Major Expansion 24/7 For 7-Eleven
7-Eleven plans more than 200 stores per year for the next few years.
Randall Shearin

7-Eleven is flexible in negotiating lease terms, but prefers 10-year triple-net leases with options to renew.

With many retailers in trouble, you might be wondering why some think now is the time to expand. For that group of retailers whose business is day-to-day necessities, business isn’t that bad. Sales are up at 7-Eleven stores — and in this economy, the company is expanding at a rapid pace to take advantage of good rental rates and quality vacant retail space on the market.

That’s right, 7-Eleven is interested in your in-line space. And your outparcels. And any vacant space that will support the retailer’s high traffic. The founder of convenience retailing is on a major expansion kick, with plans to open more than 200 stores per year for the foreseeable future.

Shopping Center Business recently spoke to Dan Porter, vice president of real estate and new store development for Dallas-based 7-Eleven, to find out more about the expansion.

Looking At Leases

To streamline its business, 7-Eleven is taking a look at every deal it has in existence. The company is analyzing its existing portfolio to see where there are opportunities to renegotiate leases or restructure deals. Why would a healthy company do this? The timing is right, says Porter. The company can save money by renegotiating existing deals, allowing it to expand elsewhere. In many cases, 7-Eleven will be working with its existing landlords to add new stores, so lease negotiations could be part of the deal. This will help 7-Eleven’s existing landlords garner more business from the retailer, says Porter.

“We’re trying to determine where we might have some opportunity to negotiate or restructure our existing leases to put us in a more favorable position long-term for growth,” says Porter. “Current market conditions and the economy have set this up for us. Our objective is to partner with the landlords and property owners to best determine how we can both succeed long term and prosper.”

He estimates that 7-Eleven will enter discussions on more than 1,000 leases systemwide over the next 18 months. The company has engaged CB Richard Ellis, HMS and others to help it negotiate its existing leases and analyze the portfolio.

Readying For Growth

While 7-Eleven prepares to work on its existing portfolio, the company has spent the last 2 years ramping up its new store development program. In addition, over the past 2 years, 7-Eleven has tripled the size of its real estate team. While it is starting out with at least 200 new stores opening in 2009, the company hopes to be able to increase its growth up to more than 400 stores per year over the next few years.

Since its inception more than 80 years ago in Texas, 7-Eleven has strived to have a large number of stores in certain major metropolitan markets. The company feels this strategy allows it to become engrained in consumers’ lifestyles. If it has a large presence and consumers become familiar with its products and its convenience, they tend to return.

7-Eleven has identified several areas around the country as “accelerated growth markets,” where it intends to build such a strong market presence over the next few years. They are: Los Angeles, San Diego, San Francisco, Seattle, Colorado Springs, Denver, Salt Lake City, Dallas/Fort Worth, Orlando, Daytona Beach, Tampa, St. Petersburg, Miami, Washington, D.C., Baltimore, Hampton Roads, New York City and northern New Jersey. The company also looks to expand its presence in Canada by adding units in Calgary, Edmonton and Vancouver.

Store Acquisition

Part of 7-Eleven’s strategy is prepared foods. The company introduces many new products each week that its stores can offer.

In addition to new store build-outs, 7-Eleven has an aggressive acquisition program of existing convenience stores through its business conversion program. The company looks for existing independent retail stores that want to convert to a national chain through 7-Eleven’s franchise system. 7-Eleven’s system is more than a logo:  it’s the brand, the advertising, the proprietary retail information system, merchandising programs, equipment, training, bookkeeping, payroll preparation, vendor payments and quarterly audits.  In addition, 7-Eleven provides its system of daily-delivered fresh foods and bakery items. 7-Eleven invests about $285,000 into every conversion that it does. If the existing owner holds the lease or owns the building, they retain the responsibility for the real estate. The company recently celebrated the 100th independent store to convert to a 7-Eleven.

“The independent retailers, should they qualify, become franchisees and get the same franchise business system, products, services and support that we offer for our traditional franchisees where we might have had a real estate interest,” says Porter. “We are a franchise company. When 7-Eleven grows and develops a new site, whether it be a strip center, a free-standing location or a convenience stores with fuel, we always franchise the store under our traditional franchise program.”

The 7-Eleven Business Conversion Program provides the opportunity for its existing franchisees to develop new sites that can be converted to 7-Eleven stores within the company’s parameters.

“The business conversion program allows small-box retailers to buy into our franchise system by converting their operation to a 7-Eleven store,” says Porter. “One of the best things that new conversion stores tell us is how many new customers they get because the customers know what to expect with a 7-Eleven store.”

Locations

The typical 7-Eleven location is 2,400 to 3,000 square feet. Pictured is a store in Chicago.

The typical 7-Eleven location is 2,400 to 3,000 square feet. 7-Eleven likes in-line space in shopping centers, as well as freestanding stores. At shopping centers, 7-Eleven prefers the end-cap location. The company prefers to locate stores in densely populated areas with high residential population, with good daytime support and plenty of traffic generators. Developing new stores on signalized intersections with high traffic counts also is important. 7-Eleven is flexible in negotiating lease terms, but prefers 10-year triple-net leases with options to renew.

“We’ve been in a growth mode for the past few years,” says Porter. “We’ve been ramping up growth by dedicating more resources, manpower and capital investment to real estate and store acquisition. There are so many opportunities for us with other retailers retrenching. During these difficult economic times, we’ve become a viable opportunity for landlords, who might not have considered a 7-Eleven a few years ago.”

7-Eleven is a strong credit tenant with a solid balance sheet, and capital isn’t a problem for the retailer’s planned expansion.

“We’re positioned very well financially for accelerated growth,” adds Porter.

Shifting gears from freestanding development — which 7-Eleven is still active in — to shopping center space has been an easy change for the company in the current environment. 7-Eleven uses its proprietary retail information system that allows it — hour-by-hour and store-by-store — to know what is selling at each store. Franchisees are encouraged to spend as much time on the floor getting to know their stores and their customers. That way, they know as well as the information system what products are selling. 7-Eleven introduces about 25 new products each week that its stores can opt to carry, so it is essential for the franchisees to know what their particular customers want so they can take advantage of all available new products.

Recycled real estate — using spaces that other retailers have abandoned — is an area where 7-Eleven sees a good fit for its stores in some markets. For example, the company has identified a number of national retailers’ closed locations, such as Payless ShoeSource, Blockbuster Video, Starbucks Coffee, fast-food sites and banks.

“We can plug into just about any building or shopping center as long as we have our minimum space and the site has good access, visibility, ample parking and adequate space for signs,” says Porter. “We can be very flexible n our development and consider many types of locations.”

Most stores that 7-Eleven currently opens do not carry gasoline. Those that do typically come through acquisitions, where the store already carried gasoline at its facility. 7-Eleven’s business models make it a tenant that’s easy to work with. The company can sign a corporate lease; it can have a franchisee sign the lease; it can have stores with gasoline and without gasoline. The retailer likes strip centers, it can take second-generation space; it can acquire gas stations and liquor stores and turn them into 7-Elevens.

Urban locations have also become an important part of 7-Eleven expansion strategy.

“The beauty of 7-Eleven is that we can prosper in a lot of different environments,” says Porter. There are a many different ways we can plug in to what retail space owners have. We have stores everywhere from light industrial areas to downtown urban locations to suburbia.”

Products and Focus

Since its beginnings as The Southland Ice Company — where the company forged a market by staying open later to sell eggs and ice than traditional markets — 7-Eleven has been all about convenience. A small part of its location strategy today still revolves around what is most convenient for the retailer (the company prefers to locate stores on the ‘inbound commute’ side of a street, though it’s not necessary). Inside 7-Eleven, everything is about ease of access and having products that consumers want readily available.

One of the biggest selling products at 7-Eleven is coffee — called “liquid gold” by company insiders — but its fresh food offerings are growing in sales by leaps and bounds. Its fresh foods segment — which includes items like salads, sandwiches, dairy and fruit — has grown over the last 3 years. In certain markets, the company is introducing a hot fresh foods program. This includes items like pizza, chicken wings and tenders, hash browns and potato wedges. It has launched this program in stores that have a well-executed fresh food sales program. All of 7-Eleven’s food offerings are proprietary and exclusive. The company works with chefs to develop food offerings that are taste tested, then slowly rolls out each item market by market.

©2009 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.