7-ELEVEN ADDING NEW ITEMS TO CONVENIENCE MIX

CHRISTINA VEIDERS

7-Eleven, Dallas, continues to grow well beyond the beer, beef jerky and pork rind offerings of traditional convenience stores, said James W. Keyes, 7-Eleven president and chief executive officer.

Keyes described a radically different business model for the convenience store operator during the Credit Suisse First Boston Food & Drug Retailing Conference in New York. After a decade of sluggish sales, this new model has produced three consecutive years of sales growth for 21,000-store international chain. As Keyes noted, same store sales have been consistent with 4% to 5% increases generated three years in a row.

7-Eleven posted $1.1 billion in revenue growth last year, a 13.2% increase contributing to total volume of $9.45 billion. Worldwide, sales totalled $29 billion last year. Despite a weakening U.S. economy evidenced in the fourth quarter and year-long volatility in wholesale gasoline prices, U.S. merchandise same-store sales grew by 5.6% for the year. A 120 new stores were added in the U.S. and Canada last year.

"We see selection as one of the fundamentals to be able to satisfy convenience. At the other end of extreme, we see value. Value is almost a joke for most convenience retailers. It doesn't exist. Value is something that with the scale of 7-Eleven we can give our customers," said Keyes.

The retailer is using its size to do what others in a consolidated food, drug and mass merchandising retail environment have done. It is leveraging its strength in scale to lower cost of goods, obtain better buys on merchandise and introduce new products. The company terms this its retail initiative strategy.

"What we defined as retail initiative is leveraging our size and scale to do something with it -- in other words reverse the traditional role at retail from what is historically a push environment," said Keyes.

Under this initiative, 7-Eleven has transformed the distribution system from a push, supplier-distributor driven system to a pull system where the retailer is making decisions on space allocation and product selection within the stores. Under this system, 7-Eleven has introduced new products and services, which it sees as another means to distinguish itself from its convenience store competitors.

"An obsession with new products is what we hope you'll come to see at 7-Eleven," said Keyes. This is because "the needs of convenience store customers are always changing, and you have to stay up with them whether it's with products or services," he added.

Last year 7-Eleven in an alliance with American Express began testing ATM-based kiosks with touch screen Internet access to satisfy customer demand for financial services 24 hours a day. Through the V.com kiosk, customers can cash checks, purchase money orders and send and receive wire transfers, in addition to traditional ATM transactions.

There are currently five units being tested in Dallas. Keyes said 90 units would be rolled out this summer, and it will take about two years before all 7-Eleven stores have the kiosks.

Another key component of 7-Eleven's retail initiative is its new fresh food proposition, with the retailer guaranteeing daily fresh foods delivery. Currently, 3,800 stores are set up to receive fresh food distribution. Keyes said another 800 will be added by the end of the year, with 95% of the chain getting fresh products within the next two years.

The company is also investing in information systems and building an infrastructure that will ultimately link all 21,000 stores worldwide through a buying network. Said Keyes, "That is what we are working toward. At some point, we'll pull this together and it will be tremendous."