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The world’s largest convenience operator put the power in the hands of its consumers and found new ways to re-energize its retail presence. In early 2006, 7-Eleven flipped its pyramid. Despite decades of history, a global presence, and strong proprietary brands referenced in movies, TV shows, and late-night talk shows, a new management team led by President and CEO Joe DePinto realized that to remain top of mind to consumers, the focus of the corporation needed to change.

 

 

 

Profile
  • Headquarters: Dallas, Texas
  • Founding year: 1927
  • Number of locations as of January 2011: 7,200 across the US and Canada
  • Private brands: 7-Select
  • 2010 global chain sales: $62.7 billion

“We wanted our culture to be much more store-centric, with a key focus on our guests,” said DePinto. “We developed a new strategy, the foundation of which is servant leadership.”

By putting the guest at the top of the pyramid, employees and store operators in the middle, and the corporation’s leadership team at the bottom, 7-Eleven found itself poised to deliver the best possible guest experience.

Although the change may seem obvious, it required a major culture shift. “We had to integrate that philosophy into an entire human resource planning process so people in our organization would be evaluated not only on results, but also on how they attain their results,” DePinto said.

The approach has been effective for 7-Eleven, which has since added close to 1,600 stores across North America and more than 11,400 worldwide; developed successful private-label brand 7-Select, which now has more than 300 SKUs; launched an aggressive remodel program; and focused on tipping the balance of its stores toward franchised rather than corporate locations.

It’s also helped the corporation move toward a more store-centric organization because, said DePinto, “that’s where everything happens.”

Top of the pyramid

Key to any retailer’s success is remaining relevant to customers and understanding how to respond to their needs. Realizing that its habitual customers are aging, in recent years, 7-Eleven began targeting a younger audience DePinto refers to as millennials. “They have a high need for convenience, and many of the things they want tie in well with 7-Eleven’s offerings,” he said.

From its proprietary Slurpee beverage, which indexes high with gaming, social media, and Hollywood blockbuster movies, to its Big Gulp, which currently features images from the upcoming movie “The Hangover Part II,” the corporation is definitely on target to reach its intended audience. But in 2008, 7-Eleven took its focus to another level by developing 7-Select.

DePinto said the development of the private-label brand was a response to the downturn in the economy, the rise in fuel prices, and consumers’ limited discretionary income. “At the time, consumers were shifting away from major brands,” he said. “There was a need for a private-label offering with high quality, strong appeal for consumers, and a sharper retail price point.”

Sloughing off the idea that consumers shop at c-stores to satisfy a quick-fix craving despite having to pay more for convenience, 7-Eleven focused on providing its guests what they wanted at a cost that was more appealing. It launched the brand with its 7-Select chips, expanded with snack items, and then developed non-food items, such as health and beauty products.

Although it’s only been three years since 7-Select was introduced, 7-Eleven is already upgrading the packaging on its private-label products to be “a bit more contemporary,” said DePinto. “The logo will still maintain the brand name 7-Select, but it will look more contemporary to appeal to that millennial customer.”

Growing to 300 SKUs in such a short amount of time was no easy feat. Understanding that 7-Select’s product line will continue to grow, 7-Eleven appointed its first senior product director for private-label/store brands to manage the product assortment and identify new opportunities for expansion.

The corporation has since added more players to its private-label team, all of whom work with the corporation’s category managers to ensure the product line is growing in the right direction. “We’re also marketing our 7-Select items in our store POP, on our 7-Eleven.com website, on 7-Eleven’s mobile website, and through social media because we know this line differentiates us from other small-box retailers,” said DePinto. “As we go forward, we’ll continue to expand the line in response to what our guests tell us they want.”

7-Eleven’s pyramid flip also pointed out a need to change the look and feel of its stores.

“Our guests told us they’d like to see us upgrade our stores, and we listened,” DePinto said. Four years ago, the corporation began an aggressive store reimage program. To date, more than half of its North American stores have been remodeled with an upgraded image, new hot-food offerings, and new LED lighting.

The remodel also focuses on 7-Eleven’s coffee offering. The corporation sells more than 1 million cups of coffee a day. So, in keeping with the theme, 7-Eleven developed a contemporary offering for its guests by upgrading its coffee bar design to include more earth tones. It also is upgrading its equipment, getting rid of the traditional glass pots and replacing them with soft-heat equipment that holds coffee longer without reducing its quality.

“These changes have been a win for us and our guests,” said DePinto. “We’ve seen higher margins since offering our private-label branded items, and we’ve given consumers more of what they want, all because we put them at the top of our pyramid.”

Tipping the balance

When 7-Eleven’s new leadership team took over in late 2005, the corporation’s North American locations were 50% corporate and 50% franchised. After studying the structure, the team recognized that its franchise operators had a competitive advantage: a closer relationship with customers.

“They knew many of their guests by name, and they had many repeat visitors,” said DePinto. “As we looked at their operations, we saw they not only performed better, they also had an intimacy with the guests that the corporate locations didn’t.”

Looking behind the scenes, the team also saw that 7-Eleven was supporting both franchise and corporate operations. It was quickly apparent that to further build on its mission of creating a guest-centric store experience, it needed to merge the two operations and tip the balance of its stores to a franchised platform.

Since 2005, 7-Eleven has succeeded in achieving its mission, and today, roughly 77% of its US and Canada stores are franchised. DePinto said the corporation believes most of the decisionmaking should reside at the store level; moving to a primarily franchised structure gives store operators more power.

“Franchisees have a vested interest in knowing their customers and communities. We believe they’re in the best position to understand and respond to their local retail needs, which in turn builds customer loyalty and sales,” he said.

Already in place was 7-Eleven’s weekly merchandising cycle through which franchisees choose from about 30 new products the corporation’s category managers present, narrow the slower selling items in their stores, delete items that aren’t moving, and then fill in empty spots with more high-potential items. In addition, franchisees have the freedom to choose 15% of their stock from non-recommended, local, or regional vendors.

“These options make us a nimble retailer and allow us to respond to changing customer patterns, which have been in flux over the last three years more so than I’ve ever seen them in my career,” said DePinto. From value offerings to package sizing, from a larger selection of premium, mid-tier, and generic brands to the quantity in which consumers buy products, he said retailers need to understand those changes and deliver on them. “That’s what consumers are looking for right now, so that’s what we’re focused on.”

7-Eleven’s franchising model also includes a gross-profit-split approach to handling royalties, which none of its competitors offer. Most franchise systems are based on the franchisor taking a percentage of the sales, but 7-Eleven would rather split the gross profit because it creates a singular focus with the company and the franchisees on how to maximize gross profit and profitability for all.

Franchisees are happy with the arrangement, but so are industry experts. 7-Eleven has been recognized on several occasions by Entrepreneur as a top franchise system, and in 2011 it was number two on Forbes’ Top 20 Franchises for the Money list, number six on AllBusiness AllStar’s Franchise List, and number two on Franchise Times’ Franchise 200 List.

“We feel good about our decisions,” said DePinto. “They’re unique, but they work for our organization and our franchisees.”

Critical moments

Although today’s contemporary customer inspired all of 7-Eleven’s recent changes, DePinto said they reflect a philosophy developed in 1927 when the corporate began as an icehouse.

In 1927, after refrigeration was introduced, the need for ice started to dwindle at the Southland Ice Company in Oak Cliff, Texas. An enterprising ice dock manager named Uncle Johnny Green identified a consumer need for staple items, including milk, bread, and eggs, and began carrying those products at his ice dock.

Locals noticed, and the products were added to other icehouses. It was then that the convenience store industry was born. The company changed its name to Tote’m Stores, which then became 7-Eleven for its hours of business: 7 a.m. to 11 p.m.

“That philosophy of understanding what the customers want and having those products available at their local store is what we still stand for today,” said DePinto. “We deliver convenience without compromise and offer guests products they want.”

That philosophy is key to understanding why 7-Eleven has remained top of mind to consumers throughout the years. “It may not be an earth-shattering philosophy, but it’s amazing to me how many companies lose sight of it. It’s what we do, and we’ll continue to do it.”

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