As 7-Eleven's Japan owner weighs a bid, U.S. fans crave 'conbini' food

Warabeya Nichiyo Holdings

22/08/2024 10:02

By Rocky Swift and Maki Shiraki
       TOKYO, Aug 22 (Reuters) - Seven & i Holdings  3382.T 
turned the humble 7-Eleven store into a popular food destination
in Japan by serving up fresh sandwiches, rice balls and rows of
boxed lunches, changing how millions of people eat.  
        Five decades after it opened the 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 endangered by a takeover bid from Canada's Alimentation
Couche-Tard  ATD.TO .
    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 hasn't been disclosed and there's no
guarantee a transaction will happen. 
    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 firm's Japanese stores or "conbini"
which number some 21,000.
    "The food quality is much higher, and more unique" at
Japanese 7-Eleven stores than in the U.S., said New York-based
food influencer Jeremy Jacobowitz, who has more than 500,000
followers on Instagram.
    "It makes me nervous that they will mess with what I deem
perfection," he said about a possible buyout. Jacobowitz said he
doesn't receive financial consideration from Seven & i.
    At its Japanese conbini, Seven & i boasts a 27% operating
profit margin, according to LSEG data. But at its overseas
convenience stores, the figure is just 3.5%.  
    Seeing fresh food as key to fixing low U.S. profitability,
Seven & i said this year it is introducing more than 200 food
items in its U.S. stores - some of them distinctly Japanese - a
strategy that has been enthusiastically received by fans on
social media and food-related websites.
    Much of that plan hinges on plants run by Japanese firm
Warabeya Nichiyo Holdings  2918.T , in which a Seven & i unit is
the top shareholder.
    In Texas, it will produce "onigiri" rice balls and "Lone
Star Sliders". In Virginia, it will roll out Japanese-style
sandwiches that use thin and slightly sweet white bread as well
as chicken curry rice bowls.
     
    FOOD-DRIVEN GROWTH
    Conbini have become an essential part of everyday life in
Japan, where people pay bills, send packages and pick up concert
tickets. But it is the food that has been the main driver of
growth.
    Stores get multiple daily deliveries of sandwiches,
onigiris, and pre-cooked meals aimed at consumers 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. 
    One recent innovation at 7-Eleven in Japan: the introduction
of fresher-tasting bread in stores by using a new defrosting
process on bread frozen at the factory.
    "What Seven & i did to make convenience stores work was
logistics," said Michael Causton, the co-founder of retail
research firm JapanConsuming. 
    For the last 24 years, Seven & i has been the
highest-selling retailer in Japan, he said, although it faces
stiff competition from convenience store rivals such as Lawson
and FamilyMart.
    By contrast, foreign retailers have had a poor track record
in making inroads in Japan, one of the world's toughest consumer
markets and analysts wonder what Couche-Tard can bring to the
table in Seven & i's home market.
    "The United States is the world's biggest market and that's
where the synergies will be the easiest to achieve," said Shun
Tanaka, a senior analyst at SBI Securities. "But I don't think
Couche-Tard knows anything about running Japanese convenience
stores."
    
    TEXAS TO TOKYO
    Previously called Ito-Yokado, Seven & i was founded by
Masatoshi Ito, who rapidly expanded it in the postwar 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 it
over in 1991 and now controls more than 80,000 7-Eleven stores
worldwide. 
    Seven & i's Japanese businesses include supermarkets,
big-box "superstores" and a bank. It also operates Denny's
restaurants and Tower Records. 
    It has been targeted by activist shareholders, most recently
ValueAct Capital, for what they say is unnecessary bloat.
    Founder Ito was seen as long against hiving off units. 
    Following his death last year at age 98, Seven & i exited
its apparel business and closed dozens of Ito-Yokado outlets,
making plans to spin off the rest. 
    Couche-Tard could look to allow the Japanese business to
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 for the
exposure of the U.S. gas station business," he said.
    

 (Reporting by Rocky Swift and Maki Shiraki; Additional
reporting by Ritsuko Shimizu; Editing by David Dolan and Edwina
Gibbs)
 ((rocky.swift@thomsonreuters.com;))