7-ELEVEN'S EXTREME MAKEOVER: FRESH-FOODS EDITION 2004-09-20 (1)

David Orgel

Dallas-based 7-Eleven may be closer than ever to changing the U.S. consumer's image of a convenience store.

After a few years of retooling the front and back ends of its stores, the 77-year-old company believes it is on the verge of a real transformation on the fresh-foods side, which carries higher margins than its traditional grocery business. 7-Eleven's moves may have a long-range effect on supermarkets across the country.

The core strategy is to upgrade and expand fresh-foods assortments, and the opportunities are compelling, said Jim Keyes, president and chief executive officer, during a presentation this month at the Goldman Sachs Global Retailing Conference in New York. Right now, fresh foods represent only about 10% of the U.S. business at 7-Eleven, vs. 40% in the retailer's Japanese stores. 7-Eleven operates or franchises about 5,800 stores in the United States and Canada, and licenses about 20,500 stores in 17 other countries and U.S. territories.

Unlike in the United States, in some parts of the world the c-store is a relatively new phenomenon unencumbered by that retail channel's U.S. stereotype of a place for blue-collar males to buy mostly packaged items. In some countries, c-stores are just as likely to attract professional women and stay-at-home moms.

"In the United States, compared to Beijing [a new market for 7-Eleven], we must change 77 years of perception, and we're on our way," Keyes said.

The retailer has been rolling out new or enhanced perishables items in the United States, such as sushi, sandwiches and a new hot coffee and tea program, SN reported recently. Other items targeted for launches or upgrades this year include fast foods, salads and bakery items. 7-Eleven is now using the Austin, Texas, market as a lab for change, broadening fresh-foods assortments and placing those items up front, Keyes said. The results have been noteworthy. Fresh-foods sales more than doubled in stores making the changes. The next step is to incorporate these changes into stores in the Dallas market. "Then, after Dallas, by the end of next year, we'll do a more comprehensive remodel throughout our system," Keyes said.

That's not all. 7-Eleven wants to make sure the changes are sustainable. As it settles on new menus and store designs, it will retrain personnel and certify stores as fresh-foods stores. The goal is to "change the perception of 7-Eleven to a food-service environment," he said.

That change is precisely what Keyes believes will spark a wider variety of consumers to visit the retailer's U.S. outlets.

So far, financial analysts like 7-Eleven's story: not just the fresh-foods side, but also the retailer's comp-store sales growth and the surprisingly strong opportunities for U.S. unit expansion. The fresh-foods strategy will rely on superior execution if it is to succeed. Any concept that works well in a limited test market will be more challenged when it aspires to national rollout. This is especially true of a perishables format.

At this stage, conventional food retailers don't have too much to worry about. Supermarkets have the upper hand in fresh-foods assortments, pricing and one-stop shopping compared to c-stores. But 7-Eleven's plans bear watching. If the retailer gets the formula right and accelerates unit expansion, then it will increase its appeal to shoppers who are attracted by fresher merchandise in a small and convenient footprint.