Convenience stores cling to relevance as on-demand services grow
DALLAS — When consumers can have almost anything delivered from Amazon.com within an hour and order via Dash buttons or through Amazon Echo’s virtual personal assistant Alexa, what does the traditional convenience store still have to offer?
Joe DePinto, chief executive officer of 7-Eleven, has been in charge of the world’s biggest convenience store chain since 2005, during this age of Amazon and credit card-accepting gas pumps that mean no one has to come inside the store.
“The landscape is changing so fast. Yes, there’s Amazon and there’s GrubHub. … It’s all about immediate consumption,” DePinto said. “We have to be prepared and ready in ways that our customers want. And the last four or five years, we’ve had our heads down, grinding it out. And we’re doing a lot of things right.”
He’s focused on what you want to eat when you’re dieting and when you want to splurge. He cares about how much you’ll pay for a single roll of paper towels and that pure alkaline water is a thing with athletes.
Habit: Stopping at the corner store on the way to and from work, school and play is still a habit for many, and 7-Eleven wants to remain as relevant as it was 90 years ago when it got its start in Dallas.
“As long as we don’t all become hermits, there will always be a need to get out, get gas and grab something to go,” said Craig Rosenblum, senior director at food retail consultancy Willard Bishop.
The industry has roughly doubled in size over the last three decades and ended last year with 154,535 stores in the U.S.
7-Eleven “is still the face of the industry,” said Jeff Lenard, vice president at the National Association of Convenience Stores.
Its Slurpees and Big Bite hot dogs have left a good taste in the mouths of millennials. More than 50 percent of 7-Eleven’s customers are millennials, and now they’re old enough to buy beer and wine.
“This generation grew up with a different convenience store,” Lenard said. “Young people see the convenience store as a place where they can pick up a good sandwich. Older generations think of the bathroom key attached to an old hubcap or a block of wood. That’s not as appealing.”
While there are strong regional convenience stores chains, such as Texas-based Buc-ee’s and the East Coast’s Wawa and Sheetz chains, on a national level, it’s a landscape that7-Eleven has owned since it invented the Slurpee in the 1960s.
Testing: Amazon is testing its own convenience store concept, Amazon Go, which has no cashiers or checkout lines.
Like all retailers, DePinto said he’s watched Amazon’s video about its store, which has been viewed 8.4 million times since December. Even Wal-Mart, which has been in the gasoline business since the 1990s, is testing convenience store concepts to add to its pumps across America.
No one expects Amazon to get into the gasoline business, but convenience stores sell Americans 80 percent of their gasoline.
7-Eleven has grown from 29,000 worldwide stores in 2006 to 61,500 in 2016. U.S. store count increased over the last decade from 5,500 to 8,900.
Last year, 7-Eleven’s combined U.S. and Canada sales were estimated at $25 billion, with 60 percent or $15 billion coming from inside the store and 40 percent from gas pumps, according to a recent list of top food retailers from Supermarket News.
Worldwide 2016 sales exceeded $89 billion. All the international licensing in 17 countries, with the exception of Japan, is handled by 7-Eleven in suburban Dallas.
It already has the young millennial customers that all retailers are chasing.
Healthy and cheap are two words that aren’t often associated with convenience stores. But 7-Eleven says it’s doing its best to change that.
DePinto, 54, has fundamentally changed 7-Eleven into a retailer that owned half its stores, to a company supporting stores that are 90 percent owned by entrepreneurs.
“We’re providing independent business owners with the tools to be successful,” DePinto said. “We want them to be strong and proud of the brand.”
7-Eleven started building its private label program in 2004 with a few paper products and batteries. In 2008, it added some snacks, potato chips, candy, nuts and beef jerky.
Now it has 800 proprietary store-branded products. Franchisees can pick and choose from a mix to tailor their stores to their neighborhoods. On average about 15 percent of the items in a 7-Eleven store will vary.
“Healthy and fresh food is a big differentiator,” said Rosenblum. “It’s all about getting people into the store from the gas pumps.”
All retailers are moving towards personalization and customization, he said. “What’s nice for them is they have their own brands and tools, so they’re enabling the store owners to learn more about their customers.”
What they’ve learned is that people are eating five and six times a day.
“They’re snacking,” DePinto said. “The traditional three-meals-a-day has been going away. More than 40 of adults are eating alone and on-the-go,”
Men ages 18-34 are 7-Eleven’s biggest group, but more young women are discovering its fresh foods, almost all labeled with nutritional information. It’s possible to be on a diet and eat at 7-Eleven.
Under the Go!Smart brand are small portions of turkey chili and cornbread, kale and quinoa salads, hummus, nut and fruit snacks. And people get thirsty. Coconut and flavored teas and sodas are hard to keep in stock, DePinto said.
7-Eleven is partnering with premium food suppliers who will work with them to differentiate the mix in their stores, said Sean Thompson, vice president over private brands. 7-Eleven’s private brand sales increased 19 percent in 2014 and 30 percent in both 2015 and 2016.
“7-Eleven is buying Williams-Sonoma level gourmet products from us,” said Jack Praino at Worldwide Gourmet, which created a chocolate caramel covered graham cracker and other sweets for 7-Eleven. “The caramel on those grahams is made with real butter and cream all sourced from the Northwest.”
7-Eleven branded good-for-you and more indulgent snacks have allowed the chain to also lower prices.
On general merchandise, it displays its lower-priced 7-Eleven branded item right next to the comparable national brand: A roll of Bounty, 2-ply paper towels, 70 sheets is $2.99. The 7-Eleven Select brand is $1.49.
In January, 7-Eleven was named top franchise by Entrepreneur magazine. It was the first time in a decade that the company made it to the top of the Franchise 500 list. The magazine said 7-Eleven “has reimagined the convenience store for the 21st century.”
DePinto believes the key to company’s success is its independent store owners together with a corporate staff of 1,300 that delivers franchisees economy of size, technology and innovations that they wouldn’t have alone.
The convenience store industry is consolidating, but it’s still fragmented. More than 63 percent of those stores are owned by single-store operators. DePinto is trying to bring more of those into the 7-Eleven fold.
7-Eleven has made several purchases of regional chains in recent years, and it’s targeting major markets.
A major $4.4 billion merger is pending. San Antonio-based CST Brands Inc. shareholders have agreed to be purchased by Canada-based Alimentation Couche-Tard, the parent company of Circle K.
Technology is a big part of 7-Eleven’s strategy too, but it doesn’t get distracted by it. Drone delivery is one of those ideas that it’s tested but isn’t dwelling on.
It’s testing self checkout with its employees at a store on the ground floor of its new corporate headquarters. The 7Rewards smartphone app is a major marketing tool that independent store owner would be hard-pressed to offer customers who expect to earn freebies from loyalty programs.
7Ventures is a division it formed in 2013 to identify and invest in new technologies that make sense for a convenience store. It’s invested in seven companies so far including KeyMe, an app-based and kiosk startup that’s disrupting the locksmith business.
People have always been able to have food delivered to them as they watch a football game on the couch, said Chris Harkness, 7-Eleven’s vice president of business development and over 7Ventures.
“I wouldn’t give Amazon all the credit for change. Really, what’s driving most of the change is the smartphone and how companies are using it,” he said.
In 2014, 7-Eleven partnered with Postmates, and now has 500 items on the delivery service’s app available in 27 markets.
7-Eleven has concentrated on building its store base in major U.S. markets with dense populations. That makes its stores convenient to delivery services like Postmates. 7-Eleven employees first noticed that Postmate drivers were using their stores to fill orders, Harness said.
Group orders from dorms and office workers are popular with a generation that grew up with Slurpees.
For the record, Harkness said, Los Angeles is the biggest market for Slurpee deliveries.
And that’s one product that Amazon doesn’t carry.