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Gilbert Strama Written Report
Gilbert Strama Written Report
Company Profile
• Convenience Store
Business • Services – Retailing, Franchising, Licensing
Type &
Sector
7-Eleven store is known for offering one stop location for fulfilling its
customer’s need. The product line in the marketing mix of the company can be
divided into food and drinks for breakfast, lunch, evening snack, dinner and late night
snack.
Brief Background
7-Eleven is the world’s first convenience store founded in the year 1927 by J C
Thompson. Earlier the store name was Tote’m store but it was later changed to 7
Eleven in the year 1946. The idea behind the name ‘7-Eleven’ is that the store is
opened 7 days a week from 7am to 11 pm. The store began its first operation in Dallas,
Texas with the aim to sell everyday staples to customers and now the store offers
varieties of products like hot food, coffee, salad, energy drinks and lots more. The
company has more than 60000 stores worldwide and operates in 18 countries
including Australia, Singapore, Malaysia and many more. The company 7-Eleven
also offers franchise to potential owners and is therefore the main reason for its
growth around the globe.
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES 3
Distribution Strategy
7-Eleven has forged strong relationships with its suppliers, though many
challenges still remain for the corporation. These relationships are critical elements
of 7-Eleven’s operational efficiency and strategy. Technology allows 7-Eleven to
seamlessly integrate ordering and delivery scheduling.
7-Eleven has been changing this model. The company believes that they can
increase their own profitability by consolidating shipments from a variety of suppliers
in their warehouses, and distributing to their own stores based on in-store sales data.
While many of the smaller manufacturers have conceded and switched to this CDC
model, many of the larger suppliers are still fighting. Companies such as Coca-Cola,
Pepsi and Budweiser have such a vested interest in their distribution networks that
they have not yet been willing to transition. To summarize the different distribution
and inventory management strategy of 7-Eleven across the world, please see table
below.
In Japan, logistics distribution is the last link between producers and consumers
in the circulation of goods. The speed of logistics and distribution efficiency directly
affect the degree of customer satisfaction. The important reason for the rapid
development of 7-11 is that there is a strong rear logistics support system. In addition,
its logistics system can match the common distribution model. Regional centralized
shop strategy for the use of common distribution model, that is, the establishment of
joint distribution centers in each region to achieve high frequency, varieties, and
small unit distribution effect. Acted as a common distribution center fully reflect the
sales of goods in transition and inventory information. The reducing of transportation
costs, 7-11 gradually grasps the dominant power of the whole industry chain. The
diagrams below depicts Japan’s distribution strategy and inventory management.
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES 5
Japan 7-11's success is mainly due to the design and management of its supply
chain. Japan 7-11's business purpose is to provide them with products when the
customers need. From a strategic point of view, one of the main objectives of the
company is to seek the micro balance between supply and demand through the
regional, seasonal and daily schedule. Below is the supply chain decision making
framework of 7-Eleven.
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES 6
Financial Strategy
7-Eleven has four types of financing, namely (1) Franchising and licensing, (2)
Establishment of new store, (3) Capital financing and (4) Debt financing.
Franchises are another form of indirect contractual agreement through which the
franchiser grants the franchisee the right to use its name and receive a financial
compensation similar to the licensing agreement (fixed plus royalties). While
Licensing Agreements are contractual agreements by which a company (the licensor)
transfers to another company (the licensee) its product and/or process technology
with the right to exploit it commercially.
Historically, the franchises have been more successful than corporate stores.
“We think this is because they’ve got skin in the game,” says Keyes. Now, however,
the franchises have begun to fall behind corporate stores. While all corporate
initiatives are immediately implemented in corporate-run stores, franchisees are not
required to use the new inventory system. As Keyes has moved to change the way
7-Eleven operates, the existing group of 3,300 franchisees are proving to be a
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES 7
“challenge.” “They think that we’re trying to force them to be employees, and we’re
not,” he says.
Specifically, franchisees have been unhappy with the gross profit “split”
between themselves and the company. Under the existing franchise agreement,
franchisees retain 48 percent of their gross profit margin, and give 52 percent to the
corporation. In turn, the corporation has become unhappy with the rate at which
existing franchisees have been converting to the Retailer Initiative and the new,
company-wide SKU-picking system in particular.
In order to address these concerns, 7-Eleven has recently offered a new franchise
agreement. Under this new agreement, the gross profit split is now 50-50. Under the
new agreement, franchisees must now repay the corporation for advertising
expenditures, equivalent to between 0.5 and 1.5 percent of the franchisee’s gross
profit. To address the company’s concerns, the new agreement phases in a further
requirement for franchisees to order 85 percent of their SKUs from recommended
vendors.
This type of financing is technically the same with financing and licensing but
may imply the following advantages and disadvantages:
ADVANTAGES DISADVANTAGES
7-Eleven will earn all profits 7-Eleven will bear all losses
Additional Costs will be assumed
Costs are more manageable
(e.g., Labor, Rent, Utilities, etc.)
Full control of the store Needs to be managed wholly.
Can be used as other strategy (i.e., Strategic failure may incur and
Entering new market/area) suffered by 7-Eleven
Capital Financing
7-Eleven seldom use capital financing since they derive their main financing
from establishment of new franchise or owned-store.
Used capital financing for expansion purposes.
As of April 30, 2018, 33.09% of Phil-Seven’s stocks are being traded in public.
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES 8
Debt Financing
7-Eleven also seldom use debt financing since they derive their main financing
from establishment of new franchise or owned-store.
7‑Eleven expects to grow dramatically over the next 10 years. Their CSR
strategy demands that they limit the impact of this growth on our planet and the
people in the communities they serve. To help them set long-term goals for reducing
their carbon footprint over the upcoming years, 7-Eleven partnered with
Conservation International, a nonprofit organization dedicated to building a
healthier, more prosperous and productive planet. Their strategy focuses in on three
measurable goals:
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES 10
EXECUTIVE SUMMARY
Company Background
7-Eleven has forged strong relationships with its suppliers, though many
challenges still remain for the corporation. These relationships are critical elements
of 7-Eleven’s operational efficiency and strategy. Technology allows 7-Eleven to
seamlessly integrate ordering and delivery scheduling. To keep-up with its serving
markets, 7-Eleven has been changing its model. The company believes that they can
increase their own profitability by consolidating shipments from a variety of suppliers
in their warehouses, and distributing to their own stores based on in-store sales data.
While many of the smaller manufacturers have conceded and switched to this CDC
model, many of the larger suppliers are still fighting. This challenge is not being faced
by Japan 7-Eleven where in fact they are succeeding in its market consistently.
Japan 7-Eleven's success is mainly due to the design and management of its
supply chain. Its business purpose is to provide customers with products when they
need them. From a strategic point of view, one of the main objectives of the company
is to seek the micro balance between supply and demand through the regional,
seasonal and daily schedule.
Financial Strategy
7-Eleven has four types of financing, namely (1) Franchising and licensing, (2)
Establishment of new store, (3) Capital financing and (4) Debt financing.
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES 11
7-Eleven seldom use capital and debt financing since they derive their main
financing from establishment of new franchise or owned-store. They only use capital
and debt financing for expansion purposes and/or to support their operations. As of
April 30, 2018, 33.09% of Phil-Seven’s stocks are being traded in public and no
major debt is entered by the company.
7‑Eleven expects to grow dramatically over the next 10 years. Their CSR
strategy demands that they limit the impact of this growth on our planet and the
people in the communities they serve. To help them set long-term goals for reducing
their carbon footprint over the upcoming years, 7-Eleven partnered with
Conservation International, a nonprofit organization dedicated to building a
healthier, more prosperous and productive planet. Their strategy focuses in on three
measurable goals:
1. Reducing their energy footprint in stores and offices by 20% by 2025.
2. Increasing corporate giving to 1% of operating net income annually,
beginning in 2017.
3. Reducing their packaging footprint by 20% by 2025.