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Japanese parent of 7-Eleven plans a bigger bite of U.S. market

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Bloomberg News
Published:
TOKYO - For 39 years, Toshifumi Suzuki has expanded 7-Eleven to 50,000 outlets, more than any other retail chain. Now, at 80, he has no interest in retiring. He's got too much work to do.
"I'm not thinking about it at all yet," said Suzuki, chief executive of Japan's Seven & I Holdings, global owner of the home of the Slurpee.
High on Suzuki's to-do list is a renewed focus on the United States, where the chain was founded 86 years ago when a Dallas ice maker began selling eggs, bread and milk. Suzuki opened Japan's first 7- Eleven in Tokyo's bayside Toyosu district in 1974 and built the brand into Japan's biggest convenience store chain. Then in 1991, after 7-Eleven brand owner Southland Corp. filed for bankruptcy, he bought the mother company.
He has since expanded 7-Eleven into 16 countries, from Indonesia to Denmark. In North America, growth has been modest, with about 8,500 stores today versus some 7,300 when Southland failed. Suzuki says that with the right management and expansion strategy, that number could increase to almost 30,000.
"Our U.S. business has entered the growth stage," Suzuki said at company headquarters. "We will raise the quality of stores" and continue acquisitions.
His 15,218 Japanese outlets sell an average of $8,000 per day, versus about $4,500 for American stores, the company says, but Suzuki said he can't simply clone his Japanese business.
"American 7-Eleven has to do things that satisfy American consumers," he said. "So I don't tell them to do things exactly how we do them in Japan."
Suzuki has made his company more profitable than retail giants Wal-Mart and Carrefour, according to data compiled by Bloomberg. Seven & I had an operating margin of 7.13 percent for the fiscal year ended February, while Wal-Mart had 5.93 percent and Carrefour had 2.79 percent in their latest fiscal years.
7-Eleven Inc., the retailer's U.S. convenience store unit, says it expects a record operating profit of $540 million this fiscal year, a 13 percent increase from last year. The parent Seven & I, which also operates Ito-Yokado supermarkets in Japan and other retail businesses, is predicting operating earnings to rise 15 percent to 340 billion yen, a record for the third straight year.
The stock has jumped 54 percent this year while rival Wal-Mart has risen 14 percent and Topix index is up 34 percent. Three-quarters of analyst ratings on the stock are "buy," the highest level since 2009, according to data compiled by Bloomberg.
Suzuki regularly visits 7-Eleven stores to buy and check merchandise.
His mastery of the convenience store trade is unchallenged in Japan, but for Seven & I "the biggest challenge is the supermarket business," said Takayuki Kito, a consultant in Tokyo with Roland Berger Strategy Consultants. Ito-Yokado is "facing a very difficult situation in terms of the ability to pull in customers."
Ito-Yokado's biggest problem is apparel, Kito said. "They display clothing just like food or daily necessities as opposed to selling fashion, so it's not very sexy," he said. Operating profit at Seven & I's supermarket division fell 21 percent to 25.5 billion yen for the year ended in February.
In Japan, 7-Eleven opens stores in clusters to streamline logistics and ensure fresher produce. The company says it wants only outlets that it can supply from distribution centers within three hours, and it has stolen customers from supermarkets by offering more fresh food, bento lunches and private label goods.
Suzuki, who at first imagined a life in politics, doesn't worry about critics and said he rarely hesitates to follow his instincts.
"When I first decided to bring 7-Eleven to Japan, everybody said it won't succeed and opposed the idea - executives, university professors, consultants, all of them," said Suzuki, who owns a 0.57 percent stake in Seven & I valued at about $200 million and is one of Japan's most influential businessmen. "I knew they were wrong."
"He knows how to take risks," said Seven & I adviser Mitsuo Goto.
Goto recalled that many around Suzuki opposed his idea of Seven Bank Ltd., a financial services unit started in 2001. In the past five years, net income of the business, which gets almost all its revenue from fees charged at ATMs inside 7-Eleven stores, has jumped 40 percent.
Seven & I started selling online in 1999, and its Internet business had sales of about 100 billion yen in the fiscal year ended February, with a goal of 500 billion yen in Web sales by fiscal 2016.
"Online has the largest growth potential," Suzuki said. "We have to put a lot of effort into it, or we'll fall behind the times."

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