refilling theoretical account. It’s straight intended to take the believing out of the shop. Ours is precisely the antonym. It’s intended to supply easy. funto-use and enlightening tools in the custodies of shop forces. It’s a absorbing usage of engineering. We become improbably agile. We can set a new merchandise on the shelf. and by tomorrow we know how the client is reacting. Within a hebdomad. we can state with reasonably good assurance whether it will be successful. We can tweak it or do it bigger or alter the monetary value. It’s the bosom of how we differentiate ourselves. 17 With this fresh client informations in manus. 7-Eleven is working with providers to develop new private label merchandises it knows its clients want. Overall. “Retailer Initiative” works to leverage the company’s graduated table. substructure and the entrepreneurial energy of its store-level operators. As Keyes wrote in the 2003 Annual Report: “ [ The shop operators’ ] focal point on individual direction – canceling slow-selling ware and presenting new points at every shop. every twenty-four hours – allows 7-Eleven shops to fulfill their clients in ways that few retail merchants can fit. In the simplest footings. we enjoy the power of a planetary retail merchant. but maintain the store-level focal point of a single-store operator. ”18

Retailing Leadership

The New 7-Eleven

shops while minimising stock list and transit costs. The company utilizes combined distribution centres ( CDCs ) that are strategically located near concentrations of 7-Eleven shops. In all. the company uses 23 CDCs across the United States that each can function up to 700 shops. Driving clip from the CDCs to the shops is normally no more than 90 proceedingss. Prior to the CDC attack. most sellers delivered straight to 7-Eleven shops at sporadic times. frequently no more than one time per hebdomad. The cost of doing more frequent Michigans could non be justified by individual shop gross revenues. Further. 7-Eleven parking tonss were often crowded with immense bringing trucks and more Michigans per hebdomad would merely decline this issue. As a consequence. each shop needed to transport at least a week’s worth of stock list at any point in clip. This drastically increased both stock list costs and storage infinite demands while diminishing the freshness of the merchandises offered to clients.

7-Eleven has the bulk of its fresh merchandises now delivered straight to the CDCs. By uniting the demand of 200 shops. more frequent bringings to the CDCs can easy be justified by the improved economic sciences of the transit costs. These CDCs. in bend. consolidate merchandise from different sellers and unite them all on to one truck headed for each local 7Eleven. The company besides runs their back-end supply concatenation really expeditiously. 7-Eleven spouses with 3rd party logistics suppliers to run the CDCs. Each of these centres is about 20. 000 square pess and ships 60. 000 units per day—a really high figure of orders given the size of the warehouses.

Franchisees and corporate shop directors make local seller choice determinations. On norm. shop operators purchase 80 per centum of their merchandises from corporate recommended sellers utilizing 7-Eleven’s internal systems. The staying merchandise can be purchased from providers outside of this web. By centralising their purchasing for all of its shops. 7-Eleven is able to exert its buying power and negociate better pricing. farther
lending to their borders. Use of informations and engineering

7-Eleven takes a different attack to buying than traditional supply concatenation giants such as Wal-Mart. Rather than holding a system make up one’s mind what to order and taking the human component out of the procedure. 7-Eleven seeks to supply a set of tools for its local shops to do informed determinations on merchandise ordination and mixtures. The company efficaciously treats its local proprietors and operators as retail merchants.

The corporation has developed a engineering suite for its shops that helps local shops manage their buying. This system allows shop directors to custom-make their merchandise offering by telling online and making a suite of studies. Each local director can track their entire advancement versus other 7-Eleven stores—which helps them find if they are non taking appropriate stairss to drive traffic ( e. g. mixtures. monetary value points. etc. ) . Specific merchandise studies are available to assist directors find their appropriate merchandise mix and predict demand. Upwind prognosiss are provided as another tool to help in the ordination procedure.

The New 7-Eleven

In add-on. the immense sum of gross revenues informations and immediate response clip aid 7-Eleven do improved corporate determinations. The company is able to track tendencies at shops to understand how customers’ penchants are altering. Gross saless informations helps the company understand the impact of opening up new shops and aids in location determinations. In add-on. it allows the corporation to foretell client demand and helps in cardinal buying determinations. Finally. this engineering provides an immediate feedback cringle for 7-Eleven on new products—within a affair of one or two yearss the destiny of a new point becomes really clear. This information helps 7-Eleven thrust cardinal infinite in the shop. introduce new merchandises. and remain a measure in front of the competition. As Keyes
points out. “Retailers are closer to clients than makers. ” even though the big providers traditionally drove the determinations on shelf infinite and location. Not all shop proprietors and operators take advantage of this information and engineering. Currently. the per centum of merchandise ordered through the online system by franchisees scopes from 100 per centum to 20 per centum. This raises the inquiry of whether the right people are in topographic point in 7-Eleven to do such localised determinations. and whether the company would be better served merely telling merchandise for them. 7-Eleven is besides faced with issues of trade name consistence as a consequence: with different merchandise mixtures in each shop. clients may be confused about what 7-Eleven bases for. Merchandises

Product invention is another avenue through which Keyes is transforming the convenience retail industry. 7-Eleven paths customers’ altering merchandise buying wonts and Keyes’ end is to leverage this to make better quality merchandises in the hereafter. “We have the benefit of convenience. non monetary value. being our chief merchandising point. This gives us a batch of leeway to make higher quality. better merchandises. ” he says.

7-Eleven shops offer a broad scope of merchandises. from beer to gripe jerked meat and coffin nails to cereal. The mean shop carries 3. 000 SKU’s. About 70 per centum of these are recommended by the caput office and the staying 30 per centum are picked by local shop directors to provide to specific local demands. 19 For illustration. the 30 per centum discretion allows a director to stock up on beer if he knows that a local football game is playing. or to stock specific cultural merchandises if appropriate to a vicinity.

Merchandise mix
Overall. baccy merchandises represent the largest selling merchandise class at 7-Eleven. accounting for 29. 3 per centum of ware gross revenues in 2003. ( See Exhibit 12 for a dislocation of gross revenues by merchandise category. ) Beverages represent 23. 1 per centum of gross revenues. followed by beer/wine at 11. 4 per centum. Fresh nutrients account for 7. 2 per centum. Gasoline gross revenues account for 31 % per centum of gross revenues. The stores’ highest selling merchandise is coffee – it sells 30 million cups a month. 20 This is followed closely by beer ( with gross revenues of $ 64. 58 million per month ) . the unit gross revenues of which are

The New 7-Eleven more than half individual beers. 21 The following highest selling merchandise is the Slurpee. with over 11 million sold per month. 22
Private label merchandises

7-Eleven creates private label merchandises to distinguish itself from the competition and hike its borders. The company’s most celebrated merchandise. the flavored. crushed-ice drink called Slurpee. was created in 1965. The company now sells 11. 6 million Slurpees a month and introduces new spirits every twelvemonth. Overall. the company creates 1. 500 to 2. 000 private label merchandises each twelvemonth. or 10-15 per centum of its ware mix. Approximately 22 per centum of its gross revenues are proprietary merchandises. 23 If a merchandise is non available in a handily sized bundle or is unknown in another state. 7-Eleven’s class directors will work with providers to make a new merchandise. For illustration. in early 2004. 7-Eleven launched a low-carb class. chiefly comprised of nutritionary bars and bites. It has besides late introduced the first mentholated gum in the U. S. after descrying the success of the merchandise in Japan. ( See Exhibit 13 for sample proprietary products. )

Not all properness merchandises have been successful. In 2003. the concatenation launched its ain proprietorship imported beer trade name. Santiago. brewed in El Salvador by an independent subordinate of SAB Miller. Priced at $ 5. 99 for a six pack. a monetary value approximately tantamount to Budweiser. Santiago suffered from oxidation and “taste” jobs and is softly being withdrawn after 10 months on the shelves. A reformulated version with improved gustatory sensation and quality will be
reintroduced subsequently in the twelvemonth. 24

7-Eleven is besides establishing its first premium vino trade name. Regions. in 2004. Packaged in 375-ml half bottles and finished with a natural cork stopper. Regions will retail for $ 4. 99 compared to other wine merchandising in 7-Eleven shops at an mean monetary value of $ 6. 25. Another new merchandise 7-Eleven is establishing is the EZ-D. Utilizing a new engineering. this vacuum-packed DVD begins to oxidise upon exposure to the air. After 48 hours. it is no longer functional. As Keyes explains:

We know we can sell DVDs. We know we’ll ne’er have the mixture of a Blockbuster. but if we can come up with a more alone manner to sell films. so we think there’s an chance for us to be relevant. We’re hiting for this to be priced like a rental with no returns at $ 5. 99. It’s a great illustration of how alternatively of waiting for the industry to catch up. we go to the maker and say we need this. 25

Servicess
Presently. shop gross revenues from the Services class comprise 3 per centum of overall gross revenues. With new VCom Inc. terminuss installed at 1. 000 shops. the company provides fiscal services and Eretailing to in-store clients. The VCom units combine ATM capablenesss with nonstandard characteristics such as distributing coins. cashing cheques. and supplying money orders. 7-Eleven besides added E-retailing characteristics leting clients to purchase merchandises from retail merchants such as 1-800Flowers. eBags. com. and TopWebBuys. com. The end is to hold two booths in every shop. Keyes says. Other services include 7-Eleven convenience cards – indictable cards that work like hard currency – and pre-paid phone cards. As an extension to these phone cards. 7-Eleven started selling pre-paid Nokia radio phones in April 2004. Customers will merely be able to buy extra proceedingss for these phones at 7-Eleven shops. 26

Gasoline & A ; Tobacco
Product classs which may be cause for concern in the hereafter are gasolene and baccy gross revenues. From Dec. 2003 to March 2004 retail gasolene monetary values surged more than 25 cents per gallon from $ 1. 48 to $ 1. 73. The victors from this hiking were oil refiner retail merchants such as Shell. BP. Exxon Mobile whilst the also-rans were convenience retail merchants. such as 7-Eleven. Such convenience retail merchants are required to pay refiners the higher fuel monetary values yet can non go through all of these increased fuel costs onto clients and therefore give their gasolene borders.

Harmonizing to the Oil Price Information Service ( OPIS ) gross retail gasolene net income borders plunged by more than 37 per centum in the December. 2003-to-March. 2004 period. falling from 16. 8 cents per gallon to merely 10. 6 cents per gallon nationally27. With 31 % of 7-Eleven’s gross revenues coming from gasolene. the volatility in gasolene monetary values over the last twelvemonth highlights the hazards of such dependance. While quarterly volatility is a hazard with most trade good based merchandises. 7-Eleven’s one-year net incomes watercourse from gasolene has been rather stable with gross net income borders of at least 13 cents per gallon in each of the past 10 old ages.

Along with other convenience shop retail merchants. 7-Eleven faces an progressively tough regulative environment environing the sale of baccy. its best-selling merchandise class. This environment includes a possible rise in
the minimal age to buy baccy. an addition in “sin taxes” and turning wellness concerns. Ultimately. these issues could set downward force per unit area on baccy gross revenues and 7-Eleven’s borders.

Distribution and supplier relationships
7-Eleven has forged strong relationships with its providers. though many challenges still remain for the corporation. These relationships are critical elements of 7-Eleven’s operational efficiency and scheme. Technology allows 7-Eleven to seamlessly integrate ordination and bringing programming.

Cardinal providers to 7-Eleven. nevertheless. have remained immune to take parting in the company’s germinating distribution system. These consumer packaged goods makers have extended 26

The New 7-Eleven

distribution webs of their ain to present goods and command in-store shelf infinite. By commanding in-store merchandise arrangement. they are able to drive gross revenues and acquire a solid advantage over the competition. They are loath to give up such an advantage. 7-Eleven has been altering this theoretical account. The company believes that they can increase their ain profitableness by consolidating cargos from a assortment of providers in their warehouses. and administering to their ain shops based on in-store gross revenues informations.

While many of the smaller makers have conceded and switched to this CDC theoretical account. many of the larger providers are still contending. Companies such as Coca-Cola. Pepsi and Budweiser have such a vested involvement in their distribution webs that they have non yet been willing to passage.
They do non desire to release control over floor and shelf infinite. Keyes. nevertheless. feels that they will finally come around as a consequence of force per unit area from cardinal participants such as Wal-Mart and 7-Eleven. Further. this centralised distribution theoretical account – which is efficaciously interrupting down the barrier to entry of 100-year-old distribution webs – is supplying chances for new providers to come in the market.

Customers
Traditionally 7-Eleven’s nucleus client was a male. blue-collar worker buying java before work or beer at the terminal of the twenty-four hours. More late. the 7-Eleven client demographic has shifted as the merchandises and services it offers have changed. Describing the relationship between demographic and merchandise mix. Keyes explains: “7-Eleven’s gasolene island today is over 50 percent female because we were one of the first with self-service. pay-at-the-pump gas pumps and it was easier for mas. ”

The client base has shifted from mostly blue-collar male to a broader demographic mix. including more female clients. Keyes says of this displacement:
Inside. the shop isn’t 60 per centum blue-collar male any longer. but we don’t want to run off our nucleus client. We still sell a batch of beer and beef jerked meat. and we plan to go on. Our new attack is elusive. When you know that you can acquire a good. healthy. fresh sandwich so we’ll acquire you. non by advertisement and stating you what a great topographic point we are. As with most retail merchants. the key is holding the right mixtures.

This scheme involves selling a wider scope of merchandises than the traditional beer and beef jerked meat alongside porc rinds. Broadening the merchandise mix encourages a demographic widening of the client base.

Peoples Management
Peoples direction remains an on-going challenge at 7-Eleven. “There are immense labour issues. ” says Keyes. 28 Specifically he points out: “The people represent the company. ” 7-Eleven has 70. 000 employees worldwide. 6. 000 of whom are staffing shops on nightlong displacements. Keyes 28

Jim Keyes. Columbia Class Video. February 6. 2002.
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Retailing Leadership

The New 7-Eleven

concerns about the client service provided by these front-line employees. and by franchisees who operate as independent contractors. “You can non put to death Retailer Initiative without retail merchants. ” says Keyes.

To assist its shop directors. both franchisees and corporate employees. 7-Eleven began a 12-week enfranchisement plan in 2002. By the terminal of 2003. about tierce of its shop operators had been certified. In add-on. more than 2. 700 shop gross revenues associates had completed a two-day preparation faculty on the indispensable elements of the Retailer Initiative scheme. 29 Franchisees

7-Eleven remains active in pull offing and back uping its franchisees. Each franchisee undergoes an initial 6-week preparation plan in operating and pull offing a 7-Eleven shop. and is later assigned a field adviser who provides ongoing support during hebdomadal visits. In add-on. the company hosts an one-year “7-Eleven University” during which franchisees and corporate-store directors are introduced to new merchandises and company enterprises. Historically. the franchises have been more successful than corporate shops. “We think this is because they’ve got skin in the game. ” says Keyes. Now. nevertheless. the franchises have begun to fall behind corporate shops. While all corporate enterprises are instantly implemented in corporate-run shops. franchisees are non required to utilize the new stock list system. As Keyes has moved to alter the manner 7-Eleven operates. the bing group of 3. 300 franchisees are turn outing to be a “challenge. ” “They think that we’re seeking to coerce them to be employees. and we’re non. ” he says.

Specifically. franchisees have been unhappy with the gross net income “split” between themselves and the company. Under the bing franchise understanding.
franchisees retain 48 per centum of their gross net income border. and give 52 per centum to the corporation. In bend. the corporation has become unhappy with the rate at which bing franchisees have been change overing to the Retailer Initiative and the new. company-wide SKU-picking system in peculiar. In order to turn to these concerns. 7-Eleven has late offered a new franchise understanding. Under this new understanding. the gross net income split is now 50-50. Under the new understanding. franchisees must now refund the corporation for advertisement outgos. equivalent to between 0. 5 and 1. 5 per centum of the franchisee’s gross net income. To turn to the company’s concerns. the new understanding stages in a farther demand for franchisees to order 85 per centum of their SKUs from recommended sellers.

The new understanding will impact the 34 per centum of all franchisees whose understandings were up for reclamation on December 31. 2003. along with all new franchise holders. The staying franchisees will be eligible to subscribe the understanding get downing in 2004.

29

7-Eleven. 2003 Annual Report.
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Retailing Leadership

The New 7-Eleven

Diverseness
As a farther attempt to turn to 7-Eleven’s human resource issues. the company has attempted to re-brand its diverseness as an plus. Following the terrorist onslaughts on September 11. 2001. the company experienced hostility directed at several of its front-line shop employees who were thought to be of Middle-Eastern beginning. The company responded to this crisis by trying to specify the diverseness of its work force as a strength.

7-Eleven produced and aired commercials that highlighted the immigrant
beginnings of franchiseowners. In one commercial. a Thai franchisee is shown working hard to construct her 7-Eleven franchise. followed by shootings of her welcoming her two kids to America in an airdrome waiting country after a long separation. Additionally. the company held its seventy-fifth birthday jubilations on Ellis Island in New York City. the former gateway to the U. S. for immigrants. “America was built by immigrants who came here to populate the American Dream” says Keyes. “7-Eleven represents that chance to be your ain foreman. ”30

Differentiation
Continuing people direction concerns besides rest in portion on the deficiency of preparation and ongoing support for the hourly workers. peculiarly those that work in franchises where franchisees are responsible for the hiring and preparation of employees. Harmonizing to the company. store-level employee turnover at over 100 % is in line with industry norms. and 7-Eleven has seen two back-to-back old ages of betterment. 31

Keyes believes that 7-Eleven’s front-line employee issues can be resolved in portion through distinction. Merely as 7-Eleven has to distinguish merchandises. he says. it besides has to distinguish the shop for employees. Why work at 7-Eleven for $ 8- $ 9 an hr. instead than at McDonalds? Currently. says Keyes. “We have people looking for an hourly pay. non a challenge. ”32 There are presently two drivers of employer distinction at 7-Eleven. The first is staff development and ongoing preparation. At 7-Eleven University. franchisees and shop directors are exposed to thoughts for motivation and learning employees. Keyes frequently visits shops and concludes that franchisees frequently do non work with their hourly employees to assist them understand client service.

Hourly workers are told. for illustration. that the retail cost of an empty cup is 70 cents ( a map of retail vs. cost accounting ) . so when clients come in and inquire for a cup of H2O. they are told the cost is 70 cents. “They don’t know that the existent cup cost is merely a Ni and that it would do more sense to construct client good will by giving them the cup and composing it off. ” says Keyes. “We can turn an $ 8-9 dollar an hr employee into a retail merchant by giving them the tools. like performance-building accomplishments. ”

Additionally. Keyes would wish to see shop franchisees and directors do more to make a positive work environment for hourly workers. You can “fire up” a group of hourly-wage employees. believes Keyes. believing back to his ain college occupation at McDonald’s. He was 30

Jim Keyes. Columbia Class Video. 2003.
7-Eleven.
32
Jim Keyes. Columbia Class Video. February 6. 2002.
31



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Retailing Leadership

The New 7-Eleven

enthusiastic. he recalls. both as an entry-level worker and when he was promoted to run staff preparation at new shops. His directors and his equals. he believes. helped to make an ambiance where people wanted to work.

The 2nd driver of employee distinction is “social capitalist economy. ” Keyes attempted to distinguish 7-Eleven shops as workplaces by constructing up the thought that the company can give back to the communities in which its employees work and live. In 2002. 7-Eleven set up the Education is Freedom Foundation. sustained through company gifts. website contributions. and aggregation boxes at shop hard currency registries. ( See Exhibit 14 for the Foundation’s website. ) The Foundation was expressly intended to supply money for the higher instruction of employees and their kids. This thought intended to leverage 7-Eleven’s long designation with the American Dream – as a topographic point where recent immigrants and others could run a concern as a franchisee with small capital investing – into the thought that working for 7-Eleven is a good topographic point to acquire an instruction.

Overall. the Foundation distributed $ 2000 scholarships to 223 pupils. after having 30. 000 applications. 33 The impact on employee turnover. nevertheless. seemed negligible. “I was waiting. ” says Keyes. “for my HR squad to pick up the ball. ”

Despite desiring to distinguish itself in the eyes of employees. 7-Eleven. like other participants in the convenience shop industries. concerns about an addition in the minimal pay. Labor disbursal accounted for 42. 1 per centum of gross net income in 2002 for the convenience shop industry as a whole. 34 For illustration. the New York Association of Convenience Stores noted that a proposed addition in the minimal pay from $ 5. 15 to $ 7. 10 by 2006 would increase convenience shop costs in the province by 38 per centum. 35

Finally. 7-Eleven faces the challenge of keeping security in its shops. many of which operate 24 hours a twenty-four hours.
A Learning Organization
Keyes would wish 7-Eleven to go a “learning organization” from top to bottom. As he works to reinvent the company. and to travel off from traditional methods of retailing. Keyes would wish to breed an environment of continual acquisition in franchises. corporate-run shops. and in HQ. Acknowledging that 7-Eleven is non considered an attractive topographic point to work for newlyminted MBA’s and others. Keyes wants to turn 7-Eleven into the “Procter & A ; Gamble preparation ground” for the convenience industry.

Specifically. Keyes worries about making a direction squad to win him. He talks about being in “leadership 101” as he looks back and realizes that he is so much of a hands-on individual that he did non do adequate attempt to develop people as he was traveling up through the ranks of the company.

33

7-Eleven intelligence release. January 21. 2004.
EDC Economics. An Overview of the US Convenience Store Industry. December 2003. 35
New York Association of Convenience Stores ( World Wide Web. nyacs. org ) .
34


13

Retailing Leadership

The New 7-Eleven

Search for new HR Director
In order to develop employer distinction thoughts. pull off the image of 7-Eleven’s front-line retail merchants and develop ways of doing 7-Eleven’s corporate side a more attractive topographic point to work and develop as retail merchants. Keyes instituted a hunt for a new Director of Human Resources. ( See Exhibit 16 for a company organisation chart. ) After looking at many sketchs. he remains unimpressed. “They don’t travel above the baseline. ” he says. So many of the campaigners miss the point about distinction and client service. and do non understand that all employees must be able to make full in the space: “I want to work for 7-Eleven because _______ . ” Growth

7-Eleven is spread outing quickly. In the U. S. . shop growing is balanced between new franchises and corporate-run shops. Internationally. the company enters into license understandings with spouses in foreign states.

Domestic Expansion
7-Eleven is following an urban scheme learned from successful licensees in Japan and Taiwan. yielding high-traffic corners to others and looking for more unconventional locations. These types of choices decrease the cost of existent estate and. as a consequence. increase the company’s return on investing. In add-on. the company is upgrading both its technological and physical substructure to go on to redefine its trade name image. 7-eleven spent over $ 500 million over the last five old ages to upgrade its engineering platform ( See Exhibit 16 for images of current stores. ) In 2004. the company plans to open about 100 new retail mercantile establishments in the United States while go oning to shut unprofitable shops. Keyes believes this is immensely undershooting their enlargement potency. In Japan. the company netted over
1. 000 new shops during 2003. He believes that 7-Eleven could easy add 500 to 1. 000 shops per twelvemonth in the U. S. market. Areas of focal point include metropoliss and airdromes. every bit good as farther perforating some of their bing markets. Questions remain. nevertheless: Can 7-Eleven warrant the comparatively high cost of existent estate in these countries? What consequence will cannibalization hold on the economic sciences of both their new and bing shops? Further. based on their extremely leveraged balance sheet. can they even afford to make it? International Expansion

Keyes besides sees great chances in new markets. South America. Beijing and the remainder of China are all illustrations of cardinal markets that the company is looking to spread out into. 36 7-Eleven hopes to procure local spouses that are familiar with the markets to increase the opportunities of success. While convenience transcends cultural differences. the definition of convenience will surely change by civilization.

36

Associated Press. April 6. 2004. 7-Eleven. through a joint venture agreement between licensee Seven-Eleven Japan and two Chinese spouses opened its first shop in Beijing on April 15. 2004. 14

Retailing Leadership

The New 7-Eleven

International enlargement is facilitated through the usage of licence understandings. Such understandings give 7-Eleven. Inc. . legal control over the usage of hallmarks. trade frock and concern information. and efforts to set up reciprocally good relationships in order to guarantee extra control over licensees.

Japan represents 7-Eleven’s greatest international success. The shops are systematically clean and well-organized. with a really broad and high-quality merchandise line. Working closely with providers and supplying first-class
service to clients Seven-Eleven Japan has experienced phenomenal success. It now has over 10. 000 shops. While the Nipponese experience represents strong success. it remains to be seen whether 7-Eleven can retroflex that theoretical account in other states. Decision

“It’s been a absorbing experience to take a company that was an icon in an industry and transform its economic theoretical account over the last 10 old ages. ” says Keyes. He admits. nevertheless. that the transmutation is ongoing and non complete. He worries about the continued holding-out of his dominant providers like Coca Cola and Pepsi to the CDC theoretical account. Underliing these troubles with his reinvention of 7-Eleven. the people direction issues loom big. What should he be looking for in his new HR manager? Why is the right individual so difficult to happen? “The sky’s the bound in footings of what we can make. ” says Keyes. “As I look around the landscape of retail all of my competition are playing the same game. ” In his Beechcraft. as Keyes adjusts his height to counterbalance for the turbulency. he sees much blue sky in forepart of him. He besides can’t aid detecting the clouds off in the distance.

15

Retailing Leadership

Exhibit 1

The New 7-Eleven

Biography of Jim Keyes

Jim Keyes is president and main executive officer for 7-Eleven. Inc. . the world’s largest convenience shop retail merchant.
Mr. Keyes served in a figure of senior direction places before being elected to his current function in 2000. He joined 7-Eleven stores’ former subordinate Citgo Petroleum in 1985 as general director of selling and concern scheme. A twelvemonth subsequently. he became general director of 7-Eleven’s national gasolene. with duty for the company’s retail gasolene
concern in the United States and Canada. He was named frailty president of national gasolene in 1991.

Mr. Keyes served as the company’s senior fiscal officer in 1992 and was named main fiscal officer in 1996. He was elected to the company’s board of managers in 1997 and promoted to executive frailty president and head runing officer in 1998.

Before fall ining 7-Eleven. he held assorted field and corporate places at Gulf Oil Corporation.
Mr. Keyes earned a Bachelor of Arts grade at Holy Cross College in Worcester. Mass. . where he was named to the Phi Beta Kappa award society and graduated semens laude in 1977. He besides attended the University of London and received a Master’s of Business Administration grade from Columbia University in New York City [ in 1980 ] .

Mr. Keyes is establishing president of Education is Freedom. a public charity dedicated to assisting hard-working immature people reach their full potency through higher instruction. He serves on the national board of managers of Students in Free Enterprise ( SIFE ) . the Muscular Dystrophy Association. Latino Initiatives for the Following Century ( LINC ) and on the board of legal guardians for the Boys and Girls Club. Mr. Keyes besides is on the board of managers for the National Association of Convenience Stores ( NACS ) . He was recognized by the Network of Executive Women for his attempts to advance diverseness in the workplace.

Mr. Keyes serves in a leading function within the local Dallas community every bit good. as an executive board member of the Greater Dallas Chamber of Commerce. a member of the Dallas Citizens Council and a member of Southern Methodist University’s Cox School of Business and president of the Dallas Symphony Association.

Mr. Keyes was born on March 17. 1955 in Grafton. Mass. He and his married woman Margo live in Dallas.

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