7-Eleven, Inc.

FOUNDED: 1927 as the Southland Corporation

Contact Information:

HEADQUARTERS: 2711 North Haskell Avenue
Dallas, TX 75204
PHONE: (214)828-7011
FAX: (214)828-7848
EMAIL: invest@7-11.com
URL: http://www.7-eleven.com

OVERVIEW

7-Eleven Inc., formerly known as the Southland Corporation, operates the largest chain of convenience stores in the world. The company boasts nearly 21,000 stores operating in the United States, Canada, and 15 other countries around the world. Approximately 6,000 7-Eleven and other convenience stores are operated and franchised by 7-Eleven, Inc. in the United States and Canada alone, and together they serve about 6 million customers daily.

For 7-Eleven, the emphasis is on convenience, with stores and products designed to meet the needs of busy shoppers with fair prices and speedy transactions in a clean, safe, and friendly shopping environment. Among its best-known proprietary products are the Big Gulp fountain-style soft drinks, Slurpee beverages, Café Select fresh brewed coffee, and Big Bite hot dogs. In addition to its own branded products and other nationally known brands, each 7-Eleven outlet offers a variety of convenient services based on the individual needs of the neighborhood in which it is located. Such services include the sale of money orders, long distance phone cards, and lottery tickets in states where they are legal. Most stores also have photocopying equipment available to customers for a small fee, as well as automated teller machines.

Of the company's 5,300 stores in the United States, approximately 3,300 are operated by franchisees, while another 430 are operated by licensees. More than 15,000 7-Eleven and other convenience stores are operated by licensees and affiliates in the countries of Australia, Canada, China, Denmark, Japan, Malaysia, Mexico, Norway, the Philippines, Singapore, South Korea, Spain, Sweden, Taiwan, Thailand, and Turkey, as well as the U.S. territories of Puerto Rico and Guam.

COMPANY FINANCES

Since 2000, 7-Eleven Inc. has shown a somewhat uneven pattern in profits. In 2001 the company posted a net profit of $83.8 million on revenues of nearly $9.8 billion. This was a decline of 22.6 percent from 7-Eleven's 2000 net profit of $108.3 million on sales of $9.35 billion. In 1999, the company posted net income of $83.1 million on revenues of about $8.3 billion. In the 52 weeks ended March 31, 2002, the company's stock traded between a low of $8.25 and a high of $14.00. The company's price/earnings ratio was 13.70.

The company's financial performance in 2001, announced January 31, 2002, narrowly beat Wall Street expectations. However, shortly after announcing its results for 2001, the company revealed its plan to close between 115 and 120 of its convenience stores. Company executives expressed the hope that the announced closures and other belt-tightening measures would add $.05 to $.10 per share to the bottom line for 2002.

ANALYSTS' OPINIONS

Although positively impressed by 7-Eleven's proprietary Retail Information System, most analysts following the company had turned neutral on the company by early spring of 2002. Analyst Mark Husson of Merrill Lynch in February 2002 said that the company's year-over-year decline in earnings was largely attributable to its heavy investments in systems and human resources. Merrill Lynch cut its long term rating for the company's stock from "buy" to "neutral." Husson observed: "While 7-Eleven is a valuable brand, it is unclear when its heavy investments will begin to generate positive (return on invested capital), and we believe management needs to still work out a strategy to translate these into strong earnings growth."

The company's announced intention to continue opening new outlets, as well as its strategies to attract more women shoppers, positively impressed Dennis Telzrow, a retail analyst with Hoak, Breedlove, Wesneski & Company. "The company is doing a lot of new things, and the strategies make sense," he said. "And they're opening new stores, which they didn't do for years." Those sentiments were echoed by Jonathan H. Ziegler, a retail analyst at Deutsche Bank in San Francisco. He said, "This company has the ability to innovate and bring new things to the market. They have quite a bit of proprietary product, and to me that's what retailing is all about."

HISTORY

The convenience store concept was pioneered in 1927 by the Southland Ice Company of Dallas, Texas. That year, one of Southland's visionary employees on the company's ice dock began selling such staples as bread, milk, and eggs in addition to blocks of ice on Sundays and evenings when grocery stores were ordinarily closed. Ice customers, pleased with this new convenience, embraced Southland's expanded product line, increasing sales substantially. Thus, convenience retailing was born.

Southland's first convenience outlets were called Tote'm stores, and several of them were even decorated with genuine native Alaskan totem poles. However, in 1946 the stores' names were changed to 7-Eleven to reflect the chain's new extended hours, operating from 7 a.m. to 11 p.m. each day, seven days a week. More than half a century later, Southland Corporation officially changed its corporate name to 7-Eleven, Inc. in 1999.

Since 1991 IYG Holding Company, a wholly owned subsidiary of Ito-Yokado Company, Ltd., and Seven-Eleven Japan Company, Ltd., has owned a majority interest in the in the chain. Under an area licensing agreement with 7-Eleven, Inc., Seven-Eleven Japan operates more than 8,400 7-Eleven outlets in Japan and Hawaii. As of early 2002, 7-Eleven Inc. operated, franchised, or licensed more than 22,500 stores worldwide and boasted 2001 revenue of nearly $9.8 billion.

STRATEGY

There are four key elements in 7-Eleven's corporate strategy for future growth: increasing same-store merchandise sales; expanding in existing markets; providing greater convenience to customers; and increasing the value of the company's licenses and expanding internationally.

In the area of increasing same-store merchandise sales, corporate merchandising experts work to develop and introduce new products. The company's Retail Information System allows franchisees and individual store managers to evaluate sales on individual products in their inventory, providing an opportunity to analyze sales trends and customer preferences as well as the many factors that affect each of these areas. Using the Retail Information System, store managers are better able to maintain optimal inventory levels and, most importantly, remove slow-selling products from their shelves. This ability to analyze product trends and pinpoint slow-moving products gives the corporate merchandising team the ability to work with franchisees and store managers to increase sales by custom-fitting the product mix to each individual store and its unique customer base.

7-Eleven's store development efforts are concentrated on its core urban and suburban markets, where the company feels there exists a great deal of potential for significant expansion. It announced plans to open 125 to 150 new stores by 2003 in such existing markets. The rationale for tapping the potential in existing markets focuses on the efficiencies that can be achieved by drawing on existing distribution centers, bakeries, and commissaries. Factors considered in the evaluation of potential sites for new stores include demographics, ease of access, population density, traffic volume, visibility, and overall economic activity immediately surrounding the site.

Because it is the granddaddy of convenience retailing, it comes as no surprise that an important element in 7-Eleven's strategy for future growth is to look for new ways in which to provide greater convenience to its customers. The company has been developing and testing its proprietary V.com kiosk program. Eventually, self-service V.com kiosks will be located in many of the chain's outlets, offering check cashing, money orders, money transfer, and traditional ATM services. V.com developers hope that in the future, 7-Eleven customers will also be able to use the service to purchase tickets to major entertainment and sporting events and even pay bills electronically. Most importantly, the company believes these new and innovative services should fuel growth by attracting new customers to its stores.

The last element of the corporate growth strategy focuses on international expansion and attempts to increase the value of licenses. The company feels that it can offer prospective licensees a more attractive financial opportunity through its continuing expansion and broadening of the corporate infrastructure, all of which will strengthen the value of the 7-Eleven brand. Long-range corporate plans envision moving into a number of countries where 7-Eleven, Inc. currently has no presence. Additionally, in late 2001 the company announced plans to look into the expansion of its licensing arrangement in China.

INFLUENCES

7-Eleven has been better able to cope with the inevitable ups and downs of the economy worldwide through the introduction of its Retail Information System, which allows store managers and the corporate merchandising team to closely monitor inventory and consumer buying trends. Additionally, the company has been well-positioned to face the challenge of sudden changes in consumer demand through its daily delivery system.

CURRENT TRENDS

7-Eleven has moved aggressively to add new products and services that meet its customers' needs and to increase the convenience of its stores. To facilitate these additions, the company has undertaken a fairly ambitious investment program to further broaden its infrastructure and technology.

Working in conjunction with systems specialists at Electronic Data Systems (EDS), 7-Eleven in December 2001 opened a "Store of the Future" in Plano, Texas, which is also the headquarters of EDS. The new store, a laboratory for possible future changes that, if successful, may migrate throughout the chain, is loaded with innovative new devices to simplify life for both employees and shoppers. Customers may place orders at a drive-up window. In the back room of the Plano store is an ice machine that automatically fills the store's dispensers without staff intervention. A similar back room device sees to it that the store's soft drink dispensers never run out of syrup. The outlet's 21-spout coffee bar is equipped with airtight dispensers that keep the coffee from burning. Of the company's experiment in Plano, Gary Rose, the company's senior vice president of operations, said, "Whether it's a new fresh sandwich, a better way to provide a great cup of coffee, or a fast way to pay for a purchase, we'll try it all in Plano."

PRODUCTS

Perhaps the one branded product with which 7-Eleven is most closely identified is its "Big Gulp" soft drink beverage. Around for years, the Big Gulp was so branded because of its oversized portions. The company added a new wrinkle to its Big Gulp marketing strategy by allowing customers to customize their Coke, Pepsi, and Dr. Pepper Big Gulps with a splash of cherry, vanilla, or lemon flavoring. The company merchandising team reports that vanilla-flavored Dr. Pepper Big Gulps have proved especially popular.

To meet the ever-changing needs of its customers, 7-Eleven also makes available the Big Gulp Car Cup, which is big enough to hold 32 ounces of the traveler's favorite soft drink and tailored to fit into the cup holder of most cars and trucks. For those who are "truly thirsty," the company markets the Super Big Gulp Cup, which holds 44 ounces of soft drink, and the X-treme Gulp Mug, an insulated mug that will keep 52 ounces of soft drink cold for up to six hours.

Another big seller in 7-Eleven's product lineup is the Slurpee, an icy refreshment that comes in a variety of flavors. Among the most recent flavors being marketed is Mountain Dew. In the Slurpee lineup are the regular Slurpee, the Slurpee Strata Cup, and the Super Slurpee Strata Cup.

Another of the company's popular frozen refreshments is the 7-Eleven Café Cooler Beverage, a creamy, coffee-flavored treat available in such flavors as mocha and French vanilla. Among its wide variety of hot coffee offerings, 7-Eleven's Premium Dark Mountain Roast Coffee, made from a blend of 100 percent Arabica beans, is one of the latest.

In the realm of cash and communications, popular 7-Eleven products and services include prepaid callings cards for both regular and wireless telephones, money orders, and automated teller machines. The company has also introduced V.com kiosks into 100 or so of its stores. These kiosks were developed to meet customers' needs for convenient financial services and are linked into the Internet. In addition to offering the services now available from conventional ATMs, the V.com kiosks offer money orders, money transfers, check cashing, and eventually will be expanded to include bill paying, deposit capability, and event ticketing.

In 2001 the sale of tobacco products accounted for 26.6 percent of total 7-Eleven merchandise sales in the United States and Canada, compared with 26.4 percent in 2000 and 25.8 percent in 1999. Non-alcoholic beverages made up the second biggest segment of total merchandise sales, accounting for 22.5 percent in 2001, unchanged from 2000 and down slightly from 22.9 percent in 1999. Beer and wine accounted for 11.1 percent of total merchandise sales, compared with 10.9 percent in 2000 and 10.8 percent in 1999. Outside of merchandise sales, gasoline sales (not available at all stores) in 2001 accounted for 28.2 percent of total net sales in the United States and Canada; this compared with 29 percent in 2000 and 24.7 percent in 1999.

CORPORATE CITIZENSHIP

In a purposeful effort to be a good neighbor in the thousands of communities the company serves, 7-Eleven, its stores, franchisees, employees, and customers help the less fortunate around them in a wide variety of ways. In 2000, more than $2.3 billion was distributed to charitable programs through in-store fundraising activities, contributions of cash and goods, and local involvement in the programs. Recipients of contributions in 2000 included programs addressing such issues as crime prevention, multicultural understanding, and literacy. Through Harvest, another 7-Eleven program, nearly 800,000 pounds of unsold fresh food items were donated to local food banks.

Also serving the widely diverse needs of the communities in which it operates are the Community Out-reach Programs of 7-Eleven, Inc. In 1999 alone, the company provided more than $3 million in grants to grass roots literacy programs and organizations. Additionally, the company has provided support for disaster relief efforts through the American Red Cross, Salvation Army, and other charitable organizations. Such support came in the form of cash and product donations, services, and volunteers. 7-Eleven also works to promote voter awareness, registration, and participation through its partnerships with the National Association of Colored People, League of Women Voters, and League of United Latin American Citizens (LULAC). Partnered with LULAC's National Education Service Centers, the company sponsors the 7-Eleven/LULAC Youth Leadership Academies in California, Florida, Colorado, and Texas.

GLOBAL PRESENCE

With more than three-quarters of its stores outside the United States, 7-Eleven is a major presence in the international market. The chain is widely represented in Japan with 8,924 stores operated under license. The company has licensed stores in the following countries: Taiwan, 2,908; Thailand, 1,722; South Korea, 1,001; China, 516; Mexico, 328; Australia, 267; Malaysia, 189; Philippines, 161; Singapore, 156; Norway, 63; Sweden, 60; Denmark, 37; Spain, 15; Puerto Rico, 13; Turkey, 10; and Guam, 8.

In the fall of 2001, the company announced plans to expand the development and operation of 7-Eleven stores in China through licensing agreements. The bulk of the company's existing stores in China can be found in Hong Kong and the southern Chinese province of Guangdong. Discussions have been undertaken about entering into a licensing arrangement for at least one additional market area in China with Seven-Eleven Japan, the President Chain Store Corporation of Taiwan, and a local Chinese participant. Seven-Eleven Japan operates almost 9,000 7-Eleven stores in Japan. The President Chain Store is 7-Eleven's current licensee in Taiwan, where it operates more than 2,900 stores.

EMPLOYMENT

At the end of 2001, 7-Eleven, Inc. had on its payrolls more than 33,000 employees worldwide. In recognition of the important role its employees play in its financial success, the company designed a number of new training programs to be introduced in 2002 and subsequent years. Its new staffing model, according to the company's 2001 annual report, "will clearly define a store employee's career path and require mandatory certification of certain skills in order to be promoted." All employees will undergo computerized training in the company's stores, after which they will be tested and certified if they pass. The company's field consultants, each of whom provides support for a group of about eight stores, will be required to undergo a program to ensure that they not only are fully able to manage a store's operations but also able to train new employees in key aspects of those operations.

To further strengthen the company's hiring process, 7-Eleven has introduced new screening tools and new pay scales to improve recruitment and selection of both employees and franchisees. Also planned is an incentive program to grade employees on their execution of five of the company's business fundamentals and reward them according to how well they score. The five business fundamentals are product assortment, quality, service, cleanliness, and value.

SOURCES OF INFORMATION

Bibliography

7-Eleven 2000 Annual Report. Dallas, TX: 7-Eleven, Inc., 2001.

"7-Eleven, Inc." Hoover's Online, 2002. Available at http://www.hoovers.com.

7-Eleven, Inc. Home Page, 2002. Available at http://www.7-eleven.com.

"7-Eleven to Close Up to 120 Stores." Associated Press, 31 January 2002.

Halkias, Maria. "7-Eleven's Window to the Future: Convenience Store Chain Reinventing Itself in Plano." Dallas Morning News, 13 December 2001, 1D.

"Snapshot Report: 7-Eleven, Inc." Multex Investor. Available at http://www.marketguide.com.

For an annual report:

write: Investor Relations, 7-Eleven, Inc., 2711 N. Haskell Avenue, Dallas, TX 75204-2906

For additional industry research:

Investigate companies by their Standard Industrial Classification codes, also known as SICs. 7-Eleven's primary SICs are:

5411 Grocery Stores

6719 Holding Companies NEC

6794 Patent Owners and Lessors

Also investigate companies by their North American Industrial Classification System codes, also known as NAICS codes. 7-Eleven's primary NAICS codes are:

445120 Convenience Stores

447110 Gasoline Stations with Convenience Stores

533110 Lessors of Nonfinancial Intangible Assets

551112 Offices of Other Holding Companies