Getting Bigger and Healthier

7-Eleven in the U.S. is, in some respects, like a child: It's expected to grow big and healthy by following its parent's example.

America's largest convenience-store chain is on the brink of both a major expansion and a fundamental shift in its identity. Under the guidance of Japanese parent Seven & I Holdings Co., it added almost 1,000 stores in the U.S. and Canada last year–and plans to present a new face to the public.

The chairman of Seven & I Holdings told Bloomberg in May that the company may eventually have as many as 30,000 North American outlets, up from its current total of roughly 8,000. Over the short term, the company plans to increase the North American total to 10,000 as early as 2014.

But the chain is not just growing for the sake of growth. It's trying to locate new stores strategically, in ways that will give it a consistent national footprint.

Steven Johnson, whose firm Foodservice Solutions offers consulting services to the grocery/restaurant (in his word, "grocerant") industry, says 7-Eleven has been trying to get into locations, like areas of the East Coast or northern Florida, where competing convenience store chains have dominated.


"They want to build an even, national footprint, and they want to roll out national advertising," Johnson says. "There were big splotches of the country where they didn't have a concentration of stores. And to execute a fully fresh program, they need to have plenty of stores in each major area of dominant interest."

Executing a fresh program, with produce, sandwiches, salads and other on-the-go fresh foods, is something that the company sees as the key to its future. For many years, 7-Eleven has been trying to rid itself of the stereotype of the convenience store as a repository for stale, unappealing and overpriced food and other merchandise–the "roller grill" image. It's now pushing back hard against that notion, in part by experimenting with a revamp of its stores. The idea is to present a cleaner, more appealing image and place a greater emphasis than ever on fresh, healthy food.

Stations with fresh food help counteract negative convenience store stereotypes.

A 7-Eleven "lab store" in Manhattan's financial district is the site of a redesign experiment. The store's interior was reimagined by WD Partners, a retail design consulting firm based in Dublin, Ohio. The store features a color scheme dominated by green and earth tones; granite flooring and wood (or faux wood) shelves and counters; and products divided among islands and stations, several of them devoted to fresh and healthy/better-for-you products. Even the company logo got a makeover, with the same colors but green dominating the background, and the word "eleven" in unassuming, white lowercase letters.

This experiment constitutes an intensification of a trend that's been going on at 7-Eleven for years–a greater emphasis on fresh foods like fruit, sandwiches and salads, which present a more appealing general image.

Johnson says 7-Eleven has been telling its franchisees for years to offer more fresh food. It has been a relatively slow process, mostly due to the size and nature of the company.

"Because they're so large and their brand is so solid, they have taken incremental steps. And some of these steps, to the consumer, may not have been noticeable."

–Steven Johnson,

Foodservice Solutions

"Because they're so large and their brand is so solid, they have taken incremental steps," Johnson says. "And some of these steps, to the consumer, may not have been noticeable."

The experiment in the New York lab store is actually the latest iteration of an ongoing effort to upgrade the appearance and offerings of 7-Eleven stores. There was, and is, a certain amount of pushback from the franchisees, Johnson says.


Part of the problem is that prepared foods are a more reliable profit center, with higher margins and less waste. "But as they started bringing [fresh food] in, the customers and the frequency increased, because customers like fresh food," Johnson says. "Not everybody wants something off that roller grill."

Bonnie Herzog, managing director of beverage, tobacco and convenience store research for Wells Fargo Securities, agrees that fresh food, attractively presented, is a customer draw.

"If you're offering [fresh food] and your store is clean and well lit, you're hopefully bringing in the soccer mom with her children, and if you didn't have that, she would have driven right by you."

–Bonnie Herzog

Wells Fargo Securities

"If you're offering [fresh food] and your store is clean and well lit, you're hopefully bringing in the soccer mom with her children, and if you didn't have that, she would have driven right by you," Herzog says.

When it comes to fresh food, American 7-Elevens lag behind their Japanese counterparts, some of which get food deliveries three times a day, Johnson says. Getting fresh food out to the stores reliably and profitably requires building the right kind of supply chain. That means stores have to be located close enough to a centralized commissary, where sandwiches, salads and other fresh food can be prepared and delivered in enough time to ensure adequate shelf life. So not only will new U.S. stores tend to be in urban areas, but they'll be clustered in a way that will allow this kind of delivery network.

The increase in stores, and the changing nature of the merchandise, are part of a fundamental reimagining of the convenience store industry, more along the lines of what it's like in Japan and, to a lesser extent, in Europe, Johnson says. Japan, which has a population about 60 percent that of the U.S., has some 50,000 convenience stores. In Japan and Europe, c-stores serve as more of a destination for produce, prepared meals that are complete and relatively nutritious and other items that Americans routinely buy at supermarkets.

Reliably supplying sandwiches and other fresh foods will affect 7-Eleven's plans for everything from site selection to store design.

"People want small footprints. They want to get in and out," Johnson says. This is especially true for younger, single people, who are more likely to make frequent, smaller food purchases, and older consumers, who are less willing or able to cook and are good customers for meal components. Part of the reason c-stores in Europe and Japan are more advanced in this regard is that their populations tend to have a higher average age than the U.S.


Supermarkets aren't the only new competition that Johnson envisions for 7-Eleven. As their capabilities for fresh foods and meals evolve, he sees them competing more directly with QSRs, even higher-end ones like Panera Bread.

Herzog agrees that foodservice is a growing area of opportunity for the c-store sector in general. It usually has higher margins, she says: a gross in-store margin of more than 50 percent, compared with around 40 percent for packaged food (and about 15 percent for cigarettes). But it presents significant challenges, the biggest of which is space. Whether it's an established independent franchise like Subway or one that's part of the store chain, like Stripes Stores' Laredo Taco Company, a foodservice operation takes up a big part of a convenience store's limited space.

There's another important way 7-Eleven can compete with QSRs, Johnson says: by continuing and expanding its portfolio of branded food products. For example, the Slurpee, licensed in 1967, is as recognizable as any QSR product, Johnson says.

"They're very good at marketing and registering and trademarking signature products. You can't dismiss the fact that they've competed well and grown substantially in that field where Burger King's Whopper and the Big Mac already exist," he says. "As they get into additional types of food, don't think they won't do the same thing."