Retail Management 12th Edition by Barry Berman ,Joel Evans

Exercise 20

Case 2: 7-Eleven: A New Focus on the Customer ("the Guest")
In 2006, Joe DePinto, the chief executive of 7-Eleven (www.7-eleven.com), realized that to remain top of mind among consumers, the 7,200-unit chain (with stores in the United States and Canada) had to undergo some major changes. As a result, DePinto developed a new strategy based around what 7-Eleven refers to as "servant leadership."
The key to the overall servant leadership strategy is to place 7-Eleven's customers ("guests") at the top of the pyramid, its employees and store operators in the middle, and its management team at the bottom. This is because the success of 7-Eleven is largely determined by how well it can respond to changing consumer needs. After finding out that its loyal customers were aging, 7-Eleven began to target a younger audience that DePinto calls "millennials." To better appeal to this group, 7-Eleven increased the emphasis on its Slurpee-flavored frozen-drink beverage, as well as its Big Gulp, 32-ounce fountain drink.
7-Eleven also introduced 7-Select, a private-label brand with over 3,000 items. This brand was developed to appeal to price-conscious consumers affected by the recession. According to DePinto, "There was a need for a private-label offering with high quality, strong appeal for consumers, and a sharper retail price point." The 7-Select brand was originally planned as a response to consumer demand for a quick snack at a low cost. The brand was launched with 7-Select chips, expanded to other snack items, and now includes health-and-beauty aids.
Another important aspect of 7-Eleven's consumer-centric strategy is based on an upgraded store image, new hot food offerings, and new lighting. Within a four-year period, over one-half of 7-Eleven's U.S. and Canadian stores were remodeled. Because 7-Eleven sells over one million cups of coffee daily, a vital part of the upgraded image dealt with its coffee bar.
The final essential aspect of 7-Eleven's new strategy involved the balance between corporate and franchise ownership. When DePinto took over as CEO in late 2005, 7-Eleven's North American locations were 50 percent corporate-owned and 50 percent franchise-based. After a management team studied both types of ownership arrangements, it discovered that franchise operators outperformed the company stores and had a closer relationship with their customers (including knowing many customers by name). Currently, 77 percent of the chain's North American stores are franchise operated.
Today, 7-Eleven has also given more autonomy to franchisees based on their superior market knowledge. Franchisees are now empowered to choose roughly 30 new products presented by the chain's category managers each week, to stop stocking slow-selling goods, and to even choose 15 percent of their inventory from local or regional resellers that are not customary suppliers to 7-Eleven. This flexibility enables 7-Eleven's franchisees to better respond to the demographic, lifestyle, and ethnic characteristics of the population surrounding their stores.
At 7-Eleven, the company and the franchisee split a store's gross profits. In contrast, at most franchises, franchisor royalties are based on sales, not franchisee profits. While the traditional sales-based model may generate channel conflict (as franchisors may be more concerned with sales than profits), at 7-Eleven the focus is on cooperation since profits are shared by both parties.
Questions
1. Explain the importance of the 7-Select private-label program in 7-Eleven's consumer-centric focus strategy.
2. Describe the pros and cons of corporate versus franchisee ownership to 7-Eleven.
3. From the customer's perspective, discuss the pros and cons of giving franchisees more autonomy.
4. Why do so few franchise companies tie royalties to sales, not profits Are sales easier to monitor through a retail information system than profits Why or why not