🍟 4/3/2023 – 7 Eleven: The Student Becomes The Master
7-Eleven: The Student Becomes The Master
In the 1920s, 2 entrepreneurs started businesses in different parts of the world:
One started an ice business in Texas, the other, a clothing shop in Tokyo.
That ice business would evolve to become 7-Eleven. But the clothing shop? It went on to become the master franchisee of 7 Eleven in Japan, that would eventually acquire the parent company.
Here’s the story on how the student became the master…
In 1920, Toshio Yoshikawa opened the “Yokado Clothing Store” in Tokyo. After many setbacks during the WW2 era, he rebuilt the business with the help of his ambitious nephew, named Ito.
Fast-forward some decades later, and their business had diversified well beyond just clothing. So they renamed the brand to Ito-Yokado, and would list it on the Tokyo Stock Exchange.
Meanwhile in America, a man named Joe Thompson had opened Southland Ice Co back in 1927 in Texas. Mind you, this was before refrigerators existed, so people would buy blocks of ice to put next to their food so it kept cold.
Southland eventually started selling food items with their ice, making them the 1st ever convenience store.
In 1946, Southland rebranded to 7-Eleven after adjusting their operating hours to 7am-11pm. While they’d go on to operate 24 hours a day, in 1946, being open from 7-11 was a big deal. The marketing they leveraged off the back of their operating hours proved valuable.
After starting franchising in 1964, 7-Eleven went public in 1972 to further their expansion plans. Looking to expand globally, 7-Eleven had their sights set on Asia…
7-Eleven 🤝 Ito-Yokado
Ito-Yokado, with their vast retail experience in Japan, was able to acquire the rights for the entire country in 1973. The first 7-Eleven in Japan would open by 1974.
Ito, now fully taken over as the leader of Ito-Yokado, began investing heavily into a computerized point of sales system to integrate into stores. By doing this, 7-Eleven Japan had a massive edge in the convenience store market that led to:
• Rapid information sharing
• Efficient stocking + product placement
• Inventory management + waste reduction
They grew to 1,000 stores by 1980, and roughly $9 billion in revenue by 1988!
In the US, 7-11 was having success as well. They had opened 5,000 stores by 1974, and made some strategic acquisitions:
• Chief Auto Parts – which grew to 465 locations
• Citgo Petroleum – so they could supply gas
But in the late 1980’s, trouble started brewing in America..
Led by Wall Street tycoon Carl Icahn, the 1980s was the heyday of hostile takeovers. 7-Eleven was a prime target, but the Thompson family, the ones who originally started 7-Eleven as Southland Ice Co, refused to sell their family business.
Instead they took on $3 billion in debt to go private just before the 1987 stock market crash. They then sold hundreds of stores & other assets to try and relieve that debt.
But after losing $1.5 billion via debt interest payments, they went fully BUST in 1990.
So who stepped in to save the day? Ito-Yokado
Who stepped in?
The Japan Takeover
In one fell swoop, Ito-Yokado bought ~70% of the company with a $430 million cash infusion. By 2006, with another cash injection, 7-Eleven was made a fully-owned subsidiary.
Thanks to Ito-Yokado’s efficient operations, and year of discipline, they built up high cash reserves, as well as a high asset to debt ratio since they opened that first store in Japan in 1974.
This prudent management allowed them to gobble up the parent company when the opportunity presented itself in 1990.
Today, unlike the US, 7-Eleven in Japan is more than just a convenience store. It’s a place you can:
- Pay bills/taxes
- Grab cash from an ATM
- Buy QUALITY food & drinks
- Buy & print concert tickets
- Utilize bathrooms & public WiFi
- And more
A true 1-stop shop.
Ito-Yokado, now restructured as Seven & i Holdings, is the largest retailer by number of locations in the world:
• KFC: 24k
• Subway: 37k
• Starbucks: 35k
• McDonald’s: 40k
• 7-Eleven: 78,000
No other company even comes close.
Fun Fact: How The Slurpee Got Created
While the story of 7-Eleven is a crazy tale, the invention of the Slurpee also has an interesting twist in the story.
Apparently, the slurpee was accidentally invented by a Dairy Queen franchisee who put soda in his freezer for too long. But customers loved the half frozen state that he served it to them in, so he built a machine that could make them.
7-Eleven licensed the machine in 1965, and the rest is history.
Franchise Sales Look Optimistic for Franchisors Targeting Younger Franchisees
The number of franchised units in the United States is expected to hit 805,000 this year, according to the International Franchise Association’s 2023 economic outlook, that’s a nearly 2 percent increase over last year, or about 15,000 new stores.
Yum! Partners with Investment Firm to Lend $50M to Franchisees
Investment firm Lafayette Square announced Thursday that it’s partnering with Yum! Brands to lend up to $50 million to underrepresented franchisees.
The financing program, called Franchise Fast Start, is for new and existing operators. Lafayette Square said the initiative will help bring diverse ideas to the franchising community and open opportunities for entrepreneurs pursuing multi-unit transactions.
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