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May 27, 2022

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SUNIL CHOPRA

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Seven-Eleven Japan Co.:
Supply Chain Strategy and Structure

Founded in the United States, 7-Eleven was the world’s largest retail chain in 2016, measured
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by the number of stores: more than 60,000. Te Japanese version was established in May 1974
by the supermarket chain Ito-Yokado, which opened its frst 7-Eleven convenience store in Tokyo.
Seven-Eleven Japan (SEJ) was listed on the Tokyo Stock Exchange in October 1979. On September
1, 2005, Seven & i Holdings Co. Ltd. was established as the holding company for the corporations
SEJ, Ito-Yokado, and Denny’s Japan.*
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SEJ achieved phenomenal growth between 1985 and 2016. During that period, the number
of 7-Eleven stores in Japan grew from 2,299 to more than 19,000, with some 1,600 new stores
opened in 2016 alone. On average in 2013, each store had more than 1,000 customer visits
per day.1

Less than 20 years after opening its frst store in Japan, SEJ acquired Southland Corporation,
the US company that founded the 7-Eleven convenience stores. In 2016, SEJ parent Seven &
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i revenue from convenience-store operations was JP¥2.675 trillion, and operating income was
¥352 billion.†

* As a result, detailed fnancial results for SEJ have not been available since 2005 and are reported only as the
convenience-store portion of Seven & i Holdings.
1
“Total Store Sales and Total Number of Stores,” Seven-Eleven Japan Co. Ltd, accessed March 11. 2022,
https://www.sej.co.jp/company/en/s.growth.html.
† Te average exchange rate in 2016 for Japanese yen to US dollars was 108.7789 JPY (i.e., JP¥108.7789) to 1 USD
(i.e., US$1).
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© 2005, 2022 by the Kellogg School of Management at Northwestern University. Tis case was prepared by Professor
Sunil Chopra. Cases are developed solely as the basis for class discussion and are not intended to serve as endorsements,
sources of primary data, or illustrations of efective or inefective management. Tis case was based on publicly available
information. For pedagogical purposes, the author might have fctionalized individuals, conversations, strategies,
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Company History and Profile

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Masatoshi Ito founded both Ito-Yokado and SEJ. He started his retail empire when he joined
his mother and elder brother after World War II in running a small clothing store in Tokyo. By
1960, that single store had grown into a US$3 million company, and Ito was in sole control. After
a trip to the US in 1961, Ito became convinced that superstores were the wave of the retail future

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in Japan, which was still dominated by mom-and-pop stores. Ito’s chain of superstores in the
Tokyo area was instantly popular and soon constituted the core of Ito-Yokado’s retail operations.

In 1972, Ito approached Southland Corporation, the company that had founded the 7-Eleven
convenience stores, about opening stores in Japan. After rejecting his initial request, Southland
in 1973 signed a licensing agreement that granted Ito exclusive rights to open 7-Eleven stores
throughout Japan in exchange for 0.6 percent of total sales. Beginning with the Tokyo 7-Eleven

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the next year, the concept was an immediate hit; by 1979, Japan had 801 7-Eleven stores, and by
1984, more than 2,200. Rapid growth continued, resulting in more than 19,000 stores by 2016.
(See Figure 1.)

Figure 1: Stores and Annual Sales for SEJ

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Year Number of Stores Annual Sales (billion ¥)
1974 15 0.7
1979 801 109.8
1984 2,299 386.7
1989 3,954 780.3
1994 5,905 1,392.3
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1999 8,153 1,963.9

2004 10,826 2,440.8
2009 12,753 2,784.9
2010 13,232 2,947.6
2011 14,005 3,280.5
2012 15,072 3,508.4
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2013 16,086 3,781.2

2014 16,319 4,008.2
2015 17,491 4,291.0
2016 19,422 4,515.6

Source: SEJ website, accessed January 6, 2022, http://www.sej.co.jp/company/en/s.growth.html.

Acquisition of Southland Corporation

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On October 24, 1990, Southland Corporation fled for bankruptcy protection. Te company
asked for Ito-Yokado’s help; on March 5, 1991, IYG Holding was formed by SEJ (48 percent

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ownership) and Ito-Yokado (52 percent) and took over Southland by acquiring 70 percent of its

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common stock for $430 million.

Formation of Seven & i Holdings

In 2005, SEJ, Ito-Yokado, and Denny’s Japan were combined through a stock transfer to

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form Seven & i Holdings, and IYG was reorganized as a wholly owned subsidiary of SEJ. In
2015, convenience-store operations contributed 44.3 percent of global revenue from operations
and 88.6 percent of operating income for Seven & i Holdings. (See Figure 2.) Convenience stores
contributed an even greater share of revenue for Japanese operations.

Figure 2: Financial Results for Seven & i, 2013–2015 (in billion ¥)

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For Fiscal Years Ending February 28/29 2013 2014 2015
Total revenues 4,991.6 5,631.8 6,038.9
Total operating income 295.7 339.6 343.3
Convenience-store revenues 1,899.5 2,727.8 2,675.9
Convenience-store operating income 221.7 276.7 304.1
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Source: Data obtained from Seven & i annual report, 2016.

Te discrepancy between Figures 1 and 2 arises because Figure 1 reports sales at company-
owned and franchised stores, whereas Table 2 reports revenues for Seven & i (sales at
company-owned stores and licensing fees from franchised stores).
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Convenience Stores in Japan

As in the US, convenience stores in Japan sold some products carried by general retailers and
food retailers. Te convenience-store industry was one of the few in Japan that continued to grow
during the prolonged slowdown that began in the 1990s. From 1991 to 2013, annual sales at
convenience stores more than tripled, from just over ¥3 trillion to almost ¥10 trillion, whereas
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supermarket sales stayed stable, at about ¥13 trillion.

Japan’s convenience-store sector gradually consolidated as larger players grew and smaller
operators shut down. In 2004, the top 10 convenience-store chains accounted for some 90 percent
of Japan’s convenience stores. By 2015, the top fve chains accounted for more than 90 percent of
locations and the top three for more than 80 percent of sales.

In 2015, 7-Eleven was Japan’s leading convenience store, with 41 percent of total sales in the
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category, an increase from its 34.3 percent market share in 2008. Its per-store daily sales average
outpaced its competitors: In 2004, average daily sales at the four other largest convenience-store
chains were ¥484,000; in contrast, 7-Eleven stores had daily sales of ¥647,000—more than 30
percent higher than the average of its competitors combined. By 2013, average daily sales per
7-Eleven store had increased to ¥668,000. In 2016, SEJ’s operating income of ¥352 billion

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positioned it as a leader not only in the convenience-store sector but in Japan’s retail industry

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as a whole.

From the start, Japanese 7-Eleven stores were much smaller than the typical US versions. In
2004, SEJ changed the standard size of new stores from 125 square meters to 150 (from 1,346
square feet to 1,615), which was still signifcantly smaller than most US 7-Eleven stores. Despite

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this smaller footprint, average daily sales per store in Japan were almost twice the US average.

SEJ Expansion
Te SEJ network included both company-owned stores and franchises. By 2016, all but one of
Japan’s 47 prefectures had 7-Eleven stores. SEJ intended to continue its growth by opening 1,800

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new stores in the year ending February 2017, and it carefully planned its expansion to exploit its
core strengths in information systems and distribution.

As it expanded, the company followed a market-concentration strategy. When it entered a

new market, SEJ planned for a cluster of 50 to 60 stores supported by a distribution center. Such
clustering gave it a high-density market presence and enabled it to operate an adept distribution
system. Te frm felt that its strategy improved not only distribution efciency but also brand
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awareness, the efectiveness of franchise support services, and advertising efectiveness. It also
deterred competitors from entering or expanding in a market.

As a result, most new 7-Eleven stores opened in areas with existing clusters of stores. For
example, in Aichi prefecture, where the frst store opened in 2002, 108 new stores launched in
2004, more than 15 percent of the stores established in Japan that year.
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With an increased demand for “close-by, convenient stores” in areas with few small- and
medium-sized retailers, Seven-Eleven intended to continue opening stores in densely populated
cities such as Tokyo, Nagoya, and Osaka, as well as bringing stores to new areas.

The Franchise System

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Due to the proftability of its stores, 7-Eleven was a highly sought-after franchise in Japan;
fewer than one of 100 applicants was awarded a franchise. Every franchise owner was required to
invest a signifcant amount of money up front, half of which was used to prepare the store and
train the owner. Te rest went toward purchasing the initial merchandise stock.

In 1994, SEJ received 45 percent of total gross profts at a store, and the rest went to the
store owner.

Te responsibilities of the two parties were as follows.

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S E J Re s po n si bili t ie s
• Develop merchandise and ofer to franchisees

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• Furnish ordering system

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• Pay for the IT system operation
• Supply accounting services
• Provide advertising
• Build out and remodel facilities

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• Cover 80 percent of store utility costs

Fr a n c hi se O w ne r Re s po n si b ili t ie s
• Operate and manage the store
• Hire and pay staf

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• Order merchandise
• Maintain the store’s appearance
• Provide customer service

Store Merchandise
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SEJ ofered its stores a choice of 5,000 stock-keeping units (SKUs). Depending on local
customer demand, a store carried an average of about 3,000 SKUs. Each store stocked food
items, beverages, magazines, and consumer items such as soaps and detergents, but the company
emphasized regional merchandising to cater precisely to local preferences. Food was the most
important product category for the company. (See Figure 3.)
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Figure 3: Sales by Product Category in 2015

Category Percentage of Total Sales
Processed foods 26.0
Fast foods 29.8
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Fresh/daily foods 13.5

Non-foods 30.7

Source: Data obtained from Seven & i annual report, 2016.

Te top-selling products in the fast-food category were lunch boxes, rice balls, bread-based
products, and pasta. Te non-food category included services, as well as products such as beverages
(e.g., soft drinks, nutritional drinks, beer, and wine), game software, music CDs, and magazines.
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By 2013, SEJ had 171 daily production facilities across Japan for its food products.
Seven & i launched Seven Premium private label products in 2007; they were available
exclusively at its stores (e.g., 7-Eleven, Ito-Yokado). By 2016, sales of Seven Premium products
were ¥1 trillion and growing 20 percent annually. Private label products were viewed as an

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essential source of corporate synergy. SEJ also wanted to increase the number of items available

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exclusively at its stores. Sales of private-label items at 7-Eleven stores were expected to hit
¥1.4 trillion in 2016.

Services Offered to Customers

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SEJ gradually added various services that its customers could take advantage at the 7-Eleven
convenience stores. Besides providing additional revenue, the services encouraged customers to
visit the stores more frequently.

Te frst service, added in October 1987, was in-store payment of Tokyo Electric Power
bills. Later, the company expanded the utilities to include gas, insurance, and telephone. With

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more convenient operating hours and locations than banks or other fnancial institutions, the bill
payment service attracted millions of additional customers every year.

In April 1994, 7-Eleven stores began accepting installment payments on behalf of credit
companies. Tey started selling ski-lift pass vouchers later that year. In 1995, they began to
accept payment for mail-order purchases, a program that was expanded in 1999 to include online
shopping. In August 2000, a meal-delivery service company (Seven-Meal) began to serve the
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Japanese elderly.

Seven Bank was established as the core fnancial services company for Seven & i, and by 2013,
virtually every 7-Eleven store had an ATM supplied by Seven Bank. Troughout Japan, Seven
Bank had almost 18,000 ATMs, which averaged 111 transactions per ATM per day.

Other services included photocopying, ticket sales (including baseball games, express buses,
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and music concerts), using multifunctional copiers, and accepting parcel delivery from companies
that did not leave packages outside if the customer was not at home. In 2010, the stores started
ofering government services, such as providing residence certifcates.

In February 2000, according to a survey by eS-Books (a joint venture of Softbank, SEJ, Yahoo
Japan, and the Tohan book publishing and distribution company), 92 percent of its customers
preferred to pick up their online purchases at a local convenience store than to have them delivered
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to their homes. Te company created Seven Net Shopping, a website that sold about three million
products, in 2015. Without paying shipping fees, customers could buy products online that
typically were unavailable in 7-Eleven stores; they could then pick them up and pay for them at a
nearby store.

In April 2007, Seven & i Holdings developed “nanaco” electronic money, enabling customers
to use a prepaid card or mobile phone app to make payments at 7-Eleven stores, Ito-Yokado
stores, and Denny’s restaurants. Nanaco was ofered as a convenience to customers, and it also
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functioned as a reward system ofering a credit for every ¥100 paid with nanaco. By March 2016,
45 million cards had been issued, and more than 215,000 stores (not just Seven & i Holdings
outlets) accepted nanaco payments.

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Te “close-by” nature of the stores was an advantage as Japan’s demographics evolved. By 2009,

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Seven-Eleven estimated that more than 70 percent of women in their 40s worked either part-time
or full-time outside the home. As that proportion increased, 7-Eleven stores increased the number
of products with high daily consumption rates from 500 to 900. In 2014, Seven-Eleven estimated
that about 47 percent of store sales were by people 60 or older. As Japan’s population continued to
age, the company bolstered its Seven-Meal service for home delivery.

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Information Technology
From its founding, SEJ sought to improve operations using advanced information technology.

Total Information System

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Te company attributed a signifcant part of its success to its Total Information System that
linked every store with headquarters, suppliers, and the SEJ distribution centers.

Te frst online network linking the head ofce, stores, and vendors was established in 1979.
In 1982, Seven-Eleven became the frst company in Japan to introduce a point-of-sale (POS)
information system, comprising POS cash registers and terminal control equipment. In 1985, the
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company, jointly with NEC, developed personal computers with color graphics, installed them at
each store, linked them to the POS cash registers, and connected them to the network that linked
the store, the head ofce, and vendors.

In July 1991, the company upgraded the network to integrated services digital network
(ISDN) technology. Linking more than 5,000 stores, it became one of the world’s largest ISDN
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systems at that time. Sales data gathered daily in every store by 11 p.m. was processed and ready
for analysis the next day. Te analyzed and updated data was then sent back to the SEJ stores via
the network each morning.

Its Total Information System enabled 7-Eleven stores to match products with consumption
patterns so store staf could adjust the merchandising mix on the shelves, even based on the time
of day. For example, popular breakfast items were stocked early in the morning, and dinner items
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in the evening.

Identifying items that did not sell well also enabled stores to open shelf space for new products.
About 100 new products were made available to stores each week. When a new product was
introduced, the decision to continue stocking it was made within the frst three weeks to ensure
that each item contributed to sales and margin and did not waste valuable shelf space. Over the
course of a year, about 70 percent of the items sold at a 7-Eleven store changed, due either to
seasonal demand or to replacement with new products.
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S t ore H ard w are

Te digital hardware system at a 7-Eleven store in Japan in 2012 included the following:

KELLOGG SCHOOL OF MANAGEMENT 7

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• Store computer: Each store computer was linked to the Seven-Eleven network, the POS

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register, the graphic order terminal, and the scanner terminal. It communicated among the
various input sources, tracked store inventory and sales, placed orders, provided detailed
analysis of POS data, and maintained and regulated store equipment.
• POS cash register: When a customer purchased an item and paid at this register, sales and
other data (such as the age and gender of the customer) were held in the store computer

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and transmitted to headquarters daily.
• Graphic order terminal: Te store owner or manager used this handheld device to place
merchandise orders. When placing orders, the store manager could access an analysis of
POS data for every item, including sales analysis of product categories and SKUs over
time; analysis of waste; 10-week sales trends by SKU; 10-day sales trends by SKU; and
sales trends for new products. Te manager could also access sales analysis by day and

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time; the list of slow-moving items; analysis of sales and number of customers over time;
contribution of product sales to section sales in the store; and sales growth by product
categories. Once the orders were complete, the store computer transmitted them to the
appropriate vendor and the SEJ distribution center.
• Scanner terminal: Each store had scanners to read bar codes and record inventory when
deliveries were received from a distribution center. Software compared each delivery to its
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order and reconciled the two. Before the scanner terminals were introduced, truck drivers
had to wait in the store until the delivery was checked and reconciled. Once scanner
terminals were available, the driver left the products at the store, and a clerk recorded and
reconciled the delivery at a convenient time when few customers were in the store.
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Distribution System
When a store placed an order, it was immediately transmitted to the appropriate suppliers and
distribution center. SEJ supplied some of its own products.

Te suppliers packed each store order and sent all orders by truck to one of Seven-Eleven’s
158 distribution centers. Te distribution centers carried no inventory; they merely transferred
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products from supplier trucks to Seven-Eleven distribution trucks. Transfeet Ltd., a company
established by Mitsui and Co. for the exclusive use of SEJ, provided transportation (i.e., trucks
and drivers).

Delivery from the distribution center was handled by what Seven-Eleven called its combined
delivery system (for both food and non-food products). Deliveries of like products from diferent
suppliers arriving at each distribution center were combined into a single temperature-controlled
truck. Each food category had a separate temperature-controlled truck: frozen foods, chilled foods,
room-temperature processed foods, and warm foods. Warm and chilled foods were delivered three
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times daily, and room-temperature products once a day. Depending on the weather and season,
frozen products were delivered three to seven times a week. Deliveries also included non-food
items. Each truck made deliveries to multiple retail stores; the number of stores served per truck
depended on the products and the stores’ sales volume.

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All deliveries were made during of-peak hours. Te scanner terminals installed in each store

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to confrm and reconcile deliveries meant that the delivery person could drop of the products
without waiting, which reduced the time spent at each store. Tis system enabled Seven-Eleven to
reduce the number of vehicles required for daily delivery service to each store. In 1974, 70 trucks
visited each store every day; by 2006, only nine were necessary, dramatically reducing costs even as
fresh foods were delivered frequently.

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7-Eleven Stores in the United States
In the 2010s, Asia was the region with the fastest growth in 7-Eleven stores, but the US
continued to be a signifcant market. (See Figure 4.)

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Figure 4: Global Distribution of 7-Eleven Stores in February 2021
Country Number of Stores
Japan 21,167
Thailand 12,432
United States 10,530
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South Korea 10,501
Taiwan 6,024
China 3,412
Philippines 2,978
Malaysia 2,413
Mexico 1,822
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Australia 714
Canada 629
Singapore 423
Denmark 173
Norway 152
Sweden 84
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Total 73,454

Source: Data obtained from SEJ website, accessed March 11, 2022, www.7andi.com/library/dbps_data/_template_/_res/en/company/pdf/
companyprofile2021_e.pdf.

Once SEJ acquired Southland Corporation in 1991, it started improving US store operations.
It shut down some stores during the frst few years, but their number began to grow again in 1998.

About half of the products (by volume) in US stores typically were replenished by
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manufacturers using direct-store delivery, with the rest delivered by wholesalers. Seven-Eleven
wanted to introduce new fresh-food items to compete with the likes of Starbucks rather than
with traditional gas-station food marts. Te goal was to increase 7-Eleven sales in the fresh-food
and fast-food categories, focusing on hot foods. As a result, in 2000, 7-Eleven stores in the US
started to use combined distribution centers (CDCs) and direct-store delivery. By 2003, Seven-

KELLOGG SCHOOL OF MANAGEMENT 9

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Eleven had 23 CDCs throughout North America, which supported about 80 percent of the stores

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in the network.

Following the Japanese approach, CDCs delivered fresh items such as sandwiches, bakery
products, bread, produce, and other perishables once per day. Various fresh-food suppliers sent
products throughout the day to the CDCs, where they were sorted for delivery (as requested by

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store managers) to stores at night. By 10 p.m., the products were en route to the stores. Compared
with Japan, a larger fraction of the food sold—particularly hot food such as wings and pizza—was
prepared in the store.

In 2009, 7-Eleven revenue in the US and Canada totaled $16 billion, with 37 percent generated
from gasoline sales and the remaining 63 percent from merchandise, which was much higher than
the rest of the US convenience-store industry. Te North American inventory turnover ratio in

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2004 was about 19, compared with more than 50 in Japan. Tis number represented a signifcant
performance improvement; US inventory turns in 1992 were about a dozen.

Who Is the Master?

SEJ had been said to exemplify the Japanese proverb 鳶が鷹を生む, which literally means
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“A kite [a small bird of prey] gives birth to a hawk,” or “Te student has become the master.”
SEJ organized its operations in Japan to support its strategy of providing responsiveness by rapid
replenishment, which led to rapid growth and industry leadership. Now that it owned 7-Eleven
stores in the US, SEJ would fnd out if it could duplicate its Japanese approach in a market with
diferent customer behavior, store density, and supply chain strategy.
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No
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10 KELLOGG SCHOOL OF MANAGEMENT

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