Promise of the CDC
After a decade of struggling to find a suitable daily delivery system for our stores, 7-Eleven has begun a transformation to what hopes to be a better solution for a daily distribution model. What started out as a network of warehouses and a fleet of small trucks that were designed to deliver fresh foods has turned into a fleet of trucks carrying everything from fresh foods to heavy liquids.
Over the years each CDC warehouse set out to increase throughput by adding items to the product assortment and lost sight of what the CDC was originally intended to do. Lack of throughput over the years has led to additional products and services added to a system that was never designed to handle or deliver anything other than fresh foods. In an attempt to fill the trucks and to provide the stores with a lower cost of goods, 7-Eleven over the years has turned the CDCs into a delivery network that is expensive to operate and fails to deliver the right products at the right costs to our stores.
Poor product selection and lack of participation have dragged down the results. Over the years, 7-Eleven experimented with a variety of products and categories in an attempt to deliver the stores a lower cost of goods. More recently, 7-Eleven implemented a flat fee structure in some areas in an attempt to increase participation and reduce the subsidy the company was paying to keep the CDCs operating. 7-Eleven also has been working with the CDC operators in an attempt to lower operating costs and change the culture at the CDCs.
At franchisees’ request, 7-Eleven will convert the CDCs across the country to a more balanced fee structure. At the most recent National Coalition Board of Directors meeting, Vice President of Logistics Bill Merrigan announced the transition of the CDC flat fee to an “activity based” fee structure that will allow franchisees to see the true distribution cost for the products they order and better monitor gross profit. Making the new structure work will depend on how committed 7-Eleven is to change. Everyone in the company—from the Store Support Center to the field consultants—needs to be committed to providing the stores with a delivery system that gives us the competitive advantage.
The daily delivery of fresh foods to our stores continues to give us a competitive advantage, but we have not yet achieved our fresh food potential. What once promised to be a solution—the delivery of a selection of proprietary fresh foods directly to our stores—has been a weak link in our fresh food chain and has failed to meet our customer’s needs.
We all understand that hot and fresh foods will need to play a larger role in our stores for us to be successful in the future. Cigarette units are projected to decline permanently, at a rate of 4 percent annually, at least for the next several years. Our continued dependence on cigarettes, coupled with a steady decline in cigarette unit sales, can be partially offset by fresh food sales, but after a decade of searching for a fresh foods solution we have yet to see our fresh food sales grow past 10 percent of total sales.
The hot foods program rollout should help offset some of the lost opportunity of the CDC, but the tradeoff in counter space, plus writeoffs and competition, will determine the ultimate success of the program. Everywhere we look today retailers are turning to fresh foods to offset losses in sales. With volume, standardization, a coordinated media (advertising) plan, and high-quality products, refocusing on a proprietary system that can deliver a daily solution to fresh foods will help us move away from our dependence on cigarettes and grow the fresh food category.
What role the CDC plays and how it affects our stores needs to be guided by the franchisees. Your involvement in reshaping the CDC and delivering on what was originally promised is the only solution. In the coming month, reach out to your market’s logistics team to help them move the focus of the CDC back to its original goal of delivering fresh foods at the lowest possible cost. Franchisees and FOAs in particular, can help identify quality vendors, provide input on their products, and identify on what days and in what quantities products get delivered to your stores.
Changing the cost structure of the CDC alone will not solve any of the problems that have been ingrained in the system for over a decade, but a fresh look at any solution that can help us achieve the competitive advantage that was promised is a move in the right direction.