to full article

BIG
GULP
the
WHAT’S DRIVING 7-ELEVEN’S
THIRST TO ACQUIRE—AND
WHO’S NEXT
By Samantha Oller and Angel Abcede
[email protected], [email protected]
38
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J a nua ry 2 0 1 3
7
-Eleven Inc. (SEI) has orchestrated nearly 10 acquisitions
in 10 states in just the past
two years, snatching up small
and midsize chains across the
United States with a consolidator’s zeal.
More than one-half of its growth in
2011 was through acquisitions in New
York, Florida, Illinois, Colorado and the
Northwest. It had announced plans to
add at least 630 sites in 2012 alone in the
United States and Canada, with buys in
Ohio, Pennsylvania, West Virginia and
Wisconsin helping it reach that recordbreaking target.
At a time when the nation talks about
fiscal cliffs and economic retrenchment,
the country’s best-known convenience
chain is spending generously to feed an
acquisition appetite that is peerless. In less
than three years, the Dallas retailer has
ballooned by about 1,000 sites, through
organic growth and acquisitions, to hit
more than 7,400 in the United States
alone—about a 15% leap in store count.
And the establishment in October of SEJ
Asset Management & Investment, a Delaware corporation designed to finance
expansion, underscores the promise of
future growth.
Dennis Ruben, executive managing
director of NRC Realty & Capital Advisors LLC, Scottsdale, Ariz., says demand
for sites “is probably as great if not greater
than it’s ever been.” Ruben could not
speak specifically to the chain’s plans;
however, in general, he says an industry
feeding frenzy is taking place.
“There’s almost been a watershed
event after Couche-Tard made a play for
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January 2013
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the
UNITED
STATES
of
7-ELEVEN
As 7-Eleven’s growth ramps up for 2013, a look back at recent acquisitions suggests where future
fill-in and new market opportunities exist.
One potential area for growth is 7-Eleven’s remaining licensees, which include Garb-Ko Inc.,
Saginaw, Mich., with 83 sites in Michigan, Ohio and Indiana; Resort Retailers, Park City, Utah,
with seven sites in Utah; and Alon Brands Retail of Odessa, Texas, with 170 stores in Texas and
New Mexico.
More than 500
200-499
99 or fewer
New Mexico: 0
West Virginia: 85
• Licensee: Alon Brands (23)
Florida: 759
Maryland: 361
• Acquisition:
Handee Marts Inc. (4), October 2012
• Acquisitions:
Prima Marketing (60), August 2012
Handee Marts (4), October 2012
South Carolina: 22
• Growth markets: Orlando and Tampa
• Returning market: Jacksonville
(plans to open 15 to 20 stores in 2012)
New Jersey: 313
Arizona: 75
Rhode Island: 21
Virginia: 693
Colorado: 288
Ohio: 73
Wisconsin: 18
California: 1,441
• Growth markets: Tidewater
region (Virginia Beach, Chesapeake,
Portsmouth, Norfolk)
Texas: 559
• Licensee: Alon Brands Retail (277 sites)
• Acquisitions:
TETCO (143), July 2012
Strasburger Enterprises (23), June 2012
Exxon Mobil Corp. (51), January 2012
C.L. Thomas Inc. (160)*
• Growth markets: Dallas-Fort Worth,
San Antonio, central Texas
Illinois: 376
Pennsylvania: 265
• Acquisitions:
EZ Energy USA Inc. (37), October 2012
Handee Marts Inc. (44), October 2012
Prima Marketing (12), August 2012
• Growth market: Pittsburgh
• Licensee: Garb-Ko Inc. (3)
• Acquisitions:
EZ Energy USA Inc. (55), October 2012
Handee Marts Inc. (7), October 2012
Prima Marketing (1), August 2012
Maine: 13
Washington: 226
Hawaii: 58**
Kansas: 10
Nevada: 207
North Carolina: 52
Vermont: 3
100-199
New York: 540
• Licensee: Garb-Ko Inc. (76)
Connecticut: 51
• Growth markets: New York City
(plans to grow from 20 to 135 units
by 2017)
Will add 30 locations in New York per
year through 2017
Massachusetts: 162
Indiana: 32
Utah: 143
• Licensee: Garb-Ko Inc. (3)
Michigan: 162
• Licensee: Resort Retailers (7)
• Acquisition: TETCO (20), July 2012
D.C.: 31
Oregon: 135
New Hampshire: 23
Casey’s,” he says. “Once that failed, big
and small players started looking over
their shoulder and really wanted to look
at every deal.”
Big players who wouldn’t consider
a deal for fewer than 10 locations are
now interested; companies that prefer
organic growth are suddenly interested
in acquisitions; and those that stuck to
certain regions are wandering over borders. “We have companies saying, ‘We
don’t care how big or small it is; we’ll
look at it,’ ” Ruben says.
7-Eleven’s most recent conquests are
a who’s who of small regional giants:
CSP
• Acquisitions:
Open Pantry Food Markets of
Wisconsin (18), June 2012
• Growth markets: Madison and
Milwaukee
Missouri: 60
• Acquisitions:
Fast Track Inc. (12), October 2012
Sam’s Mart (33), January 2012
40
• Acquisitions:
Sam’s Mart (22), January 2012
J a nua ry 2 0 1 3
Iowa: 2
Idaho: 1
Kentucky: 1
• Acquisitions:
Prima Marketing (1) August 2012
Delaware: 24
TETCO of San Antonio; EZ Energy of
Seven Hills, Ohio; and Wilson Farms of
Williamsville, N.Y. It also gobbled up
some of the company’s largest licensees,
such as Handee Marts, Gibsonia, Pa.; and
Prima Marketing LLC, Fairmont, W.Va.
If its recent buying history is any
indication of what’s to come, then future
acquisitions may involve stores in the
Southeast, where languishing real-estate
prices, population growth and weather
are pluses, as well as areas it pulled out
of during its leveraged buyout in the late
1980s. Also, look for 7-Eleven to buy
out remaining 7-Eleven licensees, some
of which may need infusions of cash to
upgrade facilities and site-level strategies;
and push harder into markets in which its
current presence needs a boost, especially
where clusterings of stores begins to justify daily deliveries of fresh food.
“In the world of real estate and development, it has been a buyer’s market, and
we have been in the enviable position to
capitalize on property and space availability, plus 7-Eleven’s strong credit rating,”
said Dan Porter, 7-Eleven’s real estate vice
president, last May. Yet while competitive
pressure may be greasing the wheels, the
engine truly powering 7-Eleven’s spend-
Key
Recent acquisitions
More than 500 stores
200-499
100-199
99 or fewer
Growth markets, returning markets and licensees
Note: Store count as of December 2012
226
13
18
135
3
1
162
2
207
376
143
288
10
60
32
1
1,441
540
23
265
73
85
693
52
21
51
313
24
361
31
22
75
559
759
Source: Company reports
* Possible deal has been reported by CSP but not yet confirmed
** Seven-Eleven Hawaii Inc. operates stores as a Hawaii
corporation under Seven & i Holdings.
ing spree seems more likely coming from
within. These factors include:
▶ Pent-up energy and regaining
ground in areas it once had sites.
▶ Opportunity to build density in
7-Eleven’s underdeveloped markets or
growth areas such as the Mid-Atlantic
and the Southeast.
▶ In response to overseas retail
success from 7-Eleven Inc.’s Japanese
parent company, Seven-Eleven Japan
(SEJ), a focus on building critical mass
in key markets to support a supply chain
to accommodate foodservice, as well
as soften the blow of advertising and
administrative costs.
7-Eleven’s U.S. growth team—which
includes Porter as well as Sean Duffy,
senior vice president of development; and
Robbie Radant, vice president of mergers
and acquisitions—declined comment via
the company’s spokesperson. But the outlines and direction of its domestic strategy are clear enough from talking with
several franchisees and licensees, chains
that have sold to 7-Eleven, and industry
experts familiar with the company.
“7-Eleven is really an amazingly large
real-estate company,” says Robert Buhler,
president of Pleasant Prairie, Wis.-based
Open Pantry Food Marts of Wisconsin,
which signed a deal that gave 7-Eleven
a platform to re-enter Wisconsin after
an absence of nearly two decades. (See
“Selling to 7-Eleven,” p. 16, for a firsthand
account from Open Pantry and Prima
about their decisions to sell to 7-Eleven.)
“They want to own the real estate and
control the corner. And they have the
money to do it.”
A Time of Transition
Of all the factors fueling 7-Eleven’s
resurgence as a consolidator, the idea
of cycles, of businesses expanding and
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A Global Player
contracting through their lifetime, may
prove most telling.
Back in fall 1990, 7-Eleven’s predecessor, The Southland Corp., filed for Chapter
11 prepackaged bankruptcy. The proud
family-run corporation experienced lows
that mirrored its boom decades prior,
when the land grab of convenience retail
as a whole reached a heady peak. And it
wasn’t just 7-Eleven; the M&A frenzy led
rival Circle K to implode when debts came
due.
For 7-Eleven, that late 1980s climate of
hostile takeovers—including an attempt
by Canadian raider Samuel Belzburg—in
part led the company’s original owners,
the Thompson family, to initiate a leveraged buyout. Those familiar with the
company’s makeup at the time believed
that its subsidiaries, which included an
automotive retail chain called Chief Auto
Parts; the c-store chain’s distribution,
dairy and ice operations; and its refining and marketing arm with CITGO
Petroleum, were more valuable sold off
separately than remaining under the
Southland umbrella.
That Wall Street pressure led to the
Thompson family’s $4.1 billion leveraged
buyout, with Southland selling many
of those very assets itself to help repay
the debt. 7-Eleven could have staged a
comeback were it not for oil companies
converting auto-repair bays at their gas
stations to c-stores.
To hear people talk about that dip in
the cycle is like listening to a Depressionera parent or Vietnam veteran. Innocence was lost.
Mike Scarpelli, who worked for
7-Eleven corporate during that period
and recently retired from 7-Eleven licensee
Alon Brands Retail, Odessa, Texas, says it
was a devastating and defining period,
and that it continued “in that seemingly
Besides its approximately 7,400 stores in
the United States, SEI has 480 stores in
Canada, making North America its secondlargest market behind Japan. The main difference between the U.S. sites and those
in Japan, operated by SEJ: More fuel and
less food is sold in the United States—
gasoline contributes 40% of sales, and
food only about 13%. In the charts below,
“fast food” refers to hot foodservice and
dispensed beverages; “daily food” refers
to milk, packaged sandwiches, cold deli,
baked goods and other items delivered
daily.
Share of sales, year-end 2011
SEJ
Nonfood
35.1%
Processed food 26.6%
Fast food
26.0%
Daily food
12.3%
SEI
Gasoline
46.0%
Nonfood
21.7%
Processed food 20.3%
Fast food
8.4%
Daily food
3.6%
Source: Seven & i Holdings Co.
standstill mode for a while.”
When the company’s largest licensee,
Japan-based Ito-Yokado, bought 70% of
the company, it became 7-Eleven’s “white
knight,” Scarpelli says, especially with
looming threats of hostile takeovers at the
time. “They were our savior [in that they
kept] the stores running, even though
many of the related assets, such as the distribution centers, were sold off,” he says.
“But what it did was put the company on
permanent hold.”
At that point, the company seemed to
be in limbo, Scarpelli says. However, part
of the reason was to focus solely on the
stores and reposition 7-Eleven’s systems
to meet new challenges such as scanning,
back-office technology and foodservice.
When CSP interviewed Jim Keyes, for-
mer 7-Eleven president and CEO, for its
2003 Retailer Leader of the Year issue, the
company was still in recovery mode, even
12 years later. His goal at the time was to
rebuild with “a sustainable competitive
advantage.”
In his tenure at the top, Keyes invested
in technology and foodservice, addressed
supply-chain issues and fine-tuned its
merchandise mix, while paring down
what in 2005 was still $1.5 billion in debt
lingering from the buyout.
Keyes left in 2005, and his successor,
Joe DePinto, appears to have injected a
new vigor into the process. Named CSP’s
2011 Retail Leader of the Year, DePinto
and his team are credited with boosting the company’s Moody’s rating from
Baa3 (in December 2005) to Baa1. They
paid down debt, cleaned the balance
sheet, dramatically improved cash flow,
re-engineered the company bottom to
top and remodeled a large portion of the
system, preparing 7-Eleven for its current
growth mode.
The effort did not come without hardship. Layoffs in 2009 at corporate and
other cost-cutting measures seemed in
line with both the economic times and
current growth initiatives. But as DePinto
told CSP at the time, “It’s tough now, and
it’s going to get tougher really fast.”
Now, more than two decades since
that bankruptcy, 7-Eleven has gone on
the offensive, taking its newfound financial confidence to the street.
“Now I look at it as pent-up energy
moving forward at light-speed,” says
Scarpelli.
Land of the Rising Sun
Today, 7-Eleven is anything but idle.
And as the North American subsidiary
of Tokyo-based SEJ, which is owned by
Seven & i Holdings Co., it has tapped its
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Grow and Grow: As 7-Eleven
expands its U.S. store count, one of
its goals is to build sites in Florida,
including ones such as the store
shown here and smaller, urban
walk-up locations.
parent company’s best practices to further hone its domestic operations.
“As Seven & i has taken more of an
influence over 7-Eleven Inc., a lot of the
strategy is being driven from the Japanese
operation,” says Robert Gregory, global
research director for Planet Retail, a London-based retail intelligence firm.
Back in the 1990s, Southland Corp.’s
Japanese parent started a review of
the U.S. operations. What it found: By
nearly every measure, the U.S. 7-Eleven
stores lagged dramatically behind the
Japanese sites.
“Profit margins were about half what
they’re achieving in Japan, and sales densities are way down,” says Gregory. “If we
can move it more toward the Japanese
model and bring up efficiencies, there’s a
huge uplift in terms of the benefit we can
bring to it.”
The Japanese model: a triple focus
on building in-store sales—led by fresh
and hot foods, as well as private label—
clustering of stores to grow efficiencies,
and continuing to expand the percentage
of franchised locations through initiatives such as the Business Conversion
Program, which transitions single-store
independents into 7-Eleven franchisees,
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as well as growing the number of multisite franchisees.
As veteran industry consultant Dick
Meyer points out, the move to 100% franchisee-run operations has huge financial
implications for 7-Eleven, because franchisees with fewer than 50 employees are
exempt from providing health insurance
under the Affordable Care Act.
It also reveals how much 7-Eleven and
its franchisee base—as represented by
the National Coalition of Associations of
7-Eleven Franchisees—have resolved any
tensions over time.
Consider the shared learning a form
of payback. When Ito-Yokado first gained
licensing rights to 7-Eleven in Japan, it
opened stores based on the U.S. model—
and quickly struck out.
“They were selling Slurpees, which
are very popular in the U.S.,” Gregory
says. “In Japan, they weren’t popular at all,
and actually failed.” But after a few years,
the company removed low-performing
items, revamped the store format and
cut the locations to about half the size of
the average U.S. store. Fresh and to-go
foods became the focus of the stores, with
hardly any selling fuel.
This model has proven extremely
successful, so much so that it is spreading across Asia, a highly underdeveloped
region for the brand. “It is less reliant on
gasoline, more situated in residential and
urban locations, and very much clustered
together,” says Gregory, who cites that in
Bangkok, Thailand, for example, several
7-Elevens will coexist on the same street,
nearly all franchisee-owned.
The Japanese have pursued a strategy of high market presence, or what
7-Eleven calls “market concentration”:
identifying an area with high growth
potential because of demographic trends
and/or the lack of strong competition.
“They really try to get this high store
density,” Gregory says. “If they can get a
number of stores within a defined area,
even though they might compete with
each other, there are actually quite a lot
of advantages.” For example, distribution
is simplified, brand awareness intensifies
and marketing becomes more efficient.
“This is something they’re really pushing in the U.S., targeting big cities—New
York, Los Angeles, Chicago,” says Gregory.
“So over the next few years, it will be the
case that there are more 7-Elevens cropping up in the same area even though
they compete with each other.” (Sites that
Dallas
7-Eleven Inc. (SEI)
No. of sites: 7,400
Total revenues: $23 billion
Existing store sales change: +2.8%
Merchandise sales change: +3.7%
Gross-profit margin: 35.3%
Gross-profit change: +0.7 points
U.S. Site Breakout*
No. of sites
Change
Composition
No. of stores
7,400
+254
100.0%
Franchised stores (total)
5,625
+188
76.0%
Type C franchised sites**
5,305
+167
71.7%
+21
4.3%
Business Conversion Program franchised sites (Type A) 320
Direct-ops
1,778 +6624.0%
Sites with gas
2,853
* Six months ending June 30, 2012
Source: Company reports
are part of the Business Conversion Program are exempt from a policy requiring
7-Eleven franchised locations to be at least
a half-mile from each other.)
According to Jeff Kramer, CEO of
Prima Marketing LLC, a licensee that sold
76 sites to the company last fall, 7-Eleven
feels there is room for many more of its
locations in the United States.
“If you look at a map, you can see a lot
of holes in the country where 7-Eleven
does not have a presence; maybe it had
a presence years ago but pulled out,” he
says. “There are many areas where if you
have a strong brand and solid program,
they can fill in around the country to be
a true national brand.”
He and others also suggest that a
stalled Japanese economy—weakened
by a two-decade-long recession and
the continued recovery from the 2011
tsunami—is encouraging Seven & i to
place its weight on U.S. growth. But while
the Japanese economy is soft, Gregory of
Planet Retail does not see this as being
a major growth trigger for the United
States, pointing out that 7-Eleven has
managed to “hold its own” in Japan,
partly thanks to its ability to expand and
sign on new franchisees.
Rather, the sites in Japan have become
so efficient that any future growth will be
incremental. “Sooner or later, expansion’s
going to run out,” he says. “There are
plenty of opportunities in other markets,
whether it be the U.S., China or Mexico.”
And it is not only the quality of the
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sites that have reached a high-water
mark—it’s also the market saturation.
Consider, for example, that while Japan
has roughly the land mass of California, it
has 6,000 more 7-Elevens than the United
States, Canada and Mexico combined.
Put another way: While 7-Eleven is far
and away the largest c-store operator in the
United States, it controls less than 5% of
the U.S. c-store count, compared to SEJ’s
nearly 31% share in Japan.
“That shows just how many 7-Elevens
they can fit into a certain area,” Gregory
says. “So they’re looking at a place like the
U.S. or Canada and saying we can possibly have double the amount of 7-Elevens
if we can get the model more efficient.”
Picking Up Food
With higher food sales a core directive
for 7-Eleven, building the most efficient
foodservice operation has been paramount for the chain. DePinto 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 several levels.
“They want to ... focus more on the
sale of products, especially fresh foods,
such as sandwiches and takeaway foods,”
Gregory says of 7-Eleven. “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
+134
38.5%
** SEI provides land and buildings
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 says.
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 says 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. A new hot case of pizza (whole and
sliced), a variety of chicken wings, chicken tenders and mini tacos
was tested in San Diego; 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
foods; 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 Midwestbased operator, who has been a franchisee for more than 20
years and does not yet have the expanded hot food program,
describes the pizza product as excellent if prepared correctly. He
also praises 7-Eleven for the quality of the foodservice equipment, which includes ovens from TurboChef Technologies.
Overall, however, 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 says. “They insist on a one-sizefits-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, 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.
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“Over the next few years, it will be the case
that there are more 7-Elevens cropping up
in the same area even though they compete
with each other.”
“There is a lot of personal touch there,” says 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,” says 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.”
“It’s a good base,” says Kramer, whose sites did not offer the
full hot-food offer because there was not a high enough concentration of stores to justify frequent deliveries. “I think they have
to keep building on it. They’ve done it cautiously because they
have a franchise model. It’s important to try to have standardization and a reliable product the public can count on.”
To Market, to Market
Adding urgency to 7-Eleven’s efforts is what some retailers call
“taking advantage of the recession,” which includes acquisition
appetizers such as lower real-estate and construction costs, as
well as a greater willingness from sellers to make a deal in a
buyer’s market, swimming with players in a range of sizes. In
2011, 7-Eleven hired Lend Lease’s Multi-Site Group to handle
construction and conversions, managing costs and accelerating
the conversion process.
With low interest rates and ready debt and sale-leaseback
financing, “it creates more opportunity for people to buy things
they may not otherwise be able to buy,” says Ruben of NRC.
Looking at Couche-Tard and 7-Eleven’s recent acquisitions,
“generally, they’ve been pretty opportunistic, and bought traditional c-store companies, portfolios, groups of stores, major-oil
companies,” says Ruben. “The bigger players that have access to
capital have gone where the opportunities are, and they’ve taken
advantage of those where they could.”
Jim Fisher of Houston-based site-analysis firm IMST Corp.
believes 7-Eleven is seizing a market opening. “They’re just
seeing great opportunities and taking advantage of it,” he says.
“It’s good retail, not old, worn-out, tired retail. It’s not companies that have starved the goose and have eaten all of the eggs.
CSP
January 2013
49
“They are looking at a place like the U.S.
or Canada and saying we can possibly have
double the amount of 7-Elevens if we can
get the model more efficient.”
They’re buying companies that have been really systematically
feeding the goose and have good production.”
Fisher believes 7-Eleven’s push to be a franchise-dominant
retailer is also a driving force. “It’s driving the company through
acquisitions and through the franchise; they want to find good
locations for those franchisees,” he says, describing it not so
much as “pent-up demand” but more “an opportunity of now.”
“They’re coming on at the right time because they’ve
cleaned up their balance sheet over the past five years, vs.
loading it up” like other large chains have, says Buhler of
Open Pantry. “I think 7-Eleven will use that strength to buy
locations and transform them into franchised sites so they get
their money out pretty quickly, and the sites become a cash
machine for them.”
But 7-Eleven may hold a unique set of circumstances dating
back to its 1987 leveraged buyout. At that time, it had to sell off
many of its assets to better focus its potential. A source requesting anonymity says part of its goal may be to reclaim markets
lost in that retrenchment, with the caveat that those markets
hold potential going forward.
These motivations could hold true in areas such as Ohio and
Pennsylvania, where 7-Eleven made its most recent acquisitions,
including Handee Marts, EZ Energy and Prima Marketing; and
Wisconsin, where it connected with Open Pantry.
“When you look at the markets where they’ve really had
major acquisitions in lately, they are … markets where they
are but want to have a significantly enhanced presence,” says
Fisher. “They are markets that are growing: Charlotte, Houston,
San Antonio, Dallas. Those are very aggressive, very strong
economies.”
As 7-Eleven returns to markets, however, it will connect
with new and evolved competitors, such as in Houston and
San Antonio, says Fisher. “The market’s dynamics have shifted
greatly in the very recent past with Susser for Stripes and
Landmark for Timewise. There’s new development, whereas
in the past there hasn’t been and had been dominated by
major-oil companies.”
Similarly, 7-Eleven is re-entering Charlotte at the same time as
QuikTrip, and expanding in Florida along with Wawa, RaceTrac
and Thorntons. “It was one of those markets that was neglected,”
Fisher says, citing the previous lack of a strong retail offer.
While one source suggests that growth may be tempered
by the age of some of the acquired assets and the state of their
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markets—“Many of those stores are older
locations in older parts of town,” says the
source—overall, the retail giant appears
to be buying a mix of properties.
Fisher says sites are in a combination
of growth and more established neighborhoods. For example, he names C.L.
Thomas’ Speedy Stop assets, for which
7-Eleven is reportedly close to finalizing a
deal. Many of these locations—old Chevron corporate stores that were acquired,
razed and rebuilt from 1,800-square-foot
stations to 4,000-square-foot stores—have
been greatly improved.
“That’s some of the opportunity by
buying C.L. Thomas, TETCO and other
acquisitions they’ve made: It gives them
newer sites in well-established areas,” says
Fisher.
But with opportunity, he says,
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comes challenge. “It takes a totally different capability to be a franchisee of a
4,000-square-foot store with a fuel court,
20 fueling positions and 120-foot conveyor
car wash, compared to being one with a
2,400-square-foot store with no gas.
“The big challenge is to find those
franchisees who are at ease and have the
skills to successfully handle that type of
retail offering—which might mean they’re
going to be looking for those franchisees
who can do multiple stores, rather than
single.”
True, says the Midwest franchisee.
“7-Eleven wants more stores—but I
don’t think they want more franchisees,”
he says. “I think they will try to get to a
position where the single-store franchisee is a dinosaur. It will be like Subway:
In order to be financially successful, you
have to have multiple locations.”
To find where 7-Eleven expands next,
Fisher suggests focusing on the markets
with the strongest economic growth,
such as the Sun Belt states and the
Southeast. Markets in between North
Carolina and Florida such as Atlanta, as
well as Alabama and Louisiana, could be
candidates.
7-Eleven would examine the same
fundamentals as any retailer—site, location and building quality—says Kramer of
Prima Marketing, and are very “economics-driven” and patient.
“The Japanese are very long-termoriented,” he says. “In other words, they’re
not just looking for returns du jour to
send the stock up for today. They will
continue to look for acquisitions that fit
their model.” n