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INFORMATION
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Author:
Date:
January 2004
Abstract:
This case study describes how Seven Eleven Japan (SEJ) has successfully
established an innovative business model that is changing the retail industry in Japan. The case
describes the information-based strategies that have helped SEJ become a top performing retailer
in Japan, selling high quality products through an industry-wide supply chain network. With its
strong capability to analyze customer requirements, SEJ pursues an integrated strategy,
supported by innovative use of information and IT, to control the marketing, merchandising and
manufacturing of original products. The case also describes SEJs development of an integrated
retailing information strategy and associated systems. The companys policy of outsourcing most
IT capabilities to partners and pursuing advanced IT initiatives has provided SEJ with substantial
advantages over competitors. Strategic IT, human and information assets such as store councilors,
item-by-item real-time control, industry-wide IT network, and a sophisticated analysis system
have contributed to SEJs success. The case addresses the challenges of remaining innovative
while sustaining current core competencies.
Key words: Retail, business model, IT and information management, IT enabled strategy,
outsourcing.
22 Pages
This case was written by Kei Nagayama, Management of Technology Program Class of 2003 at MIT Sloan School of Management,
working with Dr. Peter Weill, the Director of the Center for Information Systems Research at the MIT Sloan School of Management. This
case is for the purpose of management education, rather than illustrating or endorsing any particular management practice. The authors
would like to gratefully acknowledge Mr. Toshifumi Suzuki, CEO, Mr. Makoto Usui, Managing Director, and Ms. Yuka Ozaki, Mr. Usuis
assistant, at Seven-Eleven Japan, Co., Ltd., in completing and publishing this case. This case may be reproduced free of charge for
educational purposes provided the copyright statement appears.
2004 MIT Sloan Center for Information Systems Research. All rights reserved to the authors.
Seven-Eleven Japan
Franchise Strategy
From the beginning Suzuki did not invest in
American style greenfield stores, where the
franchiser buys the walls or builds the store from the
ground up. Approximately 60% of SEJ stores were
modified from old family owned stores (e.g., liquor or
rice stores). The relationship between franchiser and
franchisee is one of reciprocal obligations. The
franchisee is an independent business which gives
SEJ royalties and a long-term commitment, and
concentrates on the tasks of selling and effectively
managing inventory. The royalty that the franchisee
pays to the franchiser is 43% of its gross profit.
Although high compared to competitors, it covers
many items such as the trademark licensing fee, 80%
Page 6
Operation Infrastructure
Total Information Systems
Beginning with its first store system in 1978, SEJ
has continued to develop total information systems.
In June 1999, the fifth generation total information
system, in which SEJ invested 60 billion ($500
million), was released in collaboration with 14
companies including NRI, NEC, Toshiba TEC, etc.
(Exhibit 9). The system has four major features
explained below.
Public, civil and regional services: SEJs meals-onwheels service, named Seven Meal Service, offers
prepared meals and cooking ingredients to regional
customers. Order can be made via the Internet. SEJ
plans to expand its public services at stores via its EC
platform so that customers can obtain civil services.
Competitors
SEJ is the largest CVS chain in Japan in terms of the
number of stores, sales, and net income followed by
Lawson, C&S, Familymart, and Ministop. These
top-five companies dominate the market with almost
90% market share (Exhibit 12). All four competitors
operate franchise businesses with store networks
expanding all over Japan.
Temperature-Separated Combined
Distribution System
Since 1976, SEJ has been developing a streamlined
distribution system to efficiently integrate product
supplies. The company established the Combined
Delivery System, whereby the same kind of products
coming from different suppliers can be centralized
into 223 Combined Delivery Centers (CDCs). The
combined distribution system allows products from
different suppliers to be loaded on the same trucks
for delivery to Seven-Eleven stores. Combined
distribution consolidates product shipment from
manufacturers to stores at similar optimum
temperatures. In 22 years, SEJ has reduced the
average number of vehicles visiting each store from
70 a day in 1974 to ten a day in 1998 (Exhibit 11).
This effort contributes not only to the efficiency of
delivery but also reduces truck emissions and traffic
congestion.
Future Vision
The Japanese retail industry has recently faced
severe external pressures: consumer recession,
deflation, the threat posed by specialty stores, and
vigorous participation by foreign retailers. Can SEJ,
which has pursued customer satisfaction for 30 years,
sustain its advantage in future?
The company strives to achieve the maxim the
retail business should always keep up with change of
customer demands with three principles.
Page 8
Exhibit 1
SEJ Customer Profile
Frequency of Store Visits
En route,
17%
Other,
14%
Intended
store visit,
36%
Every day,
18%
While
going out,
Before
23%
returning
home,
24%
4-5 times
per week,
15%
2-3 times
per
month,
8%
Once per
week,
14%
2-3 times
per week,
31%
Other, 9%
Married
women,
20%
Single
women,
17%
Single
men,
36%
11-30
minutes,
19%
Less than
3
minutes,
32%
6-10
4-5
minutes,
minutes,
17%
23%
Married
men,
27%
Page 10
Exhibit 2
Top 15 ranked by market value in retailers
2003
[2002]
1 [1]
2 [2]
3 [5]
4 [3]
5 [6]
6 [4]
7 [19]
8 [7]
9 [9]
10 [10]
11 [12]
12 [16]
13 [13]
14 [24]
15 [26]
Company
Wal-Mart Stores (U.S.)
Home Depot (U.S.)
Lowe's (U.S.)
Walgreen (U.S.)
Carrefour (France)
Target (U.S.)
Ebay (U.S.)
Seven-Eleven Japan
(Japan)
Tesco (U.K.)
Kohls (U.S.)
Sysco (U.S.)
Hennes & Mauritz
(Sweden)
Costco Wholesale (U.S.)
GAP (U.S.)
Inditex Industria de
Diseno Textil (Spain)
Market Value
(million US$)
$229,658
$56,655
$31,878
$30,214
$27,124
$26,591
$26,332
$21,721
EPS
(US$)
1.49
1.30
1.33
1.00
2.13
1.57
0.89
0.83
Sales (2002)
(million US$)
217,799
53,553
22,111
28,681
75,031
39,176
1,214
3,241
$20,334
$19,078
$16,709
$15,332
0.19
1.48
1.03
0.81
37,367
7,489
23,351
5,369
1,311
496
680
671
$13,687
$12,808
$12,100
1.54
(0.01)
0.60
37,990
13,848
3,548
700
(8)
371
Page 11
Exhibit 3
Japanese Retail Industry
Thousands
10
11
15
16
354
349
1,200
409
397
1,000
800
600
1,136
1,059
983
1997
1999
887
400
200
0
1994
1-4 employees
5-49 employees
2002
over 50 employees
Number of Stores
357
1,672
37,037
41,769
14,673
66.163
1,136,143
2,229
1,300,043
% of Total Stores
0.0%
0.1%
2.8%
3.2%
1.1%
5.1%
87.4%
0.2%
100.0%
Annual Sales
( billions)
8,021
8,917
23,631
6,714
2,496
6,808
78,308
230
135,125
% of Total Sales
5.9%
6.6%
17.5%
5.0%
1.8%
5.0%
58.0%
0.2%
100.0%
(Source: Japanese Ministry of Economy, Trade and Industry, Report on 2002 Census of Commerce)
Page 12
Exhibit 4
Seven Eleven Japan Consolidated Financial Summary
For the fiscal years ended
February 28/29
Revenue from Operations
( millions)
Ordinary income
( millions)
Net income ( millions)
Net income per share ()
Number of stores
For the fiscal years
ended February 28/29
Total Store Sales
Revenue from
Operations
Net income
Capital expenditure
Depreciation and
amortization
1997
1998
1999
2000
2001
2002
2003
263,102
286,916
308,903
337,287
358,446
384,416
424,091
105,014
112,076
117,211
141,738
148,292
148,507
153,769
58,409
70.1
6,922
61,008
73.2
7,362
62,390
74.9
7,780
71,831
86.2
8,203
80,192
96.2
8,661
81,716
98.3
9,116
82,825
100.6
9,743
2003(Thousands
of US dollars)
$18,883,212
3,594,000
701,915
525,754
233,009
90,000
80,000
70,000
60,000
50,000
100.0
80.0
60.0
40,000
30,000
20,000
10,000
0
40.0
20.0
0.0
1997 1998
1999
2000 2001
Page 13
2002 2003
(Sou
rce:
Seve
and
Exhibit 5
Seven Eleven Japan
Average Stock Turnover Time, Daily Sales and Gross Margin per Store
Page 14
Exhibit 6
Original Products by Team Merchandising
Exhibit 7
Store Location and Network
Page 15
Exhibit 8
Franchise System of Seven-Eleven Japan
Collaboration
SEJ (Franchiser)
Sharing of
Gross Profit
Role
Assignment
Page 16
(Source:
Seven
Eleven
Japan)
Exhibit 9
Total Information System
Page 17
Exhibit 10
EC Platform
Service
Centers
Support
Service
ItoYokado
Group
SevenEleven
Distribution
EC
Enterprises
ATM
Settlement
Multimedia Terminal
Platform
Database
Service Center
PDA
Authentication
Cell phone/PC
Channel
Automobile
Television/PC
Contents
Digital Broadcasting
Platform
Partners
IT Partners
Channel
Mix
Coordination
based on
Web sites
Contents
Providers
EC Partners
Page 18
Customers
Exhibit 11
Distribution System
Number of Deliveries per Day
80
70
Deliveries
60
50
40
30
20
10
Page 19
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
Exhibit 12
Composition of major CVSs in Japan
Total Stores Sales (2003)
(million yen)
Other
CVSs,
1,146,472,
17%
Mini Stop,
239,155,
4%
C&S,
891,889,
13%
Family
Mart,
931,808,
14%
SevenEleven
Japan,
2,213,298,
33%
Mini Stop,
1,605,
4%
Other
CVSs,
10,595,
26%
C&S,
6,241,
15%
Law son,
1,291,030,
19%
SevenEleven
Japan,
9,690,
23%
Lawson,
7,625,
Family 18%
Mart,
6,013,
14%
Exhibit 13
Synergy of Demand Chain and Supply Chain Management
Roles of Retailers
Page 20