Convenience stores, or konbini, are an indispensable part of daily life in Japan, known for high-quality fresh food — from seasonal bento boxes to egg salad sandwiches that celebrity chef Anthony Bourdain once called “pillows of love.”
Leading the push to expand Japanese-quality fresh food to 7-Eleven in North America is Stephen Dacus, a Japanese American former Walmart executive who started as CEO of Seven & i Holdings, the 7-Eleven parent company, three months ago. Seven & i is under intense pressure. Over the past year, it has fended off a takeover attempt by a Canadian rival. When Alimentation Couche-Tard, the owner of Circle K convenience stores, withdrew its $47 billion bid in July, Seven & i’s stock price collapsed. Dacus and his team were left to prove they can deliver growth and returns on their own.
Now, facing a stagnant and highly competitive retail market in Japan, Seven & i’s growth is expected to come from overseas. The strategy could hinge, industry experts say, on Dacus’ ability to successfully introduce Japanese-level quality foods in the more than 13,000 stores that 7-Eleven operates, franchises and licenses in North America.
“Whether it’s hot food or cold food or any kind of food, we have to lean into how we improve the quality and the experience,” Dacus said in an interview Friday. “That’s what Japan does extraordinarily well.” Over the next five years, Seven & i is considering investing more than $13 billion to expand overseas. In the United States, this means initiatives like refreshing existing sites, adding more than 1,000 in-store restaurants and building a network of companies to provide more of its 7-Eleven brand prepared foods. “And we’re launching the egg sandwiches,” Dacus said. They are, he noted, the top item purchased by the millions of American visitors descending on Japan each year and visiting 7-Eleven stores.
The sandwiches are made with the fluffy Japanese “milk bread,” and a team in Texas worked with Japanese suppliers to learn how to produce it in the United States. Milk bread and Japanese mayonnaise give the egg sandwiches “the heavenly pillow thing,” Dacus said.
Seven & i’s new fresh-food push in the United States orients it squarely in a place already stocked with competition.
“Prepared food is increasingly what sets different convenience brands apart,” said Jeff Lenard, a vice president at the National Association of Convenience Stores. Prepared goods have relatively high profit margins, particularly important for convenience stores that face declining sales of traditional staples, including tobacco and gasoline, Lenard said.
In the United States, 7-Eleven is the biggest convenience store chain, but the market is fragmented. Tens of thousands of store operators compete for fresh food, not only with one another but also with fast-food retailers.
Dacus, 64, has worked in retail for more than three decades. He was on the Seven & i board of directors when he was tapped to spread overseas the qualities that make 7-Eleven so loved in Japan.
In the past, he said, “we took a low-risk, low-return approach.” Management was too focused on Japan and too hands-off with operations in other countries. “We could have been much more aggressive,” he said. “The flip side of that is there’s that much opportunity out there for us as we shift our focus.”
Industry experts and Dacus acknowledge, however, that there are a number of reasons the Japanese convenience store model cannot easily be replicated in the United States.
Two decades ago, the Japanese convenience store FamilyMart tried to introduce its concept to the West Coast, but the business struggled to adapt. The company found it difficult to convince Americans that a convenience store could be more than a gas station selling snacks. By 2015, all the stores had closed.
Challenges include the difficulty of transporting fresh food to locations in the United States far from city centers. In Japan, the average convenience store receives multiple fresh-food deliveries per day. Beyond that, “it’s the ways in which they maintain stock and freshness, attention to detail,” said Gavin Whitelaw, executive director of the Edwin O. Reischauer Institute of Japanese Studies at Harvard University.
In the United States, “this would require a conceptual shift,” Whitelaw said. Japanese convenience stores have been more successful with their food offerings in urban centers in places like South Korea, mainland China and Hong Kong, he said.
In recent years, Seven & i has made progress in the United States as well, but “it’s not like ‘I need to go to 7-Eleven for the food,'” he said. “The challenge is moving out of the metropolitan penumbra.”
In the United States, Dacus said, fresh food often means hot food that can be frozen and cooked on site, eliminating the need for multiple daily deliveries. He added that the company could draw on a Japanese-style model of having closer ties to its food suppliers to improve products in response to what customers want.
Dacus believes he so far has successfully communicated the plan. Now, for investors, he said, “I need to show them the money.” Concrete results in markets like the United States, he hopes, will help push up the share price of Seven & i, which is still down around 11% since Couche-Tard abandoned its bid for the company in July.
This is a necessity given the challenges Seven & i faces at home.
In Japan, the shrinking and aging population makes it difficult not only for 7-Eleven but for all retailers, said Jusuke Ikegami, the dean of the Waseda Business School in Tokyo. Expanding domestically would most likely mean moving into lower-population areas, where profits are smaller.
The company also faces growing competition from Lawson, a convenience store that is popular among younger generations and backed by the Japanese corporate giant Mitsubishi, Ikegami said. For Seven & i, “I would recommend that they focus on the U.S.,” he said.
Dacus said he had often heard that growth in Japan was over. But the demanding nature of consumers in Japan “forces you to innovate,” he said. “From my perspective, that’s a real big benefit to the global growth, because we can take stuff that we use to succeed here and take it global.”
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