7-Eleven serves up fresh concepts
By David Koenig
Associated Press
DALLAS — From the window of his 40th-floor office, James Keyes can see the spot where 7-Eleven stabled the mules used to deliver ice.
Associated Press
The barn was knocked down and paved over long ago, as 7-Eleven adapted to changes in technology and tastes to become a fixture on American street corners.
James Keyes, 7-Eleven chief executive, shows off the signature Slurpee. More than 11 million are sold each month.
Last week the convenience-store giant turned 75 on its adopted birthday of July 11, or 7/11. Total sales approach $10 billion a year, with 5,800 7-Elevens in the United States and Canada, and more than 23,000 worldwide.
The company faces stiff competition from other retailers for sales of key products, from sandwiches to gasoline. At the same time, it is coming under pressure from minority shareholders to increase earnings and lift a stock price that has fallen more than 35 percent this year.
Keyes, who became chief executive in 2000, is tinkering again with the stores' formula, adding new fresh food and financial services.
That means changing people's attitudes about 7-Eleven, where perishable foods account for only about 5 percent of sales. "We're not at the top of people's minds for fresh food," Keyes acknowledged.
Keyes said he believes that 7-Eleven can lift sales with new offerings, such as Big Eats Deli sandwiches made at central kitchens and trucked to area stores. To make such offerings feasible, the company has increased the frequency of deliveries to stores from twice a week a few years ago to three times a day.
The company is also about to roll out in-store kiosks called Vcoms, which offer ATM and check-cashing services. Cyphermint, a company in Marlborough, Mass., that is providing the payment technology for the machines, has plans to offer limited e-shopping options such as movie tickets, flower orders and state fishing licenses beginning this fall.
"We've done a lot of demographic research on 7-Eleven customers," Cyphermint chief executive Pat Lally said. "They earn $53,000 a year. They like fishing. They buy cars. They go to a lot of movies. This will be immediate gratification."
Useful or fanciful?
About 100 of the machines have been tested at stores in Texas and Florida, and 7-Eleven will soon announce plans to place them in 1,000 stores in the next six months and 5,800 by the end of 2004.
Lally said 7-Eleven processed 110 million ATM transactions last year, and the Vcoms will be a big hit if only 10 percent of those customers use the new machines, which will charge transaction fees and raise money from on-screen advertising.
But Mark Husson, an analyst with Merrill Lynch, sees the Vcoms as a fanciful expenditure in technology that might not help 7-Eleven's bottom line anytime soon.
He said the company made the same mistake by pouring money a few years ago into a computerized inventory and ordering system that hasn't yet paid dividends.
Ito-Yokado Co., the Japanese company that owns 73 percent of 7-Eleven, "isn't asking them to deliver earnings on a quarterly basis the way Wall Street would," Husson said. "They figure they'll get it right in the long haul, and until then, what's the worst that could happen? There's not much urgency."
Gasoline is 7-Eleven's biggest item, accounting for 27 percent of sales. Wal-Mart Stores Inc. and some big grocery chains are getting into the gasoline business, which analysts say will force 7-Eleven to lower its prices and eliminate its premium for convenience.
Robin Starr, a longtime franchise owner in Las Vegas, praised 7-Eleven for renovating the stores, increasing advertising and introducing new products, from coffee bars to Go-Go Taquitos and the Slurp & Gulp, a combination soft drink and Slurpee.
Starr also praised the inventory system that tracks recent item-by-item sales and even includes a weather forecast. "I know whether to order umbrellas or to stock more water and Gatorade."
Name born in 1945
The company traces its roots to June 1927, when Claude Dawley and associates formed the Southland Ice Co. to supply ice for storing and shipping food during the hot Texas summers.
On a trip to San Antonio, Dawley noticed customers buying milk and bread at an ice-delivery affiliate, and he saw the potential for a year-round business selling convenience items at nights and on Sundays, when grocery stores were closed by blue laws.
The 7-Eleven name was introduced in 1945 to highlight the long hours, from 7 a.m. to 11 p.m. The first 24-hour stores opened in 1963. In 1988, the company was taken private in a leveraged buyout that has left a legacy of debt, which led to bankruptcy in 1990 after Southland defaulted on $1.8 billion in bonds.
The company emerged from bankruptcy five months later with fewer stores and a foreign majority owner, Ito-Yokado, the chain's licensee in Japan. Sales declined for several years but have climbed steadily since 1994 to $9.78 billion last year.
The stores still sell ice, and they use plenty in the trademark Slurpee, which made its debut in 1966. The company sells 11.6 million of them each month.
