7-Eleven in the Chinese Market

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Table of Contents

Introduction
Development of 7-Eleven
Intercompany Collaboration
Strategic Global Alliances
7-Eleven in China
Conclusion and Recommendations
References

Introduction

7-Eleven is one of the largest companies in the world that operate a chain of convenient stores. Since 1974, the company has been operating under the name 7-Eleven Japan Company Limited (Szymankiewicz, 2007). While viewing the company from a franchising end, 7-Eleven is has the largest licensed franchise in the world with approximately 39,000 outlets worldwide (Szymankiewicz, 2007). Initially, McDonalds Corporation was rated as the largest franchise in the world.

However, from the statistics that were taken in the year 2007, 7-Eleven emerged as the largest franchise in the world surpassing McDonalds by over 1000 stores. The company is now operating in 16 countries in the world. Its main markets are found in the US, Japan, Canada and South East Asia.

However, the company has been on an expansion spree in the last several years. One of the main markets that the company has been target in China. Despite its late entry into the Chinese market, 7-Eleven has grown to be one of the leading retail outlets in the country. It has successfully taken over the traditional Chinese catering industry and offers stiff competition to brands that had been well established in the industry.

Development of 7-Eleven

7-Eleven was founded by Joe C. Thompson in Dallas, Texas in 1927 (Doyle and Broadbridge, 2009). Joe was an employee of Southland Ice Company.

He began selling bread, milk and eggs. Thompson discovered that it was easier for him to sell convenient items to consumer after realising that the ice he had could be used to preserve these items. This greatly reduced the number of times individuals had to travel to grocery stores in order to purchase these items. As a result of the early success that Thompson enjoyed, he bought Southland Ice Company.

He called the new business Southern Corporation. Southern Corporation became successful in its early years and expanded into other regions within the Dallas area. During this time, Southern Corporation stores were opened between 7am and 11pm. In 1946, the name of the company was changed to 7-Eleven with regards to reflect its operating hours. By 1952, 7-Eleven had opened its 100^th store. In 1962, it commenced a 24-hour operation trial in Austin, Texas that was successful.

However, during the early 1980s, the company started to experience recurring financial crisis. However, Ito Yokado managed to save the company from bankruptcy. Eventually, the company was sold in 1987 and by 1991, the company was managed by the Japanese who had a majority share. In 1992, the company was operated under Seven and I Holding Company founded by Ito Yokado who had been one of the largest franchisee of 7-Eleven and commenced a massive expansion activity all over the globe.

The main target market for 7-Eleven is convenient customers who require fast, high quality, efficient and reliable goods and services. These services should be provided in clean and friendly environments. The locations of 7-Eleven stores are selected in order to be easily accessible to consumers.

Furthermore, some of these stores have up to 2,500 different products. In addition, the location, design and operations of these stores are designed in such a way that aims at satisfying the needs of the local people; the target market (Sakata, 2006).

7-eleven stores are well known in the countries in which they operate in for Big Gulp, Big Bite and Slurpee. These are the main food and drinks that are found in almost all of their stores worldwide. In addition to this, 7-Eleven openings also have fresh brewed coffee, sandwiches, burgers and hotdogs and other fast foods.

This has made the brand to be a convenient food store since it offers a variety of breakfast, lunch and dinner meals. In addition, these openings also offer other services that may meet the needs and requirements of the local market. This includes automated money machines, lottery tickets, phone cards and so on.

From its origin in Dallas, Texas 7-Eleven operates and franchises over 7,000 openings in the United States, 6,000 in Canada and over 32,000 outside America. This has made it to be the leading franchise in the world (Doyle and Broadbridge, 2009).

Intercompany Collaboration

In the retail service that 7-Eleven is involved in, supply chain has always been an essential factor that has contributed to the success that the company is currently enjoying. Supply chain is the process through which different corporations come work together in the process of converting raw materials from the producer to finished products to the retailer (Sakata, 2006). In this process, each company that is part of the supply chain plays a critical role in converting the good into a finished product.

Due to the presence of a joint venture, the operating costs and manufacturing costs that are accrued in the process of converting the product are always shared among the members of the supply chain. This has an overall effect of increasing the profitability rates of supply chain members by reducing their operating costs.

In its operations all over the world, 7-Eleven has always embraced the concept of supply chain. As a result, the company has always been involved entered into a number of intercompany collaborations in order to achieve its short term and long-term goals and objectives. For instance, 7-Eleven openings in Japan and China have collaborated with local bread suppliers (Arntzen et al, 2005). Most of the bread and baked products that are found in these openings are not baked in house but are supplied by external sources.

The franchise has collaborated with local bakeries to supply them with bread and other baked products as per the specifications of the customers. This has been done in order to ensure that the openings are able to satisfy the needs and demands of the market. In Japan, the over 10,000 openings that are present have a computerised integrated system that regulated the production, planning and inventory control of the region (Arntzen et al, 2005).

This ensures that bread and other baked products are produced with regards to the exact market demand that is accurate and not with regards to trends or speculation. This has greatly reduced the costs that these stores would have otherwise encountered with regards to the production and supply of the products.

The presence of a computerised system to control the quantity of goods available in 7-Eleven openings has played a critical role in ensuring that these stores are able to meet the market demand. In addition, the use of information technology in its operations has also led to the avoidance of extreme situations in which the supply is too much or too little.

This has resulted to the avoidance of the bullwhip effect that normally arises as a result of inefficiencies in the lower part of the supply chain. If such an effect is not checked early enough, it may result to adverse effects as one moves up the chain hence bringing about inefficiencies that may result to lack of cooperation among the members of the supply chain.

7-Eleven has always sought creative and innovative methods to satisfying the needs and requirements of its target market. It is due to this fact that the company has always collaborated with other organizations in order to get reliable chain sources and delivery services for its products (Fernie, 2004).

This in turn increases the availability of products in their stores to meet the demand and reduces the risks and inconveniences of poor supply of finished products. Therefore, the management of 7-Eleven has always strived to ensure that at all levels of the supply chain, from the producer to the consumer, goods are available at exact quantities. This has always ensured that the goods are always available at the right places within the time periods that they are required at the right quantities.

The Japanese franchise is one of the most profitable 7-Eleven franchises in the world. It is ranked the third most successful food franchise in the world. The main factor that has led to this success is the concept of intercompany integration and inter-store integration. The introduction of combined distribution centres and a central inventory system that check and regulated the quantity of stocks in all the stores have made it easier for products to circulate within the market.

This has led to timely delivery services and availability of products to consumers. In addition, from the system, the products that have a low turnover rate can be identified. In most cases, such products are always eliminated from the stores to create more room for those products whose turnover rates are much higher.

This has ensured that all the stores have fresh products at a given time, an essential requirement for consumer retention. While expanding its activities in China, 7-Eleven has been using this strategy and it has proved to be quite fruitful.

Strategic Global Alliances

The level of trade has grown remarkably over the last few decades as a result of the advancements that are being experienced in the field of information, communications and technology (ICT) (Jovanovic, 2011). These advancements have also increased the number of tradable services in the field of IT and ICT that have made the offshoring and outsourcing of services to be much easier.

The ease in the tradability of these services coupled with the increased independence of the location has contributed to the offshoring of services by many companies in the west (Kapila, 2009). These advancements have encouraged the development of globalization. 7-Eleven for instance has its origin in USA.

However, it has markets in 16 countries worldwide. This is as a result of globalization. Globalization has also influenced the manner in which companies market their products and interact with their customers. They have embraced the use of technology in order to survive the stiff competition in the market.

Some of them, for example, have incorporated the use of social networks and brand communities as a communication strategy of reaching and engaging customers. This because social networks and brand communities are the easiest and most efficient ways through which consumers can be reached as a result of technological changes that the world is currently facing. Most organizations and business companies therefore have stopped stop using outdated methods of reaching out to consumers.

As a result of globalization, the tastes and preferences of consumers have expanded. In addition, the level of competition among businesses has increased. This has come about as a result of the availability of substitutes and alternatives. Most of the barriers that initially prevented firms from entering into new markets have been eliminated.

Thus, for companies have come up with strategic plans in order to be profitable and sustainable in the short run and in the long run. One of the strategies that these companies have adopted and implemented in their operations is through the formation of alliances. Alliances can be formed through partnerships, mergers or acquisitions.

In the course of its operations, 7-Eleven has entered into a number of strategic alliances with renowned companies in the globe. While celebrating its 30^th anniversary since its entry in Taiwan in the year 2008, 7-Eleven partnered up with Microsoft while on a campaign to strengthen its brand name and reach out to a new target market; the individuals who fall under the bracket of the young consumer group (Doyle and Broadbridge, 2009).

The company was also using other media options in this campaign. The main reason why it chose Microsoft to launch this campaign was as a result of the popularity of the Microsoft brand in Taiwan among the individuals of the young age.

Thus, by forming a strategic alliance, the young market will identify the 7-Eleven brand name with Microsoft. In the electronic age that we are living in, the managers at 7-Eleven identified that it was necessary to market their brand by using IT hence chose Microsoft as their online partner. The main aim of this campaign was:

Improving the 7-Eleven brand name
Directing traffic towards their website
Increasing store revenue
Attracting young consumers

This campaign was successful as it created a salient image of 7-Eleven on its target market. Their website got over 68 million hits and the sales during the campaign increased.

In the year 2006, Shell Singapore and 7-Eleven Singapore entered into a strategic alliance. In this agreement, 7-Eleven was to provide convenient retail services in all the filling stations that Shell owns all across Singapore (Kunitomo, 2007). Consumers will visit these stations will not only enjoy the high quality fuel in courtesy of Shell but they will also enjoy a wide array of goods and services available at the 7-Eleven stores.

This was a win-win alliance for Shell Singapore, 7-Eleven Singapore and the consumers who visit these stores. From the alliance, the revenue earned by Shell and 7-Eleven increased. In addition, consumers reported higher satisfaction levels from the performance surveys that were conducted by shell (Kunitomo, 2007). Thus, in its early days in the Chinese market, 7-Eleven should form strategic alliances with companies that have a strong brand name and try to achieve a win-win outcome from the collaboration.

7-Eleven in China

Since the early 1990s, China has been experiencing a tremendous growth in its economy. In the early 2000s, China was ranked as the country that has the highest economic growth rate in the world. In 2003, the country reported a GDP of 9% (Martins, 2003). As a result, China presents a vibrant emerging market that is the target of many businesses including 7-Eleven. In China, franchising has become one of the business ventures that have a high potential of growth.

This is because it incorporates individuals who do not have a lot of capital into already established brands. Initially, the poor frameworks that surrounded franchising in China made it to be a risky venture hence discouraged a lot of foreign investors. However, with the amendment of the law, the securities of the franchiser and the franchisee have been guaranteed (Newman and Atkinson, 2010).

7-Eleven entered the Chinese market in 2004 (Newman and Atkinson, 2010). Despite their late entry, the company has become successful as a result of its efficient marketing and operating strategies. 7-Eleven stores are characterised by offering high quality services and innovation of new ones (such as the salad island). These services have enabled the company to attract a lot of customers and after a few years in the market, 7-Eleven has become the number one competitor of Hwa Food Corporation, Chinas leading food retailer.

However, on their entry into the Chinese market, 7-Eleven has mainly concentrated on the catering industry over the other ventures that it conducts. This is due to the fact that the management view China as a risky market hence they do not want to risk it all at once. In increasing their brand recognition, 7-Eleven has implemented some of the strategies that had proved to be successful while entering into other markets.

For instance, the company has implemented the value chain strategy that was used in Japan in the procurement of goods and services. In addition, the company has integrated IT in its operation to assist in operations and inventory control (Newman and Atkinson, 2010). In China, 7-Eleven has formed alliances with FedEx, UPS and some industries in the shipping and ports industry. These factors have made the brand name of the company to be strong within the region.

Through its capability of adjusting to market constrains, 7-Eleven has been able to develop a range of kitchen products that meet the needs and requirements of the Chinese market. For instance, the introduction of the soymilk and a variety of milk tea production has increased the number of clients that these stores receive especially during breakfast hours.

In addition, the quality of service at these restaurants have guaranteed maximum satisfaction of consumers. In the last quarter of 2011 for instance, it was averaged that each store receives approximately 900 clients per day (Newman and Atkinson, 2010). This has resulted to the high profit margins that the company is currently enjoying in China.

Conclusion and Recommendations

7-Eleven has grown to be the leading franchise company in the world. Through its effective and efficient operations, the company operates in 16 countries in the world. In its recent quest of expansion, the company ventured into the Chinese market. Despite the fact that this market posses high risks, the rate of growth that 7-Eleven has exhibited is desirable. However, for the company to be sustainable in the short run and in the long run, it should form alliances and partnerships with brands that are already established in the Chinese market.

In addition, 7-Eleven should identify the cultural differences of this market and formulate strategies that will enhance the culture of the local people. The company should also introduce products that meet the taste and preferences of the market and finally adjust their selling price to meet the financial requirements of a higher proportion of the population.

References

Arntzen, B.C., Brown, G.G., Harrison, T.P., and Trafton, L.L. (2005). Global Supply Chain Management at Digital Equipment Corporation. Interfaces, 21 (5), pp.69-93

Doyle, S. and Broadbridge, M. (2009). Strategic Supplier Segmentation: The Next Best Practice in Supply Chain Management. California Management Review, 40 (2), pp.57-60.

Fernie, J. (2004). International Comparisons of Supply Chain Management in Grocery Retailing. Service Industries Journal, 15 (4), pp.134-47

Jovanovic, M. (2011). International Handbook on the Economics of Integration: Competition, Spatial Location of Economic Activity and Financial Issues. Sacramento: Edward Elgar Publishing

Kapila, U. (2009). Indian Economy since Independence. New Delhi: Academic Foundation

Kunitomo, R. (2007). 7-Eleven is Revolutionizing Grocery Distribution in Japan. Long Range Planning, 30 (6), pp.877-89.

Martins, D. (2003). Efficient Consumer Response: Enhancing Consumer Value in the Grocery Industry, Food Marketing Institute, Washington, DC.

Newman, G and Atkinson, E. (2010). Seven-Eleven Japan Company Ltd. Journal of Consumer Behavior, 2 (1), pp. 19-22

Sakata, S (2006). An Analysis of the Japanese Convenience Store Industry: A Case Study of 7-Eleven Japan Corporation. University of Sterling: Unpublished MSc Thesis

Szymankiewicz, R. (2007). How can Service Business Survive and Prosper? Sloan Management Review, 27 (2), pp. 21-32.

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