Joe DePinto has a chart.
On this chart, he and his team at the 7-Eleven Inc. headquarters in Irving, Texas, are plotting major disruptive moves across all sectors of retail. They are ready, determined to be a part of what’s to come. (And no, they won’t share the chart.)
“Our industry’s perspective early on was that we were somewhat insulated from what was going on,” DePinto, president and CEO of 7-Eleven, told CSP in an interview held shortly after the retailer signed a deal to acquire more than 1,100 stores from Sunoco LP.
“It had been my perspective that some of the disruptors would zero in on immediate consumption,” DePinto says. “It’s the last area that they haven’t been able to fully crack.”
Amazon, Apple, Netflix, Netscape, Uber and even Wal-Mart have all been tagged over time as disruptors, agents of change by virtue of the new and suddenly essential service they provide. What they offer the consumer is so transformative that it displaces traditional providers—companies that don’t understand what business they are really in and that define themselves according to their product and channel, rather than the value they should be creating.
And then there are convenience stores. On the evolutionary tree, what began as service stations branched into gas stations, which morphed into convenience stores, which are now changing into restaurants.
And predictions loom large that more fuel-efficient vehicles, electric vehicles and autonomous vehicles will greatly reduce or even end the need for gas stations. The fuels might be different; however, the laws of demand, supply, biology and physics aren’t.
“I don’t see [disruption] slowing down; in fact, it's going to be the absolute norm," DePinto says. "We need to be fully part of that value chain."
The c-store channel’s value has always been helping people get places by fueling their cars and bodies. But as that dynamic changes, can it adapt? And how is its No. 1 chain—a disruptor itself that helped launch the entire industry—poised to lead the charge?
Rules of Engagement
As Amazon, Wal-Mart and others wage a war to become the fastest, easiest and cheapest retailer in America, many battles are occurring directly on c-store turf. The threats are broad and looming, but 7-Eleven has the potential to meet this disruption perhaps more than any other retailer. It has a technology-savvy C-suite, a Japanese parent company willing to invest in American growth, deep saturation across key markets throughout the United States, and a brand that resonates with its core customer.
Steve DeSutter believes it. DeSutter, who was president and CEO of the Stripes retail network before becoming CEO of quick-service restaurant (QSR) company Focus Brands Inc., Atlanta, sees 7-Eleven already exploring new ways to expand the definition of convenience for its customers.
“The consumer of today and tomorrow wants to have relationships with their brands. Consistency, reliability and authenticity represent … a brand’s expression,” DeSutter says. “With [7-Eleven’s] scale, passion and global world view, they’ll figure out how to be a convenience store of choice.”
7-Eleven has a history of resilience and adaptability. What started out as the Southland Ice Co. in the 1920s became Tote’m Stores, selling bread and milk. It soon added gasoline, and in 1946, the company changed its name to 7-Eleven to reflect the stores’ hours of operation (which eventually grew to 24 hours, but by then, the name had stuck).
The company grew through several large acquisitions, and in 1982, Southland acquired CITGO Petroleum, which it sold to Petroleos de Venezuela in 1990. That same year, the heavily indebted Southland filed bankruptcy to transfer control of the company to Japanese affiliate Ito-Yokado. In 1999, Southland changed its name to 7-Eleven Inc. In 2005, Ito-Yokado formed Seven & I Holdings Co. Ltd. and 7-Eleven became its subsidiary.
Since then, 7-Eleven has expanded globally, reaching more than 62,000 stores in 17 countries, including approximately 10,900 in North America. It has grown domestically through a series of acquisitions, among them 261 White Hen Pantry stores in 2006, 261 Wilson Farms stores in 2010, 163 TETCO stores in 2012, 143 Speedy Stop and Tigermarket stores in 2013 and 180 Tedeschi Food Shops in 2015 before acquiring Stripes and other stores from Sunoco.
7-Eleven’s strategy today, says DePinto, is “first and foremost to understand the customer.”
That’s nothing new. But what is new is the recognition that the rules of engagement have changed. Omnichannel is no longer bleeding-edge or forward-thinking. It’s now, and it’s disruptive.
“We see ourselves as a neighborhood store,” DePinto says. “And we’re trying to be closer and more convenient to the customer. That’s our strength.”
More than 50% of those customers are millennials, he says: “They are really leading change. They are more on the go, more time-starved, they’re eating differently [and] they tend to be moving toward more urban areas. They’re not shopping brick-and-mortar as much, and when they do, they’re looking for more of a one-stop shop. And they’re very demanding and discerning around quality and what they’re going to pay for that quality.”
Understanding that customer means figuring out what many call the “last mile,” which completes the circuit between retailer and consumer.
DePinto believes a mile is too far of a metric.
“It’s really the ‘last several blocks,’ ” he says. “It could be in the form of order and pickup; stopping in if you’re passing by or it’s on your route or part of your normal pattern; or delivery, and then allowing you to pay how you want. That just scratches the surface. That will be table stakes to get in the game.”
C-stores “are perfectly positioned to deliver on those consumer demands because our inventory is so close to the customer. That’s why you see all of the big boxes trying to move toward smaller boxes,” he says.
DePinto advises his team to avoid chasing the competition. “Have your own perspective, understand the external environment—not only what the entire landscape looks like, but where the consumer is going—and then have your own point of view and plans and strategies. In that sense, we have been a bit of a disruptor ourselves,” says DePinto.
One big differentiator 7-Eleven has against other big industry players is its reliance on the forecourt—or lack thereof. DePinto estimates that only 40% of its portfolio offers fuel, compared to its closest competitors at about 90%. If long-term fuel consumption follows downward projections, 7-Eleven’s focus on the box could help propel its evolution.
“Our DNA started in retail. … We think there’s a difference there,” DePinto says. Peter Tedeschi, former owner of Tedeschi Food Shops, cites four key ingredients that should differentiate 7-Eleven from other retailers struggling to compete against the speed and seamlessness of digital consumerism: time, immediate consumption, human experience and foodservice.
“Many disruptors can only offer a transaction, but convenience-store retailers have the ability to offer more,” says Tedeschi, who sold his 182-store, Rockland, Mass.-based chain to 7-Eleven in 2015. “They have the opportunity to offer an experience. For a lot of people, that personal interaction is indispensable. That’s not something you’re going to get ordering online.”
Tedeschi, who calls retailers such as Wal-Mart “price-competitive fulfillment houses,” is confident that 7-Eleven will continue to adapt and evolve to meet the latest competitive threats. “Joe’s a very smart leader, and 7-Eleven has had many years to establish itself as a trusted brand,” he says. “These facts, combined with their depth of talent and impressive back-office analytical capabilities, will allow them to assess the situation and position themselves in a way that would mitigate the threat posed by disruptors.”
Technology is the electricity of disruption. It powers the changes that companies such as Amazon are bringing to retail, and it is what c-stores must harness to stave off the brick-and-mortar apocalypse.
7-Eleven’s own consumer-facing technology initiatives range from strategic shifts to smaller, see-what-sticks ideas. It has followed the big surge of restaurants offering mobile ordering, pickup and delivery in select markets (with partners such as Postmates, DoorDash and Tapingo in about 30 markets), while continuing to bolster its 7Rewards app program, which has more than 700,000 members, and offers a free drink for every six purchased.
It has also explored another disruption darling—vending—through KeyMe key-making and Key Cafe key-exchange kiosks, premium-salad vending machines from Farmer’s Fridge, and even pickup lockers from partners Amazon and UPS.
Most notably, 7-Eleven is also experimenting with drones, making a mark and even beating Amazon in July 2016 with the first fully autonomous drone delivery from a retailer to a customer’s home. To date, it has made 77 deliveries with the help of Reno, Nev.-based Flirtey.
“Drone delivery is the ultimate convenience for our customers, and these efforts create enormous opportunities to redefine convenience,” said Jesus Delgado-Jenkins, executive vice president and chief merchandising officer for 7-Eleven, at the time. “We plan to make the entire assortment in our stores available for delivery to customers in minutes.”
While drones seem like a novelty now, 7-Eleven is betting they will become a regular, necessary element of retailers’ offers.
“Drone delivery is going to happen; it’s just a matter of time,” DePinto says. “It will be a convenience service. And it will allow for very quick delivery of product. For us, it’s R&D, and understanding it, being prepared. But I can tell you that it does resonate with the consumer.”
He predicts that drones could be mainstream in as little as 10 years.
“Whoever can deliver product fastest to the consumer is going to win, and drones are going to be part of it,” says DePinto.
DePinto also believes that—like drones—autonomous vehicles will play a part in the delivery equation.
“It’s about building a whole ecosystem around who we partner with and what digital resources they bring, and how we can play a role in that,” he says. “Partnering with the major automakers and Lyft and Uber is going to be important. Are we on their touchscreen in their car? Is the app there? Can they quickly know where there’s a local 7-Eleven?”
A Big Bite
“Change used to be somewhat incremental. Now it’s happening in big bites,” DePinto says, unconsciously referencing 7-Eleven’s trademarked Big Bite, the foodservice sibling of the Big Gulp fountain beverages.
He is referring to technological change, but 7-Eleven Inc.’s more than $3.3 billion purchase in April 2016 of approximately 1,100 company-operated convenience stores in 18 states from Sunoco LP was also a big bite, its largest acquisition ever. It also delivered 7-Eleven the trademarks and intellectual property of the Stripes c-store brand and the Laredo Taco Company foodservice brand, which Sunoco gained when it purchased Susser Holdings Corp. for about $1.9 billion in 2015. ( Click here to read related story.)
7-Eleven is taking advantage of Sunoco’s shift in focus away from retail and toward wholesale fuels distribution to add a sizable chunk of stores to its network of more than 8,300 stores. The Sunoco sites are primarily in Texas and along the East Coast: about 550 in Texas, 450 in New York and 110 in Florida.
“It’s a win for both parties,” says Dennis Ruben, executive managing director of NRC Realty and Capital Advisors, Chicago. “It’s clear that 7-Eleven wanted to grow dramatically in North America. It seems like an opportunity to add a lot of stores in one transaction, expand in markets they’re already in and ones they’re not in.”
It’s also a win for Seven & i. In Japan, Seven-Eleven Japan has approximately 19,000 convenience stores, but sales growth is slowing in the face of a declining population and fiercer competition. The company forecasts that profits in its domestic c-store operations will remain flat.
In its presentation of its financial results for fiscal 2017, Seven & i said its medium-term goal is to “concentrate management resources with a core focus on growth in convenience-store operations in both Japan and North America. Its first year of initiatives will be to establish an unrivaled lead in domestic and overseas convenience-store operations.”
“We came to the decision that we like the U.S. market,” says DePinto, who sits on the Seven & i board. “We think that there’s room for expansion here.”
The short-term goal is to get to 10,000 U.S. stores by 2019; by 2027, he says, the company hopes to hit 20,000.
Not Made in Japan
A recent series of leadership meetings led by NACS in Japan provide some insight into how that country’s c-store culture might help 7-Eleven ride the disruption wave.
Gray Taylor, executive director of Conexxus, Alexandria, Va., was on that visit. With Conexxus as NACS’ main technology advisory group, Taylor was curious about supply chain and just-in-time delivery. The infrastructure around the nation’s 55,000 c-stores is about “fast and fresh,” he says.
“It’s a dense population of stores that, for the most part, don’t have fuel,” Taylor says. “Supporting that density is a pervasive network of central kitchens, distribution centers and food trucks, essentially turning the store—on average about 2,000 square feet—over four times a day by daypart,” he says. “You’re a Tim Hortons in the morning, a McDonald’s in the afternoon and a Whole Foods at night. And then a 7-Eleven at midnight.”
Japanese retailers are also making moves technologically, with companies such as 7-Eleven investing in radio-frequency identification (RFID) to track and potentially sell goods. Such technology could allow for people to grab an item and leave the store without stopping to check out, much like the technology buzzing around Amazon Go.
Such a service runs parallel to the quick-and-easy shopping experience that defines Japanese c-stores. Food is not the only draw, with banking, ATMs, copiers, ticket reservations, digital-camera prints, bill payment and Wi-Fi all popular options, Taylor says: “They’re selling convenience, not stuff.”
Seven-Eleven Japan could also provide a crucial tool to help the chain evolve its foodservice stateside.
DePinto calls Seven-Eleven Japan’s foodservice program “world-class.” But he points out that Japanese consumers are far more accustomed to grabbing on-the-go meals from the nearest c-store. “We’ll take advantage of being part of the same organization, taking some of the best practices that they do and applying them to the U.S. market,” he says.
From its industry-spawning, icehouse origin to a tech-savvy present promising to usher in its leader’s drone-filled vision for the future, 7-Eleven continues to create its own waves of change to dominate the c-store industry. The company’s forward-looking strategy has it well-positioned to face the disruption that retail juggernauts such as Amazon and Wal-Mart have brought to the doorstep of the convenience channel.
Whether they go beyond the lab or remain curiosities, will those perceived threats become opportunities? Is the c-store channel as prepared as 7-Eleven for what’s to come?
“It’s not our goal to disrupt,” says DePinto. “It’s our goal to deliver on what the consumer wants, but some have been slower to do that than others.”