POLYTECHNIC UNIVERSITY OF THE PHILIPPINES 1

Company Profile

• Headquarters (Texas): 7-Eleven Inc.

Name • Philippines: Phil-Seven Corp.

• Convenience Store
Business • Services – Retailing, Franchising, Licensing
Type &
Sector

• Be the best retailer of convenience

Mission &
Vision
• Make daily life easier thru modern convenience

• More than 90,000 around the world.

Employees

• Headquarters: Tesco Express, Circle K, CBA, SPAR Express

Competitors • Philippines: Ministop, FamilyMart, Lawson, All day mart, Alfamart

7-Eleven Inc. is a Japanese-owned American international chain of convenience

stores, headquartered in Dallas, Texas. The chain was known as Tote'm Stores until
it was renamed in 1946. Its parent company, Seven-Eleven Japan Co., Ltd., operates,
franchises, and licenses 66,579 stores in 17 countries as of 30 June 2018. Seven-
Eleven Japan is headquartered in Chiyoda, Tokyo and held by the Seven & I Holdings
Co.

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.

Phil-Seven is primarily engaged in the business of retailing, merchandising,

buying, selling, marketing, importing, exporting, franchising, acquiring, holding,
distributing, warehousing, trading, exchanging, collecting (payment services for
utilities and merchants such as PAYMAYA, AirAsia, Zalora and others) or otherwise
dealing in all kinds of grocery items, dry goods, food or foodstuffs, beverages, drinks
and all kinds of consumer needs or requirements and in connection therewith,
operating or maintaining warehouses, storages, delivery vehicles and similar or
incidental facilities.
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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.
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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.

Key suppliers to 7-Eleven, however, have remained resistant to participating in

the company’s evolving distribution system. These consumer packaged goods
manufacturers have extensive distribution networks of their own to deliver goods and
control in-store shelf space. By controlling in-store product placement, they are able
to drive sales and get a solid advantage over the competition. They are reluctant to
give up such an advantage.

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.

Philippines Japan US & Others

FIFO (First-In, JIT (Just-In-
Inventory System FIFO, others
First-Out) Time)
Inventory Manual-Automated Highly- Manual to highly
Management IM automated IM automated IM
Strategically located Strategically located
Warehousing Not applicable
warehouses warehouses, others
Holding Cost High None Less to high
Distribution Cost High Less Less to high
IT Cost Less High Less to high
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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.
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Supply Chain Management

As an important form of enterprise organization, chain enterprises play an

important role in the development of China's economy. The rise of chain operation is
in China's coastal city in the last century 80s and 90s. After 20 years' development,
chain operation has made great progress and has developed into a retail business
model in the world with great vitality and development prospects. However, there are
still a series of problems compared with other countries in the world. For example, it
does not have a high level in convenience store chain, and its scale is limited. Besides
its business characteristics are not clear, and market positioning and supermarket
have in common. The lack of features and service merchandise is also a problem.
Logistics distribution lags behind and development in different areas is unbalanced.
Japan 7-Eleven convenience store chain, as the world's largest chain enterprises, its
experience in the logistics distribution of chain enterprises worth learning for China.
Japan 7-11 convenience store chain has obtained great achievement today, it cannot
do without the effective operation of the brand, unique management style, and market
strategy based on region, comprehensive management information system, and
diversified logistics distribution are the key to success.

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.
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Recommendation and Conclusion

 Differences in the adopted distribution strategy, supply chain strategy and

inventory management cause the costs fluctuate and thus earnings.
 We recommend that other stores adopt the inventory system of Japan. This
would eliminate controllable holding and distribution costs since no warehouse
is maintained and delivery is performed by the suppliers.
 Yes, it would incur high information technology costs since JIT system is highly
automated, but unifying inventory systems in applicable areas may bring
savings as well.

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.

Franchising and Licensing

Before we go through the franchising and licensing process of 7-Eleven, let us

first define the definition of the two terms.

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.

7-Eleven remains active in managing and supporting its franchisees. Each

franchisee undergoes an initial 6-week training program in operating and managing
a 7-Eleven store, and is subsequently assigned a field consultant who provides on-
going support during weekly visits. In addition, the company hosts an annual “7-
Eleven University” during which franchisees and corporate-store managers are
introduced to new products and company initiatives.

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.

Establishment of new store

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.

Recommendation and Conclusion

 During 7-Eleven’s years of existence, leading the convenience-retailing

industry, we can say that their financial strategy is at its best. They minimize
payment of finance costs (dividend and interest expense) thru establishment of
franchises or new stores.
 We recommend that 7-Eleven continue to adopt the said strategy but should
stabilize the fluctuations to earnings in order to make its position in the market
concrete and firm (continues to lead the industry in the future).
 Invest in short-term instruments to maximize the potential of idle cash.
 Eliminate bank loans to avoid interests.
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Corporate Social Responsibility

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 Inc. is a Japanese-owned American international chain of convenience

stores, headquartered in Dallas, Texas. The chain was known as Tote'm Stores until
it was renamed in 1946. Its parent company, Seven-Eleven Japan Co., Ltd., operates,
franchises, and licenses 66,579 stores in 17 countries as of 30 June 2018. Seven-
Eleven Japan is headquartered in Chiyoda, Tokyo and held by the Seven & I Holdings
Co. In the Philippines, it operates under the name “Phil-Seven Corp.”.

Distribution, Supply Chain and Inventory Management 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. 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.

Differences in the adopted distribution strategy, supply chain management

strategy and inventory management causes the costs to vary and thus fluctuate
earnings. We recommend that other stores adopt the strategies of Japan. This would
eliminate controllable holding and distribution costs since no warehouse is
maintained and delivery is performed by the suppliers. Yes, it would incur high
information technology costs since JIT system is highly automated, but unifying
inventory systems in applicable areas may bring savings as well.

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

Franchising is a contractual agreement through which the franchiser grants the

franchisee the right to use its name and receive a financial compensation (fixed plus
royalties) while Licensing is a contractual agreement 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. 7-Eleven mainly uses these type
of strategy mainly because it is easy to set-up, the risk of this financing is at the
counterparty and most of all - they earn more.

Another main financing strategy of 7-Eleven is the establishment of new store.

This type of financing is technically the same with financing and licensing but may
imply advantages and disadvantages such as business risk, control of operations,
rights on returns, etc.

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.

During 7-Eleven’s years of existence, leading the convenience-retailing

industry, we can say that their financial strategy is practically at its best. They
minimize payment of finance costs (dividend and interest expense) thru
establishment of franchises or new stores. We recommend that 7-Eleven continue to
adopt the said strategy but should stabilize the fluctuations to earnings in order to
make its position in the market concrete and firm (continues to lead the industry in
the future). The company can also consider investing in short-term instruments to
maximize the potential of idle cash and eliminate bank loans to avoid interests.

Corporate Social Responsibility

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.