It’s two o’clock on a hot summer night. You are on your way home from your call center job and you need a quick snack before you go to sleep. You also remember that your supply of hair gel and deodorant is near empty. So what do you do?
Go to the nearest convenience store, of course! And chances are, it will be to the 24-hour neighborhood store, 7-Eleven.
In the Philippines, the 7-Eleven chain is the pioneer in 24-hour convenience stores and is also the largest, with 286 outlets nationwide. And although competition is growing, it has maintained its leadership in its market segment during the past 25 years.
The venture started in 1982 when Philippine Seven Corp. (PSC), led by businessman and former Sen. Vicente T. Paterno, acquired from Southland Corp. (now 7-Eleven Inc.) of Dallas, Texas, the license to operate 7-Eleven stores in the Philippines. At the time, Paterno had just left the Marcos cabinet and was looking for a business that didn’t have much to do with the government.
“To him, retail was the perfect choice, especially after seeing 7-Eleven succeed in Hong Kong,” recalls Jose Victor Paterno, the founder’s son, who is the current PSC president and director. “He thought that the 24-hour convenience store concept was something new and different and that it just might capture the needs of the Filipino market.
A RISKY MOVE PAYS OFF
But it looked like such a bad time to venture into a new type of business. The country was still under martial law and was politically unstable, its economy in really bad shape. To make matters worse, Benigno Aquino Jr.’s assassination in 1983 had led to a steady deterioration in the country’s political situation.
Nevertheless, PSC decided to proceed with its 7-Eleven project, opening on February 29, 1984 its first company-owned 7-Eleven store in the corner of EDSA and Kamias Streets in Kamuning, Quezon City. And as things turned out, it was a gamble that paid off.
The name “7-Eleven” actually originated in 1946, when the Tote’m stores in Dallas, Texas, extended their shopping hours from 7:00 a.m. to 11:00 p.m. (The Tote’m stores themselves, which were founded in 1927, got their name from a contraction of the expression “Tote them!”, which means to carry one’s purchases by hand.) Much later, in 1963, the 7-11 stores extended their operation to a full 24 hours in both Austin, Texas, and Las Vegas, Nevada.
Today, 7-Eleven has become the world’s largest operator, franchiser, and licensor of convenience stores, with close to 33,000 stores in 18 countries that offer customers 24-hour convenience seven days a week.
In the Philippines, 7-Eleven’s 197 stores in Metro Manila and 89 in the provinces serve over 300,000 customers daily. Says Operations Manager Liwayway Fernandez: “Most of our customers belong to the C and D class and are 19-35 years of age and predominantly male, but the customer profile varies from store to store depending on its captured market and trade area.”
THE LONG ROAD TO FRANCHISING
7-Eleven focuses on meeting the needs of convenience-oriented customers by providing a broad selection of fresh, high-quality products, speedy services, and a clean and friendly shopping environment. Each store carries anywhere from 1,600 to 2,000 items, with 7-Eleven’s proprietary products Slurpee and Big Gulp—along with beverages and chips—as perennial bestsellers.
PSC had to wait for more than 10 years before it could start franchising 7-Eleven stores in the Philippines. “At that time, the 7-Eleven management felt that to successfully franchise the stores on a wide scale in the country, the company had to be ready in terms of both infrastructure and organization,” says PSC Franchise Division Manager Francis Medina. “It had to first build the processes and systems to support franchised stores and to ensure that our franchisees would have a stable partnership with us. This was why initially 7-Eleven franchised only a few stores. The first, which was owned and managed by the Fiqueroa family, was located at P. Burgos beside Insular Bakery in Makati City.
Paterno explains why 7-Eleven had to go it slow at the start: “Franchisees are independent business people who usually have already achieved a degree of success before joining you—and that can be a double-edged sword. They have the skills but they will also be more demanding, so you really have to be ready to serve them. They have signed on because they expect a proven business model, so you better have one. That’s why it took 7-Eleven over 10 years before it felt it was ready to franchise, and even today we proceed at a cautious pace—only 40 percent of our stores are franchised.”
Of the 286 7-Eleven outlets in the Philippines to date, 159 are owned by the PSC, 66 franchisees are under an FC1 franchise package (these are stores which were originally corporate owned and are now fully converted into franchise stores), and 61 franchisees are under a service agreement package (where owners are given a license to operate a store).
The PSC provides continuing support to its franchisees. To meet its franchisees’ continually increasing needs, it has an operations field consultant who visits each franchisee weekly to help improve sales and resolve issues. It maintains a 24-hour call-support center for stores, and holds weekly senior manager-level coordination meetings to decide on what policies and processes need to be improved or changed.
“Recently, we launched a franchise advisory council—a formal venue for open, constructive dialogue between franchisee and franchiser. We understand that franchisees are a demanding lot. After all, like every good businessperson, they always want to do better, so we do our best to meet their needs,” says Paterno.
For a new store, 7-Eleven charges a fixed franchise fee of P500,000. For operating a store, the fee varies depending on the store’s financial performance. Initially, a new store today would cost around P3 million to put up. For a store to be converted from corporate-run to franchise-run, the required investment ranges from P4 million to P6 million. The package includes the use of the brand as well as the systems, training, initial merchandise, store structure, and other marketing and operational support.
“We are growing fast and we are continuously improving the services we provide to our franchisees,” says Fernandez. “In fact, the number of our franchisees had doubled since last year and we are now planning to extend our franchise base by 10 percent per year. We intend to finish 2007 with around 330 stores and expand at an average of 50 stores per year.”
7-Eleven’s success secrets
For over 25 years, 7-Eleven has stayed at the top of the C-store industry in the Philippines. And despite the growing competition, the PSC has managed to weather the challenges of its industry rivals.
PSC President and Director Jose Victor Paterno shares some of the main reasons for 7-Eleven’s success:
• Timing. “7-Eleven was here first, opening its first store in 1984. People thought we were crazy then, but being first in this business counts a lot.”
• Focus. “Philippine Seven is in the business of running 7-Elevens. It’s all we do.”
• Long-Term View. “We think several years ahead. Take franchising, for example. We only started doing it when we had over 10 years of experience under our belt—we didn’t want to go too fast and get it wrong. It might make our numbers look good in the short term, but there are too many examples of companies who made a mess of things by franchising when they weren’t ready.”