7-Eleven Reorganizes

Embraces centralized approach, eliminating all 8 regional divisions, many jobs, sources say

Published in CSP Daily News

By
Mitch Morrison, Vice President & Group Editor

DALLAS -- The largest and fastest growing convenience chain in North America is undergoing a dramatic internal reorganization.

CSP Daily News has learned that 7-Eleven Inc. is embarking on a restructuring one franchisee called the most significant in more than three decades, as the company repositions its model for accelerated growth.

Specifically, 7-Eleven is: Shutting down all eight regional divisions, replacing them with 14 geographic zones to be fielded mostly by home offices. Overhauling its merchandising and marketing command structure, [image-nocss] moving all merchandising decisions from regional to corporate headquarters' Store Support Center. Eliminating as well a number of positions at corporate headquarters, including directors and mid-level managers responsible for portions of in-store programming and marketing, according to three sources. Establishing a new zone merchandiser role and customer segments merchandisers within the company's corporate merchandise team. Standardizing and centralizing merchandising policies. The corporate realignment will result in the elimination of at least 100 positions and as many as 250 to 300, depending on whether many of the regional personnel agree to relocate to Dallas. According to multiple sources, many of those personnel were given seven to 10 days to decide, while others are being terminated with traditional severance packages.

"There will be job-cutting without a doubt. I know of three or four people who are losing their jobs," said Tariq Khan, a veteran franchisee and a former president of the National Coalition of Associations of 7-Eleven Franchisees.

Khan was one of six people interviewed for this story and the only one to speak on the record. The others--sources representing a cross-section of employees, operators and vendors--spoke on condition of anonymity."As a franchise leader, anytime a company consolidates you get nervous, because you feel you're going to lose some service," said Khan, operator of a handful of stores in Long Island, N.Y. "My concerns are like who will be helping me resolve my problems with a supplier or a vendor. A big position is merchandising and support. Now, they want all the merchandising to be done in Dallas, and they want to make sure there's only one message to get out--and that's from corporate headquarters."

Whispers of an overhaul started earlier this month when 7-Eleven president and CEO Joe DePinto and executive vice president/COO Darren Rebelez held a conference call with suppliers outlining the changes.

The communication was followed by a conference call last week, in which corporate executives unveiled the newest strategy to its franchisees. The call, according to multiple sources, did not allow for questions. All told, about 3,000 franchisees operate approximately 4,800 7-Eleven stores in the United States.Asked about the corporate changes, 7-Eleven communications director Margaret Chabris emailed the following statement to CSP Daily News:"7-Eleven, Inc. has been transforming its business for the past several years to better serve our stores and our stores' guests. We have made significant progress in many areas and now are moving into the next phase that will better position our field operations team to work more closely with our stores. The changes we are making also will centralize support functions to create more effective and efficient programs and processes.

"All of the changes that are taking place over the next few months are made to deliver convenience without compromise, to create a better experience for our store guests and provide them with the products they want and the quality and value they expect.

"While there will be some loss of positions as we consolidate field offices, we are adding new roles, creating new opportunities and inviting those whose jobs are affected to apply for these new positions."

Rapid Store Growth

The company's historic restructuring comes as it is pursuing a remarkable growth strategy, considered one of the largest by any retailer in the United States. With more than 7,100 stores in the United States and Canada, 7-Eleven recently announced plans to open 500 stores in the two countries in 2011.

Indeed, while such chains as Alimentation Couche-Tard and The Pantry have built a reputation on their aggressive merger-acquisition strategy, industry experts now say that 7-Eleven may be the most assertive of all.

Consider: In December, the company agreed to acquire ExxonMobil's retail interests in 183 Florida sites, outbidding Alimentation Couche-Tard, , according to sources. Upon the transaction, Sean Duffy, 7-Eleven's vice president of mergers and acquisitions, underscored the company's emphasis on growing its portfolio. "This acquisition fits well with our aggressive growth strategy," he said in December. "This purchase of these ExxonMobil sites adds to the approximately 750 locations that 7-Eleven has acquired or added since 2007 when we ramped up our expansion efforts." In January, the company launched a growth initiative in Manhattan, announcing plans to open as many as 20 stores by end of 2012 and 100 over the next five years. Over the past 12 months, the chain has made noticeable inroads in Denver, adding 17 stores in the Denver metropolitan market, as well asfive stores in Aurora, Colo. In February, 7-Eleven entered into a lease agreement to replace Mobil On the Run stores at all seven Illinois Tollway Oases, after purchasing the rights from ExxonMobil. And just last week, the company entered into an agreement with Lend Lease to spearhead development of at least 500 sites in the United States and Canada.

"The company sees this as an advantageous time to consolidate what they see as a fragmented market," said one source familiar with the internal restructuring. "The concern many of us have is their decision to centralize the field offices, to consolidate so much at the same time they're trying to grow so fast. This is a major concern for many."

"I don't think I would try to grow 500 stores and conduct a massive culture change at the same time," the source said.

Another source was equally taken by the scale and pace of change. "I've never seen anything of this magnitude. On one hand, they're seeing that having more zones will get the reps to more stores, but at the same time they're losing a lot of senior and mid-level management with tens of years of in-the-field experience. If I were a competitor, I'd be looking to hire some of these folks."

Other sources praised 7-Eleven for embracing a growth strategy and seizing on the weak economy to buoy store count. They also approved increasing the number of zones, which will be fielded largely by home offices. While supporting 7-Eleven's larger goals, these same sources questioned whether the elimination of regional divisions will threaten the company's overall nimbleness and the long-term value of the company's franchise business.

"It seems to contradict their retail strategy of getting close to the stores, getting close to the customers," a source said. "7-Eleven is a very large company with a strong business model. But I don't see how you strengthen your local stores by pulling out your market offices and replacing them with virtual offices."

"Now, instead of having your regional merchandiser come in, the information is going to have to go 1,700 miles away to someone in Dallas."

By Mitch Morrison, Vice President & Group Editor
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