Who hasn’t gone into a 7-Eleven for a quick bite or a bit of late shopping? Who hasn’t seen its famous signage? 7-Eleven is the undisputed leader in convenience retailing with more than 24,000 stores in the US and other countries and sales of more than $33 billion in 2002. It is known internationally for its Big Gulp fountain soft drinks, Big Bite hotdogs, Slurpee beverages, and Café Select fresh brewed coffee.Each 7-Eleven store focuses on meeting the needs of busy shoppers by providing a broad selection of fresh, high-quality products and services, speedy transactions, and a clean, safe and friendly shopping environment. Each store is unique because it offers food and services based on each neighborhood’s individual needs, including automated money orders, copiers, fax and automatic teller machines, long-distance phone cards, and lottery tickets where available.
The idea for the convenience store chain began in 1927 at the Southland Ice Company in Dallas, Texas, where an enterprising ice dock operator began offering milk, bread and eggs to customers on Sundays and evenings—when grocery stores were closed—apart from the ice blocks they bought to keep in their ice boxes at home.
Eventually, Joe C. Thompson offered more products. And convenience retailing was born.
7-Eleven’s first outlets were known as Tote’m stores because customers “toted” away their purchases (some even lugged Alaskan totem poles in front). In 1946 Tote’m became 7-Eleven to reflect the stores’ extended hours—7 a.m. to 11 p.m., seven days a week. But it wasn’t until 1999 that Southland Corp. changed its name to 7-Eleven Inc.
Most of the company’s stores were company owned until 1961, when it acquired Speedee Mart of California with over 100 franchised outlets. Joe Thompson’s son John, now president of the company, saw the value of Speedee Mart’s franchising experience and strong management. 7-Eleven went into franchising at full speed.
Southland quickly collected investors as a result of its creative franchising policy. Most franchisers charged royalty on gross sales, but Southland based its royalty on gross profit. It worked on a formula that drove both franchise and franchisee to increase sales while controlling costs—the Gross Profit Split System.
It allowed single-unit franchisees to acquire their franchise with a modest investment: it built the store while the franchisee invested in a one-time franchise fee and an equal amount on inventory, permits, and the cash register fund. It paid the utilities and property taxes while providing ongoing support.
In turn, the franchisees paid for salaries, sales and other taxes, supplies, repairs and maintenance.
Daily, franchisees deposited all store receipts, cash and all supporting documents to the franchiser’s account. At the end of the month, Southland returned to the franchisee the remaining portion of the gross profit after all payments had been made—relieving the franchisee of accounting paper work and allowing him to concentrate on running the store. It bought in bulk to stock inventory during peak months. It maintained an open account and financing package, delivering goods to franchisees quickly without the franchisees worrying about money to pay for stocks.
Southland allowed the franchisee to “test-drive” his store for 180 days before committing to a 10-year contract. (If, after six months he’s not happy, he and Southland parted as friends.) All franchisees also benefited from goodwill sales when they sold their interest in the business to another person and the new owner signed a new deal with Southland. The goodwill amount depended on how well the franchisee had operated the store. The goodwill program started in 1970, and goodwill sales have since been enjoyed by franchisees who regard it as an additional return on their investment.
Southland allowed any franchisee to leave the system any time and sent him or her a check for any amount due under the terms of the franchise agreement. It extended a “son or daughter transfer” to the franchisee at no extra fee, allowing him or her to identify an heir to take over the franchise on his or her death.
It also introduced a long-term rebate to the franchisee in case a new operator took over the branch, returning 25 percent of the franchise fee if the franchisee had been with 7-Eleven for five to nine years and 50 percent if he or she had been with the system for 10 or more years. This was over and above the goodwill sale that the franchisee was entitled to.
Southland gave franchisees the freedom to choose the products to sell in their stores. (It had proprietary products that all outlets were required to sell, but it encouraged all franchisees to listen to their customers and give them what they needed.) It developed an effective communication system by allowing franchisees to elect representatives among themselves to a council that met several times a year to discuss issues affecting both franchiser and franchisees.
As a result of those meetings, many programs were developed to motivate franchisees further, including a renewal rider to the franchise agreement in 1983. The rider gave the franchisee a contractual right to renew the franchise when it expired at no fee, so long as he or she met certain criteria.
Southland Corp. controlled the 7-Eleven system from 1927 to 1991. However, the stock market crash of 1987 and the slowdown in the US economy in the following years opened the company to a hostile takeover. To protect the system and its 10,000 stores worldwide, it sold 70 percent of the company to Ito-Yokado Co. and Seven Eleven Japan Co., a long-time licensee in Japan that understood the system Southland had wanted to protect.
Today 7-Eleven has more than doubled the number of its outlets worldwide since the sell-out. And as investors continue to buy into the franchise, its familiar signage continues to spread across the globe, bringing to people all over the value of convenience retailing.
