7-Eleven Transforming Technology
7-Eleven is transforming itself into the JetBlue of the convenience store industry. With an imaginative assortment of fresh foods and a cache of financial and tech-savvy services that belie its low prices, 7-Eleven is emerging as the industry’s cheap-chic hybrid -- somewhere between the local quick mart and Starbucks.
Just as JetBlue made it fun to fly on a shoestring, 7-Eleven is using its size, scalability and national buying clout to redefine convenience with panache and panini sandwiches. Over the last few years, the ubiquitous convenience retailer has extended its image beyond Slurpees and six-packs to appeal to a broader demographic, including businesspeople and women. And, with Vcom kiosks installed in more than 1,000 units, the once-dowdy corner store now represents a distribution opportunity for an ever-growing array of services and digital products.
This ambitious makeover is powered by technology systems that, analysts say, rival those of Wal-Mart. Last year alone, the Dallas-based chain invested $93 million in technology, with a majority of the spend tied to enhancing its proprietary retail information system. Though not all stores have been aesthetically overhauled, the business model has been transformed and the tech underpinnings are in place chainwide.
What’s the payoff?
Today, store managers at each of 7-Eleven’s 5,800 units in the United States and Canada can re-order fresh foods in the morning and replenish their shelves that night. Using the company’s sophisticated systems, store managers have a window into what’s selling, item-by-item and hour-by-hour. They can monitor customers’ buying patterns, react to changing weather forecasts and capitalize on neighborhood happenings.
Backed by a 24-hour supply chain distribution model, it’s now entirely possible for a store manager who finds out on Thursday about the local high school’s “big game” to have enough soda and hot dogs to satisfy the revelers by kick-off on Friday night.
And that’s just one example of the role information systems play in advancing 7-Eleven’s “convenience through technology” strategy. The company uses technology to strengthen its relationships with suppliers and help them predict demand for their products nationwide.
Merchandising gurus mine the piles of data amassed in its enterprise warehouse hoping to spot emerging trends and spark ideas for new product launches. And 7-Eleven is in a league of its own when it comes to local computer-based training of managers and franchisees on operations, ordering, forecasting and merchandising techniques.
“They have a culture of innovation,” says Jim Crawford, vice president at Columbus, Ohio-based Retail Forward. “If something works they roll it out; if it doesn’t they move on. No one comes close when it comes to exploring the notion of convenience and service through technology.”
With a zealous devotion to research and a keen sense of the value of entrepreneurial sagacity, 7-Eleven is rushing headlong toward the Holy Grail of retailing, precisely wedding customer demand with supply and weeding out slow-moving items in favor of fast-moving sku’s. And industry watchers -- from Wall Street analysts to competitive convenience wannabe’s -- are paying attention.
7-Eleven rising
Having just completed its 34th consecutive quarter of same-store sales increases, 7-Eleven executives believe they’re on a roll. Though the company still has some debt from a 1987 leveraged buyout (and a pre-packaged Chapter 11 bankruptcy three years later), executives say the overall balance sheet is healthy and stable -- showing improvements in cash flow and earnings along with steady advances in gross profit margin. Last year the stores rang up revenues of $12.1 billion, a 12 percent gain over 2003.
Executives at 7-Eleven are upbeat about the prospects for future growth based on adding fresh foods and delivering enhanced digital services. And they keep on adding locations.
The company recently opened its 28,000th 7-Eleven store worldwide. Some 1,700 new stores opened around the globe last year alone. With the U.S. arm of the company now implementing best practices from stores operating in Japan, Taiwan and Thailand and restructuring its business model to take advantage of that learning, CEO Jim Keyes is convinced that his team is well on the way to transforming 7-Eleven from a good business to a great one.
“Technology has allowed us to take back our destiny,” Keyes was quoted as saying earlier this year. Indeed, technology has enabled 7-Eleven to transform its business, and the company is no doubt staking its future on technology. Still, executives are vigilant about costs and spending and underscore the “tech for business sake” imperative.
Steering the tech transformation is Keith Morrow, CIO and vice president of information systems for 7-Eleven. Morrow has made significant progress since joining the company in January 2001, positioning 7-Eleven to leapfrog industry leaders on the tech front and winning the admiration of some of the industry’s largest suppliers.
Morrow recalled the meeting he had with Keyes on his first day with the company and the three goals that were set for IT: automate and simplify the stores through technology; leverage technology both in and out of the stores to improve customer service and the customer experience; and deliver quality information at the moment of truth across the different areas of the business to enable fact-based decision-making.
7-Eleven’s Retail Information System collects data from POS terminals and transmits it in real time to an Oracle data warehouse. Using analytics, the data is mined for evidence about customer preference, pricing and new product launches. It also provides store managers with daily, weekly and monthly sales tallies upon which to base their orders.
While employing item-by-item inventory management goes a long way toward improving in-stock positions on basics and monitoring high-potential items, it also allows entrepreneurial-minded operators to tailor assortments in an effort to maximize sales.
“It’s about giving those in the stores the ability to make decisions rather than having decisions made for them by someone off in an ivory tower,” Morrow says. “They’re the ones listening and interacting with the customer. Our goal is to provide the information they need at the time they need it to make decisions store by store and item by item.”
Efforts to leverage technology inside 7-Eleven stores and within the enterprise have been manifested in improved payment technologies, including signature capture, as well as efforts made to speed up transactions. Last year the company overhauled its back-office server architecture and most of the infrastructure in the stores with the ultimate goal of speeding up various processes and giving store operators the opportunity to spend more time interacting with customers.
Tom Madigan, Oracle’s vice president of the retail industry, has been working with 7-Eleven for nearly seven years. He describes the company’s business and IT transformation as “exponential. They have been able to simplify, standardize and globalize business processes and best practices across the organization, and they’ve done it without ever compromising their focus on the customer, the brand and the product.”
Model market program
A key program created by 7-Eleven is called the model market. Intended to assure that store managers understand how to use the data that’s now at their fingertips and are comfortable making it part of their daily routine, the program consists of extensive training in store operations, ordering, forecasting and merchandising techniques.
“They go right to the back office, sign on and take the training needed for a new task,” Morrow says. “Afterward, they are ready to get back on the job.” Morrow reports that sales, gross profit, and inventory management have improved at stores where the model market program has been implemented.
David Gruehn, Microsoft’s industry manager for retail and hospitality, has high praise for Morrow and 7-Eleven. “They want to take convenience to the next level and they have a keen understanding of both the customer and retail technology,” he says. “Morrow gets what’s coming next. We don’t have to convince him that things are changing; if it’s right for 7-Eleven he’ll go after it.” In particular, Gruehn cites Morrow’s responsiveness to electronic payment solutions, vendor collaboration and hand-held inventory management devices.
Another project that has commanded a sizable share of Morrow’s attention is the growth of the services category, including pre-paid cards, lottery sales, ATM services and money orders. Guided by the light of convenience, 7-Eleven’s Vcom self-service financial kiosks, designed and built by NCR, provide consumers check-cashing, money orders, funds transfer and bill payment capabilities, as well as the ability to purchase and reload 7-Eleven’s E-CASH pre-paid MasterCard.
Deploying digital delivery
Earlier this year, the company developed a co-marketing relationship with H&R Block that allows customers to cash their refund-anticipation loan checks at Vcom kiosks.
Exciting as this is, it’s what lies ahead that has the potential to delight shoppers and shareholders alike. With this network in place, the opportunity to explore the digital delivery of other products could expand exponentially. Executives are toying with digital music downloads – the likes of which could rival the nation’s largest electronics retailers.
“Keith is the type of CEO who’s always challenging vendors to bring meaningful solutions to business issues and customer needs, rather than tech for tech’s sake,” says Nelson Gomez, NCR’s vice president of sales for food, drug and convenience stores. “He does a great job of driving quantifiable ROI to every project he touches.”
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Posted by keefner at May 13, 2005 05:54 PM