mpany History and Profile Both Ito-Yokado and Seven-Eleven Japan were founded by Mr. Masatoshi Ito. He started his retail empire after the Second World War when he joined his mother and elder brother and began work in a small clothing store in Tokyo. By 1960, he was in sole control and the single store had grown into a $3 million company. After a trip to the United States in 1961, Ito became convinced that superstores were the wave of the future. At that time, Japan was still dominated by Mom- and-Pop stores. Ito’s chain of superstores in the Tokyo area was instantly popular and soon constituted the core of Ito-Yokado’s retail operations. In 1972, Ito first approached the Southland Corporation about the possibility of opening Seven-Eleven convenience stores in Japan. After rejecting his initial request, Southland agreed in 1973 to a licensing agreement. In exchange for 0.6 percent of total sales, Southland gave Ito exclusive rights throughout Japan. In May 1974, the first Seven-Eleven convenience store opened in Tokyo. This new concept was an immediate hit in Japan, and Seven-Eleven Japan experienced tremendous growth. By 1979, there were already 591 Seven-Eleven stores in Japan; by 1984, there were 2,001. Rapid growth continued (see Exhibit 1), resulting in 10,356 stores by 2004. On October 24, 1990, the Southland Corporation entered into bankruptcy protection. Southland asked for Ito-Yokado’s help, and on March 5, 1991, IYG Holding was formed by Seven-Eleven Japan (48 percent) and Ito-Yokado (52 percent). IYG acquired 70 percent of Southland’s common stock for a total price of $430 million. In 2004, convenience store operations from Seven-Eleven Japan and Seven-Eleven Inc. in the United States contributed 48.2 percent of total revenues and 90.2 percent of total consolidated operating income for the Ito Yokado group. Seven-Eleven Japan contributed 87.6 percent of the total income received from convenience stores by Ito Yokado. Effectively, Seven-Eleven Japan had become the dominant part of the Ito Yokado group. The Convenience Store Industry and Seven-Eleven in Japan As in the United States, convenience stores in Japan provided customers with a variety of products carried by general retailers as well as food retailers. In Japan, the convenience store sector was one of the few business areas that continued to grow during the prolonged 1990s downturn. From 1991 to 2002, the number of convenience stores in Japan increased from 19,603 to almost 42,000. As a percentage of all retail stores in Japan, this represented an increase from 1.2 percent to 3.2 percent. During that period, annual sales at convenience stores more than doubled from just over 3 trillion to 6.7 trillion yen. As a percentage of all retail sales in Japan, this represented an increase from 2.2 percent to 5.0 percent. Japan’s convenience store sector gradually consolidated, with larger players growing and smaller operators shutting down. In 2004, the top 10 convenience store chains accounted for approximately 90 percent of Japan’s convenience stores. As the chains improved their operating structures and better leveraged economies of scale, smaller operators found it hard to compete. Seven-Eleven Japan had grown its share of the convenience store market since it opened. In 2002, Seven-Eleven was Japan’s leading convenience store operator, accounting for 21.7 percent of all convenience stores and 31.5 percent of total store sales. Seven-Eleven was very effective in terms of same-store sales. In 2004, average daily sales at the four major convenience store chains excluding Seven-Eleven Japan were 484,000 yen. Seven-Eleven stores, in contrast, had daily sales of 647,000 yen—more than 30 percent higher than the competition. In 2004, Seven- Eleven’s operating income of 165.7 billion yen positioned it as a leader not only of the convenience store sector but also of Japan’s retail industry as a whole. In terms of growth, its performance was even more impressive. In 2004, Seven- Eleven accounted for 60 percent of the total net increase in the number of stores among the top 10 convenience store chains in Japan. This growth had been very carefully planned, exploiting the core strengths that Seven-Eleven Japan had developed in a) Briefly describe Supply chain strategy of Seven Eleven Japan. b) Briefly describe how Seven Eleven Japan manages its facilities and transportation and discuss the advantages of these facility and transportation decisions. c) Briefly describe how Seven Eleven Japan uses information technology in its operations and discuss the advantages of these information technology decisions.
mpany History and Profile Both Ito-Yokado and Seven-Eleven Japan were founded by Mr. Masatoshi Ito. He started his retail empire after the Second World War when he joined his mother and elder brother and began work in a small clothing store in Tokyo. By 1960, he was in sole control and the single store had grown into a $3 million company. After a trip to the United States in 1961, Ito became convinced that superstores were the wave of the future. At that time, Japan was still dominated by Mom- and-Pop stores. Ito’s chain of superstores in the Tokyo area was instantly popular and soon constituted the core of Ito-Yokado’s retail operations. In 1972, Ito first approached the Southland Corporation about the possibility of opening Seven-Eleven convenience stores in Japan. After rejecting his initial request, Southland agreed in 1973 to a licensing agreement. In exchange for 0.6 percent of total sales, Southland gave Ito exclusive rights throughout Japan. In May 1974, the first Seven-Eleven convenience store opened in Tokyo. This new concept was an immediate hit in Japan, and Seven-Eleven Japan experienced tremendous growth. By 1979, there were already 591 Seven-Eleven stores in Japan; by 1984, there were 2,001. Rapid growth continued (see Exhibit 1), resulting in 10,356 stores by 2004. On October 24, 1990, the Southland Corporation entered into bankruptcy protection. Southland asked for Ito-Yokado’s help, and on March 5, 1991, IYG Holding was formed by Seven-Eleven Japan (48 percent) and Ito-Yokado (52 percent). IYG acquired 70 percent of Southland’s common stock for a total price of $430 million. In 2004, convenience store operations from Seven-Eleven Japan and Seven-Eleven Inc. in the United States contributed 48.2 percent of total revenues and 90.2 percent of total consolidated operating income for the Ito Yokado group. Seven-Eleven Japan contributed 87.6 percent of the total income received from convenience stores by Ito Yokado. Effectively, Seven-Eleven Japan had become the dominant part of the Ito Yokado group. The Convenience Store Industry and Seven-Eleven in Japan As in the United States, convenience stores in Japan provided customers with a variety of products carried by general retailers as well as food retailers. In Japan, the convenience store sector was one of the few business areas that continued to grow during the prolonged 1990s downturn. From 1991 to 2002, the number of convenience stores in Japan increased from 19,603 to almost 42,000. As a percentage of all retail stores in Japan, this represented an increase from 1.2 percent to 3.2 percent. During that period, annual sales at convenience stores more than doubled from just over 3 trillion to 6.7 trillion yen. As a percentage of all retail sales in Japan, this represented an increase from 2.2 percent to 5.0 percent. Japan’s convenience store sector gradually consolidated, with larger players growing and smaller operators shutting down. In 2004, the top 10 convenience store chains accounted for approximately 90 percent of Japan’s convenience stores. As the chains improved their operating structures and better leveraged economies of scale, smaller operators found it hard to compete. Seven-Eleven Japan had grown its share of the convenience store market since it opened. In 2002, Seven-Eleven was Japan’s leading convenience store operator, accounting for 21.7 percent of all convenience stores and 31.5 percent of total store sales. Seven-Eleven was very effective in terms of same-store sales. In 2004, average daily sales at the four major convenience store chains excluding Seven-Eleven Japan were 484,000 yen. Seven-Eleven stores, in contrast, had daily sales of 647,000 yen—more than 30 percent higher than the competition. In 2004, Seven- Eleven’s operating income of 165.7 billion yen positioned it as a leader not only of the convenience store sector but also of Japan’s retail industry as a whole. In terms of growth, its performance was even more impressive. In 2004, Seven- Eleven accounted for 60 percent of the total net increase in the number of stores among the top 10 convenience store chains in Japan. This growth had been very carefully planned, exploiting the core strengths that Seven-Eleven Japan had developed in a) Briefly describe Supply chain strategy of Seven Eleven Japan. b) Briefly describe how Seven Eleven Japan manages its facilities and transportation and discuss the advantages of these facility and transportation decisions. c) Briefly describe how Seven Eleven Japan uses information technology in its operations and discuss the advantages of these information technology decisions.
Management, Loose-Leaf Version
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ISBN:9781305969308
Author:Richard L. Daft
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Chapter8: Strategy Formulation And Execution
Section: Chapter Questions
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mpany History and Profile
Both Ito-Yokado and Seven-Eleven Japan were founded by Mr. Masatoshi Ito. He started his retail empire after the Second World War when he joined his mother and elder brother and began work in a small clothing store in Tokyo. By 1960, he was in sole control and the single store had grown into a $3 million company. After a trip to the United States in 1961, Ito became convinced that superstores were the wave of the future. At that time, Japan was still dominated by Mom- and-Pop stores. Ito’s chain of superstores in the Tokyo area was instantly popular and soon constituted the core of Ito-Yokado’s retail operations.
In 1972, Ito first approached the Southland Corporation about the possibility of opening Seven-Eleven convenience stores in Japan. After rejecting his initial request, Southland agreed in 1973 to a licensing agreement. In exchange for 0.6 percent of total sales, Southland gave Ito exclusive rights throughout Japan. In May 1974, the first Seven-Eleven convenience store opened in Tokyo.
This new concept was an immediate hit in Japan, and Seven-Eleven Japan experienced tremendous growth. By 1979, there were already 591 Seven-Eleven stores in Japan; by 1984, there were 2,001. Rapid growth continued (see Exhibit 1), resulting in 10,356 stores by 2004.
On October 24, 1990, the Southland Corporation entered into bankruptcy protection. Southland asked for Ito-Yokado’s help, and on March 5, 1991, IYG Holding was formed by Seven-Eleven Japan (48 percent) and Ito-Yokado (52 percent). IYG acquired 70 percent of Southland’s common stock for a total price of $430 million.
In 2004, convenience store operations from Seven-Eleven Japan and Seven-Eleven Inc. in the United States contributed 48.2 percent of total revenues and 90.2 percent of total consolidated operating income for the Ito Yokado group. Seven-Eleven Japan contributed 87.6 percent of the total income received from convenience stores by Ito Yokado. Effectively, Seven-Eleven Japan had become the dominant part of the Ito Yokado group.
The Convenience Store Industry and Seven-Eleven in Japan
As in the United States, convenience stores in Japan provided customers with a variety of products carried by general retailers as well as food retailers. In Japan, the convenience store sector was one of the few business areas that continued to grow during the prolonged 1990s downturn. From 1991 to 2002, the number of convenience stores in Japan increased from 19,603 to almost 42,000. As a percentage of all retail stores in Japan, this represented an increase from 1.2 percent to 3.2 percent. During that period, annual sales at convenience stores more than doubled from just over 3 trillion to 6.7 trillion yen. As a percentage of all retail sales in Japan, this represented an increase from 2.2 percent to 5.0 percent.
Japan’s convenience store sector gradually consolidated, with larger players growing and smaller operators shutting down. In 2004, the top 10 convenience store chains accounted for approximately 90 percent of Japan’s convenience stores. As the chains improved their operating structures and better leveraged economies of scale, smaller operators found it hard to compete.
Seven-Eleven Japan had grown its share of the convenience store market since it opened. In 2002, Seven-Eleven was Japan’s leading convenience store operator, accounting for 21.7 percent of all convenience stores and 31.5 percent of total store sales. Seven-Eleven was very effective in terms of same-store sales. In 2004, average daily sales at the four major convenience store chains excluding Seven-Eleven Japan were 484,000 yen. Seven-Eleven stores, in contrast, had daily sales of 647,000 yen—more than 30 percent higher than the competition. In 2004, Seven- Eleven’s operating income of 165.7 billion yen positioned it as a leader not only of the convenience store sector but also of Japan’s retail industry as a whole. In terms of growth, its performance was even more impressive. In 2004, Seven- Eleven accounted for 60 percent of the total net increase in the number of stores among the
top 10 convenience store chains in Japan. This growth had been very carefully planned, exploiting the core strengths that Seven-Eleven Japan had developed in
a) Briefly describe Supply chain strategy of Seven Eleven Japan.
b) Briefly describe how Seven Eleven Japan manages its facilities and transportation and discuss the advantages of these facility and transportation decisions.
c) Briefly describe how Seven Eleven Japan uses information technology in its operations and discuss the advantages of these information technology decisions.
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A
The Seven-Eleven Japan Franchise System
Seven-Eleven Japan developed an extensive franchise network and performed a key role in
the daily operations of this network. The Seven-Eleven Japan network included both
company-owned stores and third-party-owned franchises. In 2004, franchise commissions
accounted for over 68 percent of revenue from operations. To ensure efficiency, Seven-
Eleven Japan based its fundamental network expansion policy on a market-dominance
strategy. Entry into any new market was built around a cluster of 50 to 60 stores supported
by a distribution center. Such clustering gave Seven-Eleven Japan a high-density market
presence and allowed it to operate an efficient distribution system. Seven-Eleven Japan, in
its 1994 annual report, listed the following six advantages of the market-dominance strategy:
1. Boosted distribution efficiency
2. Improved brand awareness
3. Increased system efficiency
4. Enhanced efficiency of franchise support services
5. Improved advertising effectiveness
6. Prevented competitors' entrance into the dominant area
Adhering to its dominant strategy, Seven-Eleven Japan opened the majority of its new stores
in areas with existing clusters of stores. For example, the Aichi prefecture, where Seven-
Eleven began opening stores in 2002, saw a large increase in 2004 with 108 new store
openings. This represented over 15 percent of the new Seven-Eleven stores opened in
Japan that year.
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Geographically, Seven-Eleven has a limited presence in Japan. In 2004, the company had
stores in about 70 percent (32 out of 47) of the prefectures within Japan. However, within
prefectures where they were present, stores tended to be dense. As the 2004 annual report
stated, "Filling in the entire map of Japan is not our priority. Instead, we look for demand
where Seven Eleven stores already exist, based on our fundamental area-dominance
strategy of concentrating stores in specific areas."
With Seven-Eleven franchises being highly sought after, less than 1 out of 100 applicants
was awarded a franchise (a testament to store profitability). The franchise owner was
required to put a significant amount of money up front. Half of this amount was used to
prepare the store and train the owner. The rest was used to purchase the initial stock for the
store. In 1994, 45 percent of total gross profits at a store went to Seven-Eleven Japan, and
the rest went to the store owner. The responsibilities of the two parties were as follows:
SEVEN-ELEVEN JAPAN RESPONSIBILITIES
• Develop supply and merchandise
• Provide the ordering system
• Pay for the system operation
• Supply accounting services
• Provide advertising
• Install and remodel facilities
• Pay 80 percent of utility costs
FRANCHISE OWNER RESPONSIBILITIES
Transcribed Image Text:8:56
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il 5G 60
Provide customer service
Store
Information
and
Contents
store.
(SeeExhibit
2
for
other
financial
Seven-Eleven had 10,303 stores in Japan and Hawaii as of 2003. In 2004, Seven-Eleven
Japan changed the standard size of new stores from 125 square meters to 150 square
meters, still significantly smaller than the size of most U.S. Seven-Eleven stores. Daily sales
at a store averaged 647,000 yen (about $6,100), which was about twice the average at a
U.S.
data.)
Seven-Eleven Japan offered its stores a choice from a set of 5,000 SKUS (stock keeping
units). Each store carried on average about 3,000 SKUs depending upon the local customer
demand. Seven-Eleven emphasized regional merchandising to cater precisely to local
preferences. Each store carried food items, beverages, magazines, and consumer items
such as soaps, detergents, etc. Sales across product categories from 2002 to 2004 are
given in Exhibit 3.
The food items were classified in four broad categories: (1) chilled items including
sandwiches, delicatessen products, and milk; (2) warm items including box lunches, rice
balls, and fresh bread; (3) frozen items including ice cream, frozen foods, and ice cubes; and
(4) room temperature items including canned food, instant noodles, and seasonings.
Processed food and fast-food items were big sellers for the stores. In 2004, processed and
fast foods contributed about 60 percent of the total sales at each store. Over one billion rice
balls were sold in 2004; this amounted to each Japanese citizen eating approximately eight
Seven-Eleven rice balls a year. The top-selling products in the fast-food category were lunch
boxes, rice balls, bread-based products, and pasta. As of February 2004, Seven-Eleven
Japan had 290 dedicated manufacturing plants that only produced fast food for their stores.
Other products sold at Seven-Eleven stores included soft drinks, nutritional drinks, alcoholic
beverages such as beer and wine, game software, music CDs, and magazines.
In 2004, Seven-Eleven was focused on increasing the number of original items that were
only available at their stores. At that time, original items accounted for roughly 52 percent of
total store sales. The company aimed to grow the percentage to 60 percent in the medium to
long term.
Store
Services
Besides products, Seven-Eleven Japan gradually added a variety of services that customers
could obtain at its stores. The first service added in October 1987 was the in-store payment
of Tokyo Electric Power bills. The company later expanded the set of utilities for which
customers could pay their bills in the stores to include gas, insurance premiums, and
telephone. With more convenient operating hours and locations than banks or other financial
institutions, the bill payment service attracted millions of additional customers every year. In
April 1994, Seven- Eleven Japan began accepting installment payments on behalf of credit
companies. It started selling ski lift pass vouchers in November 1994. In 1995, it began to
accept payment for mail order purchases. This was expanded to include payment for
Internet shopping in November 1999. In August 2000, a meal delivery service company,
Seven-Meal Service Co., Ltd. was established to serve the aging Japanese population. In
2001, IYBank Co. was established through a joint investment with Ito Yokado. By April 2004,
A
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