DALLAS -- While Helen of Troy may have been responsible for the launching of one historic offensive, a hot mini taco may have launched convenience retail's equivalent. With higher food sales a core directive for 7-Eleven, building the most efficient foodservice operation has been paramount for the chain--a formula that calls out for more stores in higher concentrations.
Joe DePinto, the convenience chain's president and CEO, has said publicly that supply chain is an Achilles' heel for much of the industry, especially with foodservice. Fresh food in many cases means daily deliveries, which are costly on many levels.
For more on 7-Eleven's growth strategy and acquisition details, see Related Content below for the cover story of the January issue of CSP magazine.
With 7-Eleven announcing acquisitions on what seems to be an increasingly regular pace, CSP magazine focused on this industry consolidator in its upcoming January cover feature, examining what's driving its current buying activity.
"[7-Eleven] wants to … focus more on the sale of products, especially fresh foods, such as sandwiches and takeaway foods," said Robert Gregory, global research director for Planet Retail, a London-based retail intelligence firm. "As a part of this, to be successful, you need to have a number of deliveries to that store every day. Maybe a truck in the morning delivers fresh bakery items; maybe later you'll have it delivering more merchandise based around pizzas, etc. Having a number of stores clustered together in the same area enables this to become more of a reality."
Obtaining that magic number of stores to support a commissary and distribution infrastructure could very well be the No. 1 reason for 7-Eleven's M&A activity. Speaking on condition of anonymity, one licensee sees foodservice as the prime motive for 7-Eleven's acquisitions. "They have to have enough stores to support the foodservice hub," he said.
Indeed, Mike Triantafellou, CEO of Handee Marts, Gibsonia, Pa., which sold its 58 sites to 7-Eleven last October, told The Pittsburgh Tribune-Review at the time that one of the key drivers of 7-Eleven's business is to have fresh foods delivered daily. "We didn't have the numbers to put that kind of distribution in place," he said. He expected 7-Eleven to build a distribution center, bakery and fresh food commissary, accessible to the Pittsburgh and Cleveland markets, to supply the sites "because now they have enough stores to make that work."
McLane Co., Temple, Texas, is 7-Eleven's primary wholesaler; it also relies on a network of Combined Distribution Centers across the country for daily distribution of fresh products to customers' stores.
Another sign of its laser focus on food: In early 2012, it hired Kelly Buckley, a 20-year restaurant industry veteran, for the newly created role of vice president of fresh foods innovation, and who is charged with leading a "restaurant-quality" team to introduce more fresh foods to the chain.
The truth is, 7-Eleven ranks modestly when it comes to industry foodservice sales. Whereas foodservice represents nearly 17% of inside sales for the channel, according to figures from the NACS State of the Industry Report of 2011 data, at 7-Eleven it generates less than 12%, according to company figures. (Note: That gap may be smaller because 7-Eleven does not count dispensed beverages in foodservice the way NACS does.) Analyst Gregory said parent company Seven & i would like the share of food sales to be closer to that of its Japanese sites, where it accounts for roughly 30% of sales.
And 7-Eleven is already publicly showing its continuing commitment to foodservice. It tested a new hot case of pizza (whole and sliced), a variety of chicken wings, chicken tenders and mini tacos in San Diego. Then in just a few months, it rolled into major markets such as Washington, D.C., and New York.
The core 7-Eleven menu includes hot foods such as roller-grill items; a variety of sandwiches, salads, cut and whole fruit and cut vegetables; and hot breakfast foods such as sausage, egg and cheese quesadillas. Some stores also offer refrigerated pasta dishes and gourmet cupcakes.
Anecdotally, 7-Eleven retailers cite mini tacos, as well as morning bagels and other baked goods, as a hit. A Midwest-based operator, who has been a franchisee for more than 20 years and does not yet have the expanded hot food program, described the pizza product as excellent if prepared correctly. He also praised 7-Eleven for the quality of the foodservice equipment, which includes ovens from TurboChef Technologies. Overall, however, he said he worries about a lack of regional appeal.
"My concern with 7-Eleven's foodservice push is they've got to regionalize the taste profile," he said. "They insist on a one-size-fits-all product assortment. I'm smack-dab in the middle of the country, and we don't eat jalapeno peppers at every meal. But a lot of what 7-Eleven likes to roll out has a Southwest flavor to it."
Others who have observed 7-Eleven's growth in the category are amazed at its advances in everything from product quality to supply chain. Jim Schutz, vice president of people assets for Open Pantry Food Marts of Wisconsin, Pleasant Prairie, Wis., who witnessed the transition when the company handed over 18 sites to 7-Eleven last summer, describes 7-Eleven as "a master at everything they do." He was impressed by 7-Eleven's approach to the position of the foodservice area in the store, with the roller grills and other heating units next to the checkout, and food served by the sales associate.
"There is a lot of personal touch there," said Schutz. "Because it's close to the cashier area, they are able to keep an eye on that. It's a lot easier than having the roller grill 10 to 15 feet away to make sure the food's fresh, hot and full."
In many ways, 7-Eleven's journey is the industry's journey. "Chains are evolving their footprints to emphasize foodservice and the infrastructure it takes to deliver fresh food every day at a reasonable price," said David Bishop, managing partner of retail consultancy Balvor LLC, Barrington, Ill., citing how similar paths can still mean different business models. "I'd classify RaceTrac as converging into Wawa and Sheetz, while at the same time, Circle K and 7-Eleven are converging into what QuikTrip has done."
For more on 7-Eleven's growth strategy and acquisition details, see Related Content below for the cover story of the January issue of CSP magazine.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.