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Is a “giant” convenience store operator with more than 100,000 convenience stores worldwide coming?

Recently, the news that Japanese convenience store company 7-Eleven may be acquired has caused a huge shock in the retail industry. It is reported that Canadian convenience store giant Alimentation Couche-Tard Inc. (hereinafter referred to as ACT) has made a preliminary acquisition offer to 7-Eleven's operating company Seven&i Holdings (hereinafter referred to as Seven&i).

On August 19, Seven&i, the parent company of Japanese convenience store 7-Eleven, issued an announcement confirming that it had received a confidential, non-binding preliminary proposal from ACT to acquire all issued shares of the company.

Wang Qi, the founder of retail Qipashuo, who has been in the industry for more than 20 years and has worked for well-known domestic and foreign retail companies and has rich experience in offline retail, was surprised by the acquisition news: "This acquisition is a big deal for the whole of Japan."

Some industry insiders also said that at present, only a company has issued an invitation, and it does not involve acquisition. This is indeed the case, but the news still arouses widespread concern in the industry: If the global convenience store industry leader is acquired, what will it mean to Japan, the global convenience store and retail industry?

Seven&i's net profit plunged 49% in the latest quarter

The announcement stated that the Seven&i board of directors has formed a special committee of the board, composed of independent external directors and led by chairman of the board Stephen Hayes Dacus, to review the proposal and then respond to ACT. At present, neither the board of directors nor the special committee has decided to accept or reject ACT's proposal, discuss with ACT or seek any alternative transactions. When the company decides or has matters to disclose, it will announce it in a timely manner.

According to public reports, Couche-Tard has approached Seven&i and tried to discuss a transaction over the past two years.

Public data shows that ACT's business covers 31 countries and regions, with more than 16,700 stores, mainly under the two convenience store brands of Couche-Tard and Circle K. In 2020, Couche-Tard entered the Asian market for the first time and acquired the Hong Kong branch of Circle K HK, but the store has not yet been opened in the mainland. As of August 19, Alimentation Couche-Tard's market value on the Toronto Stock Exchange was approximately US$58.5 billion.

The financial report shows that in North America, Seven&i completed the acquisition of Speedway, a convenience store brand of the US gas station group, for US$21 billion in August 2020. After that, the total number of 7-Eleven stores in the United States and Canada reached about 14,000. Globally, 7-Eleven operates 85,000 convenience stores in 19 countries, and the company plans to expand to 100,000 stores in 30 countries and regions by 2030.

7-Eleven convenience stores were first established in the United States. Its predecessor was the Southland Ice Company, which was established in 1927. In 1973, Japan's Ito Yokado Corporation obtained the development rights of 7-Eleven in Japan, and then opened the first 7-Eleven convenience store in Japan in 1974. In 1991, the Southland Corporation in the United States experienced a financial crisis, and Ito Yokado took the opportunity to buy most of the shares of the company, thereby controlling the 7-Eleven brand. In 2005, Ito Yokado established a new holding company, Seven&i Holdings, to unify the management of Ito Yokado, 7-Eleven INC. in the United States, and 7-Eleven Japan, further consolidating its control over the 7-Eleven brand.

Seven&i's latest financial report (March 1 to May 31, 2024) showed that Seven&i's net profit fell 49% to 21.39 billion yen in the quarter, far below analysts' average expectation of 41.73 billion yen.

The company said that Japan's population decline, the intensification of the aging trend of low birth rate, rising prices and falling real wages, and polarized consumption have always been problems faced by 7-Eleven. The company has also tried to expand the categories needed by the market and provide new shopping experiences to increase the frequency of customer visits to stores, but judging from the financial report, the results have been unsatisfactory.

The financial report also mentioned that the consumption polarization in the North American market has intensified, and the middle and low-income groups have become more cautious about consumption, which has also affected performance.

The acquisition plan is still in the very early stages

Starting in August 2020, Buffett invested in Japan's five largest trading companies through his company Berkshire Hathaway, with an investment amount of US$6 billion at the time. Some analysts believe that the essence of Buffett's investment in Japan is to invest in the global assets accumulated by Japan overseas over the past 40 years. In addition to Buffett, European and American mergers and acquisitions fund companies have also begun to make huge investments in Japanese companies.

If the acquisition proposal is realized, it may be Japan's largest overseas acquisition in history and will also create the world's largest convenience store operator.

Lai Yang, member of the Expert Committee of the China General Chamber of Commerce and executive vice president of the Beijing Society of Business Economics, told the Daily Economic News that there are many reasons for wanting to acquire the company. Investors are optimistic about development and pure capital operation are all possible. This includes that investors believe that 7-Eleven is currently a value trough and has great appreciation potential in the future.

The acquisition is still in its early stages, but has already attracted widespread attention from the market. Industry insiders believe that it is still unknown what the final outcome of the acquisition will be.

Wang Qi, who currently lives in Japan, told reporters that although 7-Eleven's net profit fell sharply in the just-concluded new fiscal quarter, it is still a good company. "As the leader of the convenience store industry, 7-Eleven has always led the world, especially in Southeast Asia and China. In fact, many convenience stores in our country have the shadow of 7-Eleven. 7-Eleven has a great impact on convenience stores and even the entire retail industry."

"Judging from the reaction from the Japanese side, both colleagues and consumers are quite pessimistic about this matter. As the yen is depreciating now, if a company is acquired by an overseas company, its efficiency may be higher, but the richness of products and friendly service with traditional Japanese characteristics may be lost. Consumers are worried that they will lose such a good living platform," Wang Qi believes.

Wang Qi said that the Japanese business community is worried that once the trend starts, more and more overseas capital will acquire Japan's high-quality retail companies. "This not only involves the company level, but may also involve the national level. I don't know whether the government will intervene in the future."

Lin Xin, visiting professor at Shanghai Jiao Tong University's School of Continuing Education and a senior convenience store industry expert, told the Daily Economic News that even if an acquisition agreement is reached, the acquisition may face obstacles from trust competition supervision.

Whether or not the acquisition will not affect 7-Eleven stores in China

The current development of the convenience store industry is far from reaching its ceiling. Lai Yang told the Daily Economic News reporter that judging from the development in recent years, the global convenience store industry has grown steadily, the impact of e-commerce has been relatively limited, and the demand for convenience stores is strong.

According to a report by the China Business Industry Research Institute, the global convenience store market size will reach US$1,255.5 billion in 2024, and by 2028, this figure will further increase to US$1,822.2 billion.

7-Eleven's operations in China are relatively scattered. Dairy Farm International is responsible for operations in southern China, Uni-President Chain Store is responsible for operations in Shanghai, and operations in other regions are operated by 7-Eleven Japan in a joint venture or wholly-owned model.

An industry insider told the reporter that even if Seven&i is acquired, it will not have any impact on domestic 7-Eleven stores as long as they are within the contract period.

According to the TOP100 Chinese Convenience Stores in 2022 released by the China Chain Store Association, 7-Eleven has 3,319 stores in China, ranking eighth overall; it ranks second among foreign brands, surpassed by Lawson Convenience Store.

Domestic convenience store brands have been growing rapidly in the past few years. However, Lai Yang believes that the main reason behind the rapid development of convenience store formats in China in the past few years is capital-driven. "Capital is willing to expand the scale first. Therefore, convenience stores have developed rapidly in the past few years, but such scale expansion is not based on profitability. When it becomes difficult to return on investment, this capital-driven model may collapse. Therefore, several convenience store brands in China have been shrinking in recent years."

As far as the current form of convenience stores in China is concerned, industry experts believe that the development of domestic convenience stores is more like a smaller version of "supermarkets". However, in the global market, the reason why the convenience store format has not been eliminated in the competition with grocery stores, small supermarkets and other formats with lower product prices is due to its unique product selection and positioning.

"Convenience store consumers are basically consuming 'fashion'. 7-Eleven is often a fashion trendsetter for young boys and girls in Japan. Whether it is snacks or daily necessities, the products selected by convenience stores are often designed, unique and innovative, which is also the direction for future development and improvement of domestic convenience store brands." Lai Yang said.

Lin Xin said that domestic convenience stores need to think about how to improve efficiency while expanding their scale. "Digitalization will be a supporting factor, but not all. At present, domestic convenience stores have reached a certain level in product management, but there is still a lot of room for improvement in operational management."

In terms of future development, Lai Yang believes that convenience stores have a lot to do with consumers' income levels and consumption concepts. That is why Lai Yang believes that the period of rapid growth in China's convenience store market has not yet arrived.

(Cover image source: Daily Economic News file photo)

Daily Economic News