Why 7-Eleven Is Buying

By 
Greg Lindenberg, Editor, CSP

7-Eleven store

IRVING, Texas -- 7-Eleven Inc.’s more than $3.3 billion purchase of approximately 1,100 company-operated convenience stores in 18 states from Sunoco LP is its largest acquisition ever, taking advantage of Sunoco’s shift in focus away from retail and toward wholesale fuels distribution.

What is 7-Eleven's motivation to invest in such a large purchase?

Irving, Texas-based 7-Eleven is acquiring the Sunoco locations primarily in Texas and along the East Coast—approximately 550 in Texas, 450 in New York and 110 in Florida.

Here are seven reasons why 7-Eleven is buying the Sunoco c-stores …

1. Seven & i

Seven & i Holdings Co.

In Japan, 7-Eleven Inc. parent Seven & i Holdings Co. Ltd. has approximately 19,000 convenience stores, but sales growth is slowing in the face of the declining population and store openings by large rivals.

For the fiscal year ending February 2018, the company forecasts that operating profit at the domestic c-store operation will remain flat, according to a report by Nikkei Asian Review.

In the 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.”

2. New leadership

Ryuichi Isaka

Tokyo-based Seven & i recently went through a management power struggle resulting in the resignation in April 2016 of the company’s CEO, Toshifumi Suzuki. Suzuki, age 83, failed to win board support in his bid to oust 58-year-old Ryuichi Isaka, head of its convenience-store subsidiary Seven-Eleven Japan Co. Seven & i promoted Isaka, above, to the position of president.

In May 2016, Isaka said he plans to increase the number of 7-Eleven c-stores in the United States to boost overall market share amid slowing demand in Japan and as the chain contends with market saturation and intensified competition.

7-Eleven is striving to reach 10,000 c-stores in North America, Isaka said. “We will speed up expansion in North America by accelerating acquisitions.”

3. New structure

Sunoco gas station

And now, under a new business segment plan, Seven & i is positioning c-store operations as a growth pillar, with domestic and overseas operations managed separately to reflect their different market attributes. The domestic unit will control c-store interests in Japan as well as in China and Hawaii, while the overseas unit will control c-store interests in the rest of the United States and in other countries.

7-Eleven ended its fiscal 2017 with 8,256 stores in the United States, 63 of which operate as part of the Hawaii division.

When the restructure is complete in early 2018, 7-Eleven Inc. will focus on a growth strategy that includes acquisitions, such as its just-announced deal to acquire about 1,110 company operated c-stores from Sunoco LP, as well as continued organic store growth.

4. U.S. growth

Sunoco fuel truck

“The U.S. convenience store business is a growth area,” Isaka said on April 6 while presenting the company’s latest financial results. “We will make investments focused on the growing convenience-store domain.”

He described the Sunoco acquisition as “worthwhile,” the Nikkei Asian Review said.

With Sunoco’s sites, the Japanese group can expect higher logistics efficiencies and other benefits, said the report.

In the fiscal 2017 presentation, Seven & i provided an overview of Sunoco LP’s retail business for its fiscal year 2016. It said:

  • Sunoco’s merchandise sales of approximately $4,800 per day per store is equal to or greater than the average per store day (APSD) of 7-Eleven Inc. Seven & I said the 2019 target is $5,000 APSD.
  • Sunoco’s gasoline sales of approximately 5,100 gallons per store per day is approximately 1.5 times 7-Eleven Inc.’s gallon volume.

Sunoco’s withdrawal from retail in favor of wholesale “leaves a rare opportunity to acquire high-quality stores and support the existing store base,” Seven & i said in the presentation.

5. Geography

Joe DePinto 7-Eleven

"This acquisition supports our growth strategy in key geographic areas including Florida, mid-Atlantic states, Northeast states and central Texas," said Joe DePinto, president and CEO of 7-Eleven Inc. "It also provides 7-Eleven entry into Houston, the fourth largest city in the United States, and a strong presence in Corpus Christi and across South Texas."

6. U.S. strategy

7-Eleven foodservice

Seven & i has been beefing up its U.S. convenience stores by following the strategies of its c-stores in Japan, such as expanding ready-made foodservice. Thanks to the Japanese touch, operating profit in the United States is climbing approximately 10% every year, the Nikkei Asian Review said.

In the United States, Seven & i said it plans to “increase profitability by enhancing the quality of individual stores and promoting conversion to franchised stores.”

To accomplish this, the company will:

  • Establish an infrastructure for fast food and strengthen fresh foods.
  • Increase quality of products and services to suit the market.
  • Strengthen merchandising capabilities.
  • Build a supply chain.
  • Revise store-opening standards.
  • Expand market share and accelerate growth through store openings.
  • Strive to reach the 10,000-store goal by fiscal 2019 through acquisition and organic store openings.

7. The strengths of Laredo

The Laredo Taco Company

Among the unknowns in 7-Eleven’s acquisition of the selected Sunoco c-stores is the fate of Stripes’ popular Laredo Taco Company brand of Mexican cuisine, offered at approximately 450 locations.

7-Eleven acquired the trademarks and intellectual property of the Stripes c-store brand and the Laredo foodservice brand along with the acquired Sunoco outlets.

In a process separate from the 7-Eleven transaction, Sunoco also is selling 207 convenience stores, 182 in west Texas and New Mexico and 25 in Oklahoma and north Texas. The Stripes brand is divided between the two deals, with some stores going to 7-Eleven and some stores among those to be sold separately, Sunoco spokesperson Alyson Gomez told CSP Daily News.

Sunoco gained access to Laredo through its $1.9 million purchase in 2015 of Susser Holdings Corp., Corpus Christi, Texas. It has been expanding Laredo beyond its traditional Texas boundaries, including Tennessee and Pennsylvania.

Sunoco is “attempting to determine … what the demand is going to be in smaller footprint locations up and down the East Coast,” CEO Bob Owens said at the time.

7-Eleven will have to make a similar evaluation. Will the retailer, which is looking to translate its Japanese foodservice successes to America, keep and possibly expand Laredo, adapt it or retire it? Or will it be a combination platter?

  • Click here to read the first part of this report, Why Sunoco Is Selling.