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Monday, January 3, 2011

7-Eleven - Case Study

Story Telling:

7-Eleven Japan: A Technology Company with Convenience Stores


Ito-Yokado Company is Japan's most profitable retailer. In 1974, Ito-Yokado bought the franchise rights to 7-Eleven in Japan from Southland Corporation (Houston, Texas). The first 7-Eleven store opened in Japan in May 1974, and by 2000 the Japanese franchise had grown to over 6000 stores. In the meantime, 7-Eleven parent company – Southland – was also expanding its operations. However, heavy dept forced it to seek bankruptcy court protection from its lenders. In an attempt to raise cash, Southland was forced to sell assets. In 1990, Ito-Yokado Corporation purchased 70 percent of Southland Corporation (see 7-Eleven history).

While 7-Eleven in the United States was losing a considerable amount of money, 7-Eleven Japan made over 40 percent profit on sales. Such high level of profit is extremely unusual, not only in Japan but also in other countries. What enabled a franchiser of 7-Eleven to achieve such a high profit margin while its parent company was filing bankruptcy? The answer is a consumer-focused orientation based on information technology.

In the early 1990s 7-Eleven Japan created a $200 million information system for its stores. The purpose of the system was to (1) discover who the customers are and what they want and (2) create a sophisticated product-tracking system.

The information system is also used for other purposes, such as monitoring inventories. By implementing the just-in-time approach, in which inventory arrives at stores just as it is needed, a minimum inventory is kept on the shelves. This reduces the cost of investing in and keeping inventory, as well as the cost of spoilage. Also, because stores know customer's preferences, they seldom run out of stock. In addition, most stores have arrangements with their suppliers for quick delivery of products they sell, and so they do not need large inventories. Other uses of the information system are to (1) electronically transmit orders to distribution centers and manufacturers (via satellite), (2) determine which products to keep in each store (70 percent of the products are replaced each year), (3) determine how much shelf space to allocate to each product, and (4) track employee performance (for rewarding high performers).

In addition, the company maintains a high level of quality. A team of 200 inspectors visits 7-Eleven stores regularly. Even the company's president occasionally drops into stores incognito to check quality. Quality control data are collected and analyzed continuously by a computerized decision support system at headquarters. Brands that do not meet strict quality requirements are immediately discontinued. Quality is extremely important in Japan, where fresh hot meals are sold at convenience stores.

As a result of its information system, 7-Eleven Japan has extensive knowledge of its market. It maximizes sales in limited space and optimizes its inventory level. Also knowing exactly what the customers want helps the company to negotiate good prices and high quality with its vendors, who support the just-in-time approach. (About 20 manufacturers have special factories that make only or mostly 7-Eleven products).

7-Eleven Japan has also created a time-distribution system that changes the product mix on display in its stores at least twice a day, based on careful and continual tracking of customers' needs. The company knows that consumers' needs in the morning are completely different from those in the evening. So the system allows them to display the most appropriate items at different hours of the day.

In late 1997, 7-Eleven was the first convenience store chain to introduce Internet access terminals in their Seattle area stores. These terminals allow customers who do not have computers to access the Internet by paying a user fee to 7-Eleven. In 1998 it introduced a computerized system to track inventory and forecast sales in the United States. In 1999 it introduced multimedia-based Internet kiosks in its Japanese stores for ordering from the stores' site, with capabilities to pay for the goods in the stores. The stores are also used as a receiving station for the merchandise ordered.

Based on Minicase 2 of Chapter 3, in "Information Technology for Management - 3rd Edition", by Turban, McLean, Wetherbe.
Ito-Yokado Group
7-Eleven Japan
7-Eleven USA

Coursebook Sections
Related Chapter: "Strategic Information Systems for Competitive Advantage"


- IT in Strategic Management, Competitive Intelligence

- Reengineering

- Response Strategies

- Porter's Value Chain Analysis Model

- Porter's Competitive Forces Model)

Presentation Slides

The Role of IT

Response Strategies (1)

Response Strategies (2)

Porter's 5 Forces Model

Porter's Value Chain Model


Further Reading

Porter's Five Forces Model
Porter's Generic Strategies
The Value Chain

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