Seven eleven

5-403-757 Revised February 14, 2005

SUNIL CHOPRA

Seven-Eleven Japan Co.
Established in 1973, Seven-Eleven Japan set up its first store in Koto-ku, Tokyo, in May 1974. The company was first listed on the Tokyo Stock Exchange in October 1979. In 2004 it was owned by the Ito-Yokado group, which also managed a chain of supermarkets in Japan and owned a majority share in Southland, the companymanaging Seven-Eleven in the United States. Seven-Eleven Japan realized a phenomenal growth between the years of 1985 and 2003. During that period, the number of stores increased from 2,299 to 10,303, annual sales increased from 386 billion to 2,343 billion yen, and net income increased from 9 billion to 91.5 billion yen. Additionally, the company’s return on equity (ROE) averaged around 14percent between 2000 and 2004. In 2004 Seven-Eleven Japan represented Japan’s largest retailer in terms of operating income and number of stores. Customer visits to Seven-Eleven outlets totaled 3.6 billion that year, averaging almost 30 visits to a Seven-Eleven annually for every person in Japan.

Company History and Profile
Both Ito-Yokado and Seven-Eleven Japan were founded by Mr. Masatoshi Ito. Hestarted his retail empire after the Second World War when he joined his mother and elder brother and began work in a small clothing store in Tokyo. By 1960 he was in sole control and the single store had grown into a $3 million company. After a trip to the United States in 1961, Ito became convinced that superstores were the wave of the future. At that time, Japan was still dominated byMomand-Pop stores. Ito’s chain of superstores in the Tokyo area was instantly popular and soon constituted the core of Ito-Yokado’s retail operations. In 1972 Ito first approached the Southland Corporation about the possibility of opening Seven-Eleven convenience stores in Japan. After rejecting his initial request, Southland agreed in 1973 to a licensing agreement. In exchange for 0.6 percent of totalsales, Southland gave Ito exclusive rights throughout Japan. In May 1974 the first Seven-Eleven convenience store opened in Tokyo. This new concept was an immediate hit in Japan, and Seven-Eleven Japan experienced tremendous growth. By 1979 there were already 591 Seven-Eleven stores in Japan; by 1984 there were 2,001. Rapid growth continued (see Exhibit 1), resulting in 10,356 stores by 2004. OnOctober 24, 1990, the Southland Corporation entered into bankruptcy protection. Southland asked for Ito-Yokado’s help, and on March 5, 1991, IYG Holding was formed by

©2003 by the Kellogg School of Management, Northwestern University. This case was prepared by Professor Sunil Chopra. Cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements,sources of primary data, or illustrations of effective or ineffective management. To order copies or request permission to reproduce materials, call 847-491-5400 or e-mail cases@kellogg.northwestern.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means — electronic, mechanical, photocopying, recording, orotherwise — without the permission of the Kellogg School of Management.

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Seven-Eleven Japan (48 percent) and Ito-Yokado (52 percent). IYG acquired 70 percent of Southland’s common stock for a total price of $430 million. In 2004, convenience store operations from Seven-Eleven Japan and 7-Eleven Inc. in the United States contributed 48.2 percent of totalrevenues and 90.2 percent of total consolidated operating income for the Ito Yokado group. Seven-Eleven Japan contributed 87.6 percent of the total income received from convenience stores by Ito Yokado. Effectively, Seven-Eleven Japan has become the dominant part of the Ito Yokado group.

The Convenience Store Industry and Seven-Eleven in Japan
As in the United States, convenience stores in Japan...