Very Convenient: 7-Eleven Brings Japanese Innovations Home

December 1, 2004

Speaker
James Keyes, President & CEO, 7-Eleven, Inc.

Presider
Masatsugu Nagato, Managing Executive Officer & Head of the Americas, Mizuho Corporate Bank, Ltd.

James Keyes, President and CEO of 7-Eleven, Inc., explained why 7-Eleven is at the epicenter of globalization, and why globalization means cultural understanding and social harmony.

He was introduced by Mizuho Corporate Bank's Masatsugu Nagato, who characterized Seven-Eleven Japan as a place that "sells more books and magazines than Kinokuniya--delivers the freshest bread in the market--and serves as a bank for night-time customers." In Japan, Seven-Eleven has been phenomenally successful catering to the convenience needs of Japanese shoppers; globally, 7-Eleven is about people and cultures coming together "to merge in a better way," said Mr. Keyes.

He recounted how the 7-Eleven convenience store began in 1927 as an icehouse in Texas. The refrigerator forced the store's founder, Joe Thompson, to start selling food staples such as bread, milk and eggs. In 1966, Masatoshi Ito hired Toshifumi Suzuki to explore new investment concepts for Japan, and Mr. Suzuki recommended 7-Eleven. In 1973, Mr. Suzuki convinced the Thompson Family to license 7-Eleven for the Japan market, where the concept quickly flourished. The first store was opened in Japan in 1974.

In the late 1980s, 7-Eleven's U.S. operations were taken private but foundered under the weight of the new capital structure. In 1990, the company was bailed out by Seven-Eleven Japan, which took it public again but retained a 60 percent interest. At the time of the restructuring Mr. Keyes recalled how Mr. Ito gave them a book, The Machine That Changed the World. It was interesting that Mr. Ito had recommended a book about automobile manufacturing to managers in retail. But Mr. Ito's message "clicked" for Mr. Keyes, who realized that this wasn't a book about cars, it was a book about business transformations: Japanese vehicles began competing more successfully because they built a whole process from the inside out. Ito's message was, "Don't make the same mistake."

Since then, the U.S. operations have been transforming their business, item by item, part by part. Said Mr. Keyes: "I'm not ready to declare victory yet, but we're 27,000 stores strong again and in our 33rd consecutive quarter of same-store sales growth." Internationally, 7-Eleven's greatest success has been in Asia, where there are now 10,574 stores in Japan, 3,655 in Taiwan, 511 in Hong Kong, 1,175 in South Korea and 172 in China, said Mr. Keyes.

A key to the success of the region is an economic model that allows managers to scan every item into a database, which they can analyze using forecasting tools. This state-of-the-art "demand-chain" system was custom-built by NEC and Nomura to put the retailing back in the store.

Managers can not only fine-tune inventory for seasonal and holiday tastes, but they can also initiate searches for winning products. To Mr. Keyes, the 7-Eleven kimchi-flavored rice ball illustrates perfectly the company's concept of "cultural fusion in a comfortable way." It is a Japanese product with a Korean flavor, sold in Taiwan. "We have over 27,000 stores to tell us what our customers like. We work with our suppliers on exclusivity," he said. Other examples of proprietary and exclusive products include a Jessica Simpson Christmas CD through a Sony partnership, with 30-day exclusivity, and a cold-packaged aluminum bottle for beer. 7-Eleven has also "expanded its walls" with ATMs and VCOM machines to provide basic consumer finance services, Mr. Keyes said.

Socially, 7-Eleven is a diverse company with employees and franchisees representing 180 countries, 123 languages and 270,000 individuals; in the U.S. and Canada it represents a chain of nearly 6,000 small businesses. "7-Eleven is the sign of opportunity," Mr. Keyes declared. "

What do you plan to replicate in China and where will you innovate?

Mr. Keyes said the concept would be similar, with an emphasis on freshness, speed and proprietary distribution. To him, China represents the quintessential urban environment: hundreds of cities with several million people each. "Japan supports 10,574 stores. It's mind-boggling to think how much of the Mainland we can support!" he exclaimed.

7-Eleven has been successful in Asia. What about Europe?

Europe is a challenge on several fronts, said Mr. Keyes. There are laws that are unique to each jurisdiction, and few countries permit 24-hour operations or impose severe constraints. However, these conditions are changing, he said. "The prerequisite for success is having a good partner to help us establish a presence. The consumer would very much like to have our convenience stores," he commented.

There is a difference in the demographics of your stores. In the U.S., 7-Eleven is a workingman's store. Does that make it difficult to bring Japan's platform over here?

"You'd be surprised at the similarity in demographics. What we have seen in our urban stores is much like the Seven-Eleven Japan store," Mr. Keyes responded.

How are you working to change the image of 7-Eleven in the U.S.?

Rather than an expensive ad campaign, Mr. Keyes said he believed in a grass roots campaign, citing examples of retail chains (Starbucks) that have succeeded on similar word-of-mouth campaigns. Introduction of new, unique, high quality and fresh products will continue to build consumer awareness.

--Ann Rutledge