Why 7-Eleven is successful in China?

Every day during the lunchtime rush hour, 7-Eleven stores in Shanghai are packed with young urbanites. But they’re not there for cigarettes or magazines. Most of them head directly to the food counter to order their lunch.

Welcome to 7 Café, part of the Japanese chain’s formula for blending a small supermarket with a food and beverage retailer.

The concept isn’t unique to China. 7-Eleven also operates a fast food offering in Thailand, as well as in its home market of Japan. But many of its 1,792 Chinese outlets are now offering shoppers the kind of fare more likely found at a local restaurant than a corner store. Customers queue up for fried eggs with tomato, eggplant with minced pork or (for the more adventurous) Japanese stewed fish-paste on a stick.

Sales have been on an uptick. 7-Eleven’s Shanghai outlets, consistently record double the daily store revenue of their rivals.

Hot food is a major contributor. And according to Southern Metropolis Weekly, 7-Eleven’s food service delivers as much as 60% in margin. As a result, the convenience store chain boasts a 32% gross margin in China, much higher than the industry average.

Why the popularity when consumers can find a quick meal on most street corners? One reason is price. A 7-Eleven lunch box costs around Rmb20. For office workers in city-centres, it certainly offers a cheap and convenient option.

The chain also faces little competition. That’s because most domestic convenience stores do not have the licences required to serve hot food, due to concerns about hygiene and food safety.

Somewhat bizarrely, neither does 7-Eleven (in fact, the chain doesn’t even have a licence to sell magazines), reports Southern Metropolis Weekly.

While the chain has never revealed why the authorities agreed to let it sell hot food without a permit, industry insiders think that it made clear that cooked food and magazines would be part of its offering when it negotiated market access in 1992. If that’s right, the 7-Eleven negotiating team should be hiring itself out at vast expense to other multinationals seeking better China market access.

Another reason for the chain’s success is that it maintains tight control over its franchisees. In fact, to become a franchisee is far from straightforward.

In Beijing, for instance, the terms set out are unbelievably tough, says Beijing Business Today. The franchisee is required to invest Rmb300,000 ($47,600) in the store and 7-Eleven demands that prospective candidates (and at least one relative) serve as full time trainees at other stores for a lengthy period beforehand.

The more sales the franchisees make, the more they have to turn over to the chain. When a franchisee makes monthly profits of Rmb40,000, for example, 7-Eleven can take 56%. The proportion rises to 86% if profits are between Rmb100,000 and Rmb220,000. Franchisees also complain about the long hours and 7-Eleven’s requirement of at least one family member joining the business.

One industry observer says the tight supervision of franchisees is no surprise as 7-Eleven is keen to protect its brand.

Despite the grumbling, many people have willingly signed up. The reason? Given its product range, the chain has carved out a niche for itself. A pretty decent living can be made by store managers. For example, by the company’s calculations for Beijing, as long as the franchisee makes daily sales of Rmb15,000, it will earn about Rmb18,000 a month (versus the capital’s monthly average salary of Rmb4,762).

According to 7-Eleven’s own statistics the average store in Beijing turns over Rmb16,672 each day.

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