Why Does 7-Eleven Have 52,000 Stores?

Source: 7-Eleven Inc.

From a single location in Texas in 1927, the 7-Eleven empire has grown to more than 52,000 stores in 15 countries. Those stores are no longer owned by a U.S. company but by a Japanese holding company headed by an 81-year old CEO who has owned 100% of the company since 2005. The Japanese holding company is named Seven & I Holdings, and the CEO is Toshifumi Suzuki who bought a 70% stake in 7-Eleven for $430 million when Southland Corporation went through a bankruptcy reorganization in 1991. Suzuki later paid $1.2 billion for the remaining stake in the company.

At the time of Southland’s bankruptcy, 7-Eleven owned or franchised about 13,000 stores around the world, of which about 4,200 were located in Japan. At the last official count for the fiscal year ending in March of 2014, 7-Eleven owned or franchised 52,433 stores in 15 countries.

The company owns or franchises 16,319 stores in Japan and 10,642 in the United States and Canada. Here is a list of the remaining countries with total store counts:

South Korea, 7,085

Thailand, 7,429

Taiwan, 4,919

China, 2,001 (including Hong Kong, Macau and Guangdong total of 1,607)

Mexico, 1,649

Malaysia, 1,557

Philippines, 1,009

Australia, 595

Singapore, 537

Denmark, 196

Sweden, 190

Norway, 157

Indonesia, 149

By way of comparison, McDonald’s Corp. (NYSE: MCD) owns and franchises 35,429 stores in 119 countries. 7-Eleven operates 17,000 more stores than McDonald’s in 104 fewer countries. Taiwan, which is about the one-quarter the size of Iowa, has almost 5,000 7-Eleven stores, nearly half as many as the entire United States and Canada.

The obvious questions are why so many stores and in such concentration? Here is how the company answers that question for its Japanese division:

The Seven & I Group develops stores in several formats within an area. Since each format has its own customer motivation factor and catchment area the Group can achieve a high density store-opening strategy across the different formats. Our fundamental strategy for openings in Group companies is market concentration. This involves a high concentration of stores within one area.

This is the considerably different from the strategy that Wal-Mart Stores Inc. (NYSE: WMT) followed for years, which is to locate one massive store in a location that people can get to within a reasonable driving time.

But the Japanese strategy is quite similar to the location strategy of Starbucks Corp. (NASDAQ: SBUX), which sometimes seems to have a store on every corner of a single intersection. What Seven & I and Starbucks discovered is that concentrating the stores in a relatively small area and offering them in a variety of locales, like inside other retail stores or malls, as free-standing stores, in commuter train stations or in other high-traffic sites like hospitals, pays off by being more efficient, offering a better connection with customers and, not least, preventing entry by competitors.

McDonald’s and Starbucks have nothing on Subway sandwich shops. Privately held Subway owns or leases more than 40,000 stores worldwide and plans to add another 3,000 this year. By 2030 the chain expects to have 100,000 stores worldwide. Like 7-Eleven, the stores can be of any size that fits a given location. The company has stores as small as 300 square feet in such non-traditional locations as colleges, sports arenas and airports.

7-Eleven operates more than 52,000 stores because it has figured out a way to make serious money doing it. Notice that the stores operate in seven fewer countries now than was true in 1991. The key has been concentration of resources, which keeps costs down, profits up and competitors at bay. Seven & I plans to open a net 330 new stores in Japan in the current fiscal year. There is still a vacant street corner somewhere in the country that’s just perfect for another 7-Eleven.

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