Like a skilled practitioner of judo—the Asian martial art stressing balance, leverage, and quick movement—7-Eleven Inc.’s Joe DePinto is attempting to use his opponent’s strength against itself. For the CEO of a company that’s been majority Japanese-owned since 1991, and wholly Japanese-owned since 2005, the analogy is apt for more than cultural reasons. It represents the practical way DePinto is trying to remake this landmark business—and our impressions of it.
With 2008 revenue of $53 billion and more than 36,000 stores worldwide, the Dallas-based icon—it originated in Oak Cliff in 1927 as the Southland Ice Co.—has dominated the convenience-store category ever since its founding. Parent company 7 and I Holdings Co., based in Tokyo, is now “the third-largest retailer in the world,” DePinto says. In the U.S. alone there are 6,271 7-Eleven locations, making the company the leader among chain stores.
As a result, DePinto’s opponent these days is less his competition than a combination of the slumping world economy and 7-Eleven’s own image as convenient—but pricey. He’s confronting both challenges head-on, aiming to keep the well-known company healthy and relevant.
“Simply put, it comes down to affordability and frugality,” DePinto says during an interview in his 10th floor office at the One Arts Plaza building. “There has been a dramatic shift among customers since mid-2008—one in 20 Floridians are on food stamps, for example—so we’re devoting more and more space to value products, regional offerings, and ethnic products. And one of the ways we can meet this need is through our 7-Select brands.”
No fewer than 32 new food items bearing the 7-Select store brand have been launched recently throughout the company’s system, according to Convenience Store News, a trade publication. That should translate into a considerable chunk of new business. Add the many non-food 7-Select offerings already offered and the new products yet to come, and it’s not hard to imagine 7-Eleven becoming a one-brand store, much like the mythical shop in the 1970s TV commercial where Cora (Margaret Hamilton) sold only Maxwell House Coffee.
A recent survey by the Nielsen Co. found that nearly three out of four American consumers believe that store brands are good alternatives to national brands. So, 7-Select may soon have the heft of a national brand itself. But, merely being “just as good as” isn’t what DePinto and crew have in mind.
“When we began to develop products under the 7-Select name, our first and foremost requirement was to create high-quality products that were equal to or better than the national brands,” Kevin Elliot, 7-Eleven senior vice president for merchandising and logistics, explained in a news release. “Focus groups indicated that we exceeded that goal by scoring taste, texture, and flavor profiles higher than the name-brand equivalent in every case.”
Since the 7-Select items are priced 10 percent to 20 percent less than their national-brand counterparts—and since national brands appear to have lost some of their luster lately—how can 7-Eleven miss with this approach? Easily, says Dan Howard, professor of marketing at SMU’s Cox School of Business.
“7-Eleven is thought of as quick and expensive. It’s not a natural fit for a house brand,” Howard says. “For this to work, 7-Eleven needs to change its entire profile to that of a place that’s quick and cheap—and that’s going to take some doing.”
TARGETING YOUNG MEN
DePinto plans to use more than store brands to battle the perception of pricey-ness, though. And he’s dealing from strength here, focusing more and more on the group that’s long been 7-Eleven’s core customer: free-spending males aged 18-24, the guys who already stop by every day to guzzle Big Gulps and frosty Slurpees and pack away Big Bite hot dogs.
Stand outside a 7-Eleven and you’ll see this reality in action: boys and young men leaving with exactly those products. The Big Gulp goes right into the car or truck’s cupholder, and many hot dogs and Snickers bars get eaten before they even clear the parking lot.
But DePinto’s also concentrating on stereotypically “guy” food like pizza and chicken tenders. “Imagine a pizza that’s just as good as anything you can get in a pizzeria—hot and flakey with a crisp crust, a choice of fresh toppings and none of that microwave limpness,” he says. “A fresh pie or a slice that you buy uncooked and bake right in the store. Then you rush it to your house more quickly than any delivery service, and in the process you save a lot of money.”
The CEO is talking about pizza, chicken tenders, and other dishes made possible by the new TurboChef Oven, soon to be rolled out of a testing period in the Chesapeake Bay area of Maryland and Virginia. (There’s also a TurboChef Oven inside the 7-Eleven store at One Arts Plaza, a stone’s throw from the company’s headquarters just off the corner of Routh and Flora streets.)
According to Phil Oftedahl, 7-Eleven’s fresh-food manager for Chesapeake Bay, the rapid-cook oven “combines radiant heat, microwave, and airspeed technology to deliver a traditional baked product 12 times faster than a conventional oven. For instance,” Oftedahl says, “a whole pizza cooks in 90 seconds and a plate of chicken wings in three minutes. This isn’t just reheating a product in a microwave, but actually cooking a product that will turn out hot, moist and toasted or crisped … in the amount of time it takes to ring up the sale and make change.”
DePinto’s looking to make inroads with his core customers in other areas, too. “Besides cold drinks and food, what do they like?” he asks rhetorically. “Sports, movies, and videogames.”
While he’s cut back on actual sports sponsorships in an effort to reduce costs, his stores now are packed with local team-branded merchandise, and his experience as the one-time president of GameStop Corp.—he served in that capacity for most of 2005—has given him keen insight into the world of games and gamers.
As a result, innovations like the spiffed-up oven are coming in videogames and other electronics as well. “We’re already among the sales leaders in this area, with a six-foot section devoted to games right up front in many stores,” DePinto says. “We also sell a lot of pre-paid phones and phone cards, and a pre-paid gaming card is coming soon. Games are apt to stay a staple for us for a good long time, because downloadable games use more bytes than downloadable movies.”
DePinto also is testing “redbox,” a movie-rental machine vaguely reminiscent of a London phone booth, which offers new releases for $1 per night. “Even though downloadable movies are increasing their presence, the rental market at a dollar a day still looks pretty strong, so we’re putting in more and more redboxes,” he says. “We know this market, and that’s why you’ll find 7-Elevens near or on many college campuses. We will continue to expand these.”
Redbox looks to be bad news for struggling Blockbuster, also based in Dallas, where, interestingly enough, Jim Keyes, DePinto’s predecessor at 7-Eleven, is CEO. DePinto’s strategy appears to put 7-Eleven in position to compete against both Blockbuster and Grapevine-based GameStop, where sales rose more than 24 percent last year. Asked how 7-Eleven’s 2008 results compared, DePinto says simply: “We made our numbers last year.”
CHARM AND STEEL
Trim and energetic at 47, DePinto is one of those people with the ability to make you believe that, when he’s talking to you, no one else in the world exists.
The graduate of the U.S. Military Academy at West Point exudes an easy charm, but the competitive steel just beneath the surface occasionally flashes in his eyes. Something about him reminds me of a friend from the 1970s: a soft-spoken Jesuit priest and loving mentor who coached boxing at Holy Cross and who, in the heat of action, would swear a blue streak at his fighters and menace them physically. While DePinto seems universally well-liked among the 100 or so 7-Eleven employees we spoke with in the course of researching this article, it also seems unlikely that any of them would ever cross him.
7-Eleven’s CEO since 2005, DePinto initially devoted himself to growing the business while making structural changes—upping the ratio of franchise stores to company-owned stores from 50/50 to 70/30 over the last three years, for example—and stressing combined distribution centers to streamline logistics and enable faster, more controlled delivery to the stores.
“We’ve turned our logistics system upside down,” he says. “You won’t see suppliers’ trucks outside a 7-Eleven, or delivery men getting in the way as you shop. Our new systems have given us the capacity to add 30 new products per week.”
DePinto also is employing a martial-arts move to minimize another set of costs— real estate rental rates—using the weak global economy as an excuse to drive those rates down. 7-Eleven has begun a comprehensive review of its real estate portfolio to renegotiate leases to bring them in line with current reality: i.e., slumping retail prices, and the company’s plans to add 200 to 250 stores this year, which gives it more negotiating leverage.
Explains Dan Porter, vice president of real estate for the company: “7-Eleven is an investment-grade tenant in expansion mode during challenging economic times. Our objective is to partner with property owners to determine how we both can succeed for the long term and survive these difficult market conditions through lease restructurings, lease-renewal negotiations, and new-site development.”
Meanwhile, the moves that will affect consumers most directly have begun as well.
Step into the One Arts Plaza store, with its airy design and unobtrusive signage, and you can see harbingers of the changes to come throughout the system. Among them: the abundance of fresh and freshly prepared foods, and the number of items—from batteries to bottled water—bearing the chain’s 7-Select house-brand label, including a 7-Select pre-paid cellphone. In front of the funkier Dallas store on Lemmon Avenue at Prescott, you’ll encounter a redbox.
Both the food and the flicks represent DePinto’s having listened to his consumers and gotten to know them, then applying his management philosophy of “servant leadership.”
“Servant leadership might be a current management buzzword, but DePinto lives it,” contends one 7-Eleven employee who says he’s seen the philosophy in action. “Most traditional organizations are a pyramid, with the leadership on the top. Joe’s inverted this, and direction flows upward. The CEO must serve those on the [level] above him, making their jobs easier, that group must serve those above them, and so on until you reach the second level of the pyramid, the people who work in our stores.
“Obviously, the very top level is made up of our customers,” the employee says. “Joe has put this philosophy into action throughout our system. Does it work? The numbers show it, and I’ve never seen a CEO who’s more admired by his people.”
Using a bad economy against itself, playing to one’s own merchandising strengths, nimbly throwing one’s weight around with landlords—all while staying true to one’s philosophy. As with judo, Joe DePinto makes it all seem like a matter of balance.
COMPARISON SHOPPINGIn May, we visited the 7-Eleven store at One Arts Plaza to check some products and pricing. The prices quoted below are a snapshot: accurate, but not accounting for such market variables as package size, sale offerings, and coupons. Warning: the taste conclusions are highly subjective.
Pre-made from cold but not frozen ingredients. $9.99 for a 14-inch pie, choice of cheese or pepperoni. We found the pepperoni to be tasty, bubbly hot, with pull-y cheese, a crisp, medium crust, spicy tomato sauce, and plenty of pepperoni. A single slice costs $1.89.
Will deliver a more or less similar pizza for $15.39, including delivery charge. In our opinion, the Domino’s crust is inferior to 7-Eleven’s. Not available by the slice.
Sal’s Pizza and Restaurant on Wycliff
Sells a pie that is, in our opinion, superior for $10.50 plus tax and tip, if you’re eating in. $2 for a slice.
4-pack 7-Select AA batteries: $3.99
4-pack Duracell AA batteries: $5.69
4-pack Duracell AA batteries: $4.29
Will the 7-Selects last as long as the Duracells? Do we look like Undewriters Lab?
7-Select liter bottle of spring water: $1.39
Liter bottle Ozarka spring water: $1.59
Liter bottle Ozarka spring water: $1.19
7-Select Duplex Crème Cookies: 16 cookies for 75 cents
Oreos: 7 cookies for 79 cents
30 Oreos for $3.99
36 Sophia brand cookies (similar to the 7-Selects) for $1.99
In our opinion, the 7-Selects were almost as good as the Oreos and slightly better than the Sophias. A true Oreo devotee might disagree.
SOME 7-ELEVEN MILESTONES
1927—The Southland Ice Co. is founded in Dallas; Totem Stores introduced
1946—7-Eleven name introduced to reflect the stores’ hours of operation
1963—1,000th store opened; first 24-hour stores introduced
1969—“Oh, thank heaven for 7-Eleven” advertising slogan introduced
1971—First $1 billion sales year; first store opened in Mexico
1974—First store opened in Japan
1980—7-Eleven International opens 1,000th store
1988—Oscar Mayer Big Bite Hot Dogs introduced
1991—Deli Central sandwiches introduced
1995—Company opens its 15,000th store
2000—20,000th store opens (Tokyo)
2002—7-Eleven achieves $10 billion in revenue
2004—7-Eleven opens stores in Beijing, China; company sells Cityplace headquarters building in Dallas
2005—Seven & I Holdings purchases outstanding shares of 7-Eleven Inc. and takes company private; Joe DePinto named president and CEO of 7-Eleven Inc.
2006—Company opens its 30,000th store
2007—Kwik-E-Mart conversion of 12 U.S. and Canadian stores plus marketing of Simpsons products in July leading up to The Simpsons movie becomes biggest promotion in company history; Entrepreneur magazine ranks 7-Eleven Inc. the No. 1 franchise company
2008—Company launches its private-label brand, 7-Select