7-Eleven, Wal-Mart And Dollar Stores
7-Eleven franchisees have seen an explosion of 7-Select products inundate our stores in the past couple of years. These private label products have been propagated across the entire store, leaving no gondola unscathed. To accommodate these new arrivals, 7-Eleven has reduced the number of recommended national brand items. It has been stated that the proliferation of 7-Select products will continue for the new few years, despite the quick demise of many of these items. The philosophy has been that in these perilous economic times, our customers are seeking greater value for the dollars they will spend in their shopping experience.
There has been a lot of discussion about the touted higher gross profit of private label products compared to the cost to the franchisee of ordering, stocking, warehousing and writing off of these products due to their case count versus the previous process of carrying single units of national brand products. However, nothing has been said about the loss of customers and sales due to the narrowing of national brand products.
In 2007 Wal-Mart ruled among mass merchandisers for convenience, selection and price. Today it is losing customers and revenues from decisions that backfired. Competitors have begun to chip away at its dominance. Same store sales have been decreasing while its competitor’s sales—including dollar stores—have been increasing. In 2009 Wal-Mart was finishing a major program of renovating its stores to address complaints that they were messy. Wal-Mart widened aisles, eliminated clutter, improved lighting and lowered its shelves. Dollar stores posed little threat, as their stores were generally perceived as dingy and filled with lower quality products and generally not major brands.
As part of the store overhaul, Wal-Mart removed thousands of products from their shelves—about 10,000 items—including 20 percent of its groceries. Shoppers complained that they could no longer buy their favorite brands. In an effort to clean up the stores, Wal-Mart had drastically reduced the product selection. Wal-Mart had also strayed from its founder’s philosophy and was less aggressive about being the low price leader. Customers were still scrutinizing prices, and discovered they can no longer count on Wal-mart to have the lowest price, if it stocked the item at all.
Dollar stores began winning over customers with convenience, beginning with parking lots ten percent smaller. They now stock milk, bread and eggs near the cash registers. They also carry more major brands, especially food. While the average transaction remains relatively unchanged, shopping frequency has increased. Customers have discovered dollar stores now have the national brand product selection, value and convenience they are seeking. Family Dollar’s strategy is to blanket a region with stores, with some stores less than a mile apart. Dollar General has more than 9,000 stores with plans to open 625 this year, and sees the opportunity for 12,000 more in its future.
With all this, what is the future for 7-Eleven franchisees?
Number one—Wal-Mart has acknowledged that fewer customers are walking into their stores every quarter for the past year; customers no longer have confidence in Wal-Mart filling all their shopping needs. Franchisees need to know their customers’ needs and stock those items in their stores. While some economists have determined that June 2009 was the end of the Great Recession, customers still seek value and they also expect quality. Do customers know the quality of private label products?
Number two—suppliers need to provide the lowest prices every day on national brands. Wal-Mart is collaborating with suppliers to offer products in smaller sizes for under a dollar. Franchisees cannot compete in this arena of low retail and low margin, but franchisees need to be able to sell the “right” size at the “right” price to complement our business model.
Number three—franchisees need to have clean and uncluttered stores. 7-Eleven says customers equate clutter with dirt, however too few displays and lack of national brands can also communicate a “going out of business” shopping atmosphere.
When it is all said done, franchisees must assume responsibility for making the right product selection and pricing for their customers in their own individual neighborhoods.