From Tokyo to Texas: Seven of Japan & I can bring ‘conbini food’ to America

Seven & i Holdings transformed the humble 7-Eleven store into a popular food destination in Japan by serving up innovative sandwiches, rice balls, and boxed lunch lines, changing the way millions of people eat.

Fifty years after it opened its first store in its home market, the company is on a mission to bring some of its best-known products to the US—strategy enthusiasts don’t want to see it jeopardized by a bid to take over Canada’s Alimentation Couche-I-Tard.

Couche-Tard, which owns Circle-K stores, has expressed that Seven & has a market value of $36 billion-about a possible acquisition, the companies said this week. The value of the potential deal was not disclosed and there is no guarantee that the transaction will materialize.

Analysts and industry experts believe that Couche-Tard is interested in synergies in North America, where Seven & i has more than 15,000 stores and gas stations, although they are much less profitable than the firm’s Japanese stores or “conbini” which number about 21,000 .

“The quality of food is much higher, and much different” at Japanese 7-Eleven stores than in the US, said New York-based food influencer Jeremy Jacobowitz, who has more than 500,000 followers on Instagram.

“It makes me nervous that they’re going to mess up what I see as perfection,” he said of the potential purchase. Jacobowitz said he receives no financial consideration from Seven & i.

In its Japanese division, Seven&i has an operating profit of 27%, according to LSEG data. But in its overseas stores, the figure is 3.5%.

Seeing new food is key to fixing low US profits, Seven&i said this year. It introduced more than 200 foods in its US stores—some of them distinctly Japanese—a strategy that has been enthusiastically received by fans on social media and food-related websites.

Much of that system depends on plants owned by Japanese company Warabeya Nichiyo Holdings, in which the Seven & i unit is the majority shareholder.

In Texas, it will produce “onigiri” rice balls and the “Lone Star Slider.” In Virginia, it will roll out Japanese-style sandwiches using thin, slightly sweet white bread and chicken curry rice dishes.

Food-driven growth

Conbini—Japanese convenience stores—have become an integral part of daily life in Japan, where people pay bills, send packages, and pick up concert tickets. But food has been the biggest driver of growth.

The stores receive daily deliveries of sandwiches, onigiri, and pre-cooked meals aimed at shoppers who are too busy to cook. They also stock fresh fruit, including bananas and packs of peeled and sliced ​​apples, as well as bread and pastries.

The latest innovation at 7-Eleven in Japan: the introduction of fresh tasting bread in stores using a new process of thawing frozen bread at the factory.

“What Seven & I did to make convenience stores work was transportation,” said Michael Causton, founder of retail research firm JapanConsuming.

Over the past 24 years, Seven & i has become the best-selling retailer in Japan, he said, despite facing tough competition from rival stores such as Lawson’s and FamilyMart.

In contrast, foreign retailers have had a poor record in entering Japan, one of the world’s toughest consumer markets, and analysts are wondering what Couche-Tard can bring to the table in Seven & i’s home market.

“The United States is the largest market in the world and that’s where synergies will be the easiest to achieve,” said Shun Tanaka, senior analyst at SBI Securities. “But I don’t think Couche-Tard knows anything about running Japanese stores.”

Texas to Tokyo

Formerly called Ito-Yokado, Seven & i was founded by Masatoshi Ito, who quickly expanded it in the post-war period. In 1973, it licensed the 7-Eleven franchise from Dallas-based Southland Corp. and a year later opened the first 7-Eleven in Tokyo.

When Southland went bankrupt, a Japanese company took it over in 1991 and now controls more than 80,000 7-Eleven stores worldwide.

Japanese Seven & i’s businesses include department stores, big box “departments,” and a bank. It also works with Denny’s restaurants and Tower Records.

It has targeted activist shareholders, most recently ValueAct Capital, for what they say is unnecessary bloat.

Founder Ito has long been seen against hiang off units.

After his death last year at the age of 98, Seven & i divested its clothing business and closed dozens of Ito-Yokado stores, making plans to phase out others.

Couche-Tard may look to allow the Japanese business to operate independently, said James Halse, founder of Senjin Capital, a Sydney-based, Japan-focused fund.

“Probably the main reason they want Seven & i is exposure to the US gas station business,” he said.

-Rocky Swift and Maki Shiraki, Reuters

Ritsuko Shimizu contributed to this report.