By Rocky Swift and Maki Shiraki
TOKYO (Reuters) -Seven & i Holdings turned the modest 7-Eleven store into a popular dining destination in Japan by serving fresh sandwiches, rice balls and rows of box lunches, changing the way millions of people eat.
Five decades after it opened its first store in its home market, the company is on a mission to bring some of its most popular items to the U.S. — a strategy enthusiasts don’t want to see jeopardized by a takeover bid from Canada’s Alimentation Couche. Tard.
Couche-Tard, owner of Circle-K convenience stores, has sounded out Seven & i – which has a market value of $36 billion – about a possible acquisition, the companies said this week. A potential deal value has not been disclosed and there is no guarantee a transaction will occur.
Analysts and industry experts believe Couche-Tard is interested in synergies in North America, where Seven & i has more than 15,000 convenience stores and gas stations, albeit far less profitable than the company’s Japanese stores or ‘conbini’ , which number about 21,000.
“The food quality is much higher and more unique” in Japanese 7-Eleven stores than in the U.S., says New York-based food influencer Jeremy Jacobowitz, who has more than 500,000 followers on Instagram.
“It makes me nervous that they’re going to tamper with what I consider perfection,” he said of a possible buyout. Jacobowitz said he receives no financial compensation from Seven & i.
According to LSEG data, Seven & i has an operating profit margin of 27% at its Japanese conbini. But among overseas convenience stores, this figure is only 3.5%.
Seven & i sees fresh food as the key to solving low U.S. profitability and said it will introduce more than 200 food products in its U.S. stores this year (some of which are distinctly Japanese) – a strategy that has been enthusiastically received by fans on social media and food. -related websites.
Much of that plan depends on factories run by Japanese firm Warabeya Nichiyo Holdings, in which a Seven & i unit is the largest shareholder.
In Texas, it will produce “onigiri” rice balls and “Lone Star Sliders.” In Virginia, it will roll out Japanese-style sandwiches with thin and slightly sweet white bread and chicken curry rice bowls.
FOOD DRIVEN GROWTH
Conbini have become an essential part of daily life in Japan, where people pay bills, send packages and pick up concert tickets. But it is food that has been the main driver of growth.
Stores receive multiple deliveries of sandwiches, onigiri and pre-cooked meals every day, aimed at consumers who are too busy to cook. They also stock fresh fruit including bananas and individual packets of peeled and sliced apple, as well as bread and pastries.
A recent innovation at 7-Eleven in Japan: introducing fresher-tasting bread to stores by using a new defrosting process on factory-frozen bread.
“What Seven & I did to make convenience stores work was logistics,” said Michael Causton, co-founder of retail research firm JapanConsuming.
For the past 24 years, Seven & i has been the top-selling retailer in Japan, he said, although the company faces stiff competition from convenience store rivals such as Lawson and FamilyMart.
In contrast, foreign retailers have a poor track record when it comes to conquering Japan, one of the world’s toughest consumer markets, and analysts are wondering what Couche-Tard has to offer in Seven & i’s home market.
“The United States is the largest market in the world and that is where the synergies will be easiest to realize,” said Shun Tanaka, senior analyst at SBI Securities. “But I don’t think Couche-Tard knows anything about running Japanese convenience stores.”
TEXAS TO TOKYO
Seven & i, formerly called Ito-Yokado, was founded by Masatoshi Ito, who quickly expanded it in the post-war era. In 1973, it licensed the 7-Eleven franchise from Dallas-based Southland Corp and a year later opened the first 7-Eleven in Tokyo.
When Southland went bankrupt, the Japanese company took over in 1991 and now operates more than 80,000 7-Eleven stores worldwide.
Seven & i’s Japanese businesses include supermarkets, large ‘superstores’ and a bank. It also operates Denny’s (NASDAQ:) restaurants and Tower Records.
It has been targeted by activist shareholders, most recently ValueAct Capital, because what they say is unnecessary bloat.
Founder Ito was seen as long opposed to divesting units.
After his death last year at the age of 98, Seven & i exited its clothing business and closed dozens of Ito-Yokado stores, making plans to spin off the rest.
Couche-Tard could try to let the Japanese company operate independently, said James Halse, co-founder of Senjin Capital, a Sydney-based Japan-focused fund.
“Probably the main reason they want Seven & i is the exposure of the US gas station business,” he said.
