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Feature Article, March 2005
7-Eleven’s Fresh Approach
With a fresh approach to its food business — and to its real estate strategy — the convenience store chain is launching a large expansion.
Randall Shearin
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Many 7-Eleven stores in suburban locations now offer gasoline.
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7-Eleven, Inc. is a retailer that likes big numbers: the economies of scale created by 6 million people a day shopping at one of the retailers’ stores in the U.S. and Canada is unfathomable to most retailers. As the world’s largest convenience store chain, the company did more than $10.8 billion in sales in 2003. And it wants to see its numbers grow in terms of revenue and in the number of stores it opens around the world. With a real estate strategy that calls for more corporate locations, and a merchandising philosophy that quickly responds to consumers’ changing habits, 7-Eleven is focused on the future.
Shopping Center Business recently met with executives from 7-Eleven’s real estate team at the company’s headquarters in Dallas. SCB met with David Littwitz, director of real estate, Ed Carnevale, director of construction, and Steve Hall, vice president of store development.
Creator Of Convenience
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The Number 1 seller at the company’s stores remains coffee, which can be prepared more than 1,300 ways at 7-Eleven.
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Because it is a convenience store, 7-Eleven must constantly strive to improve its product offerings. In 1968, 7-Eleven was the first convenience store to offer coffee in to-go cups. Today, coffee still tops the best-seller list at the company — customers can purchase coffees 1,300 different ways, according to the company. When the retailer saw that consumers wanted low-carbohydrate items, 7-Eleven had to respond to keep sales; when consumers wanted healthier food, 7-Eleven began offering items like single-serve vegetables, low-carb energy bars, candies and other healthy snacks. The company has mandated that everything in its stores be fresh — all perishable baked goods are date stamped and even items like grilled hot dogs are monitored for how long they are on the grill. Coffee is brewed at regular intervals to ensure freshness.
A Fresh Approach
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A freestanding 7-Eleven store without gasoline.
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Just as it has done with its products, 7-Eleven has freshened its stores over the last few years. With 60 percent of its stores franchised, the company introduced a new franchise agreement in 2002 and has converted 90 percent of its franchisees to the new agreement. The company also spent a lot of time and capital on a new information technology system that further enables the company to understand who its customers are, what they are buying and when they are buying it. This helps replace inventory quicker and understand the type of product that 7-Eleven has to carry in its stores.
Fresh Real Estate
The company has also changed its real estate strategy. It has vigorously attacked urban markets, entering cities such as Boston, New York and Chicago, and worked hard to secure high-traffic suburban locations. The company also introduced a new proprietary software for development called Site Development Management System, which allows it to track construction from site prospect to store opening.
“After a few years of strategic planning on our part, we are ratcheting up our new store count,” says Littwitz.
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A freestanding 7-Eleven store in a suburban market.
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The timeline for store development varies depending on the site that 7-Eleven is developing. If the store is a ground-up location with gasoline, it will take longer than one being opened in an urban location in the base of an office building. The long end of the scale can be 18 to 22 months from site identification to store opening. Urban stores can be opened in less than 12 months of lease signing. The build-out of a storefront space in an urban area is done in 6 to 8 weeks.
Most of the urban locations that 7-Eleven is developing are so-called “urban walk-up” units, which are located in the ground floor of an office building or a high-rise condominium building. There is little drive-up traffic for these stores; the traffic generators are the foot traffic created by the office space and residential tenants surrounding the store. Locations near subway stations and bus stops are targeted as well. Littwitz anticipates that as much as 60 percent of the stores that 7-Eleven opens in 2005 will be urban walk-up locations.
“While we have done some urban stores over the years, we’ve primarily been a suburban retailer who follows the growth in markets like Dallas,” says Littwitz. “We’ve made a conscious decision over the last year to have a significant segment of our growth model be through walk-up urban stores in New York, Boston and Chicago.”
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A freestanding 7-Eleven store in a suburban market.
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The company is looking to develop some urban walk-up stores in Los Angeles, as well, but is also seeking many suburban locations throughout Southern California.
7-Eleven is also flexible with its prototype. While urban walk-up locations can be as small as 1,400 square feet, full-size suburban locations can exceed 3,000 square feet. The company’s typical suburban prototype location consists of 2,940 square feet.
“We can adapt our store image to the architecture of the surrounding area,” says Hall. “We don’t try to impose our will upon them. We make architectural adjustments to blend into our surroundings. It is very important to us to be a part of the community.”
As a case in point, for one of the company’s first urban stores in Chicago, Mayor Richard Daley and his wife met with 7-Eleven executives to provide input regarding the store’s interior design. The retailer was very amenable to the mayor’s wishes and hopes that it can bring that type of flexibility to every market where it locates stores.
Company Structure
7-Eleven’s real estate department has eight operating divisions around the U.S. Each division has a real estate manager that reports to Littwitz, who is based at the company’s headquarters in Dallas. Depending on the growth level in each area, 7-Eleven may have one or two real estate representatives who work for the real estate manager. The company also has exclusive broker relationships in Chicago, Boston, Baltimore and New York City to identify sites for future locations. The company is working with CB Richard Ellis in Chicago and Boston. In New York, the company works with Retail Realty.
In Chicago, the company has about 40 sites identified as potential locations, most of which were brought to 7-Eleven by CB Richard Ellis.
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7-Eleven has created an urban concept, which it has already located in markets like Chicago and New York.
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In New York, there is no major convenience store chain in the city or the boroughs. Drug stores have overtaken the convenience retail market there. 7-Eleven sees many retailers — everything from drug chains to delicatessens to Dunkin’ Donuts and Starbucks — as competition.
Like fast food and drug store tenants, 7-Eleven looks for heavily trafficked areas with high visibility. At suburban intersections, 7-Eleven has no preference for inbound or outbound traffic as long as the visibility and traffic is great. The company also looks for a heavy population in a 2- to 3-mile radius. Since 7-Eleven is a 24-hour business, it looks for complementary businesses that will generate traffic after 5 p.m. as well — movie theaters, restaurants, clubs and sports venues are potential uses which give 7-Eleven business at night. Highways are also a good traffic generator.
“We can have stores relatively close to each other but with completely different traffic patterns and they are all very successful,” says Carnevale.
Distribution
To serve all of its stores in the U.S., 7-Eleven has 24 distribution centers around the country, mostly located in larger markets where the company has stores. The distribution centers are strategically located to help the retailer get merchandise to stores fast. This will really come in handy as 7-Eleven transforms itself from a traditional convenience store to a fresh food provider. As consumer wants change to wanting a more healthy diet, 7-Eleven — as the largest convenience store chain — must also change.
7-Eleven has recently remodeled many of its stores in Austin, Texas, to its new food-centric layout. It is quite a departure from what you may think of when you think of a convenience store. 7-Eleven is planning to roll the concept out in Dallas in 2005.
Think a convenience store will have trouble providing fresh food? With its highly developed distribution system in place, 7-Eleven can provide fresh food for each daypart to each store. If you think 7-Eleven will have trouble changing its product mix, don’t worry — the retailer introduced 2,500 new products at its stores in 2004 alone.
“There is a lot of energy going into creating a fresh food line,” says Hall. “But we are not walking away from the existing business that we have. We are moving to the fresh food line because we are trying to set ourselves up for the future.”
New Growth
7-Eleven has been in business since 1927, making it one of the oldest retailers in the business.
“To stand here and say we’re the largest c-store in the world doesn’t cut it here,” says Hall. “We don’t rest on our laurels; we have a CEO that won’t let that happen. We want to bring in new energy and new thinking. We have a good mix of people who have grown up with 7-Eleven alongside those we’ve brought in from the outside to challenge some of our old paradigms. We just keep challenging ourselves.”
7-Eleven is planning to open 100 to 150 new stores in 2005; each year after that it plans to open more than 150 new stores per year. About 60 percent of the stores will be franchised locations, about 40 percent company-owned. In growth areas like urban markets, most stores will be franchised. 7-Eleven prefers to have one franchisee own only one store.
Opening a store practically every other day is a challenging growth rate for any company. 7-Eleven attributes its ability to do this seamlessly by the commitment that the company has made in its people and its systems. The company also has an experienced base of construction managers who are knowledgeable about the areas where they develop. The company’s SDMS software system, which keeps timelines on construction and predicts needs for materials and other budgeting items, allows it to do more work with the same amount of people.
In December 2004, the company opened 30 stores. There is a 2-week window when the construction department and store operations are working together before construction turns the store over to operations. During that time, as construction is finishing its punchlists, one or two field consultants are in charge of merchandising each store. A market manager also goes to each store to make sure it has everything it needs to open.
“It is a huge deal to open 150 stores per year,” says Hall. “And when we ramp up to 300 stores per year, it is going to become an even bigger deal. We have to plan accordingly. Opening stores is fun.”
©2005 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.
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