In August, a bombshell acquisition announcement rocked the retail industry, as Seven & I Holdings, the parent company of the renowned Japanese convenience store chain 7-Eleven, confirmed that it had received a non-binding initial proposal from Canadian convenience store giant Alimentation Couche-Tard Inc. (ACT) to purchase all of its issued shares. This news sparked widespread rumors that 7-Eleven might be sold, creating waves of speculation about the future of the iconic retailer.
Recently, further developments suggest that Seven & I is contemplating a management buyout (MBO) to resist the acquisition attempt. This move indicates a fierce desire to maintain control and keep the company private amid the looming threat presented by ACT.
7-Eleven is undeniably a titan in the global convenience store sector, but many may not be familiar with ACT, which has established itself as the leader in the Canadian convenience store market. While the idea of ACT acquiring 7-Eleven seems reminiscent of the proverbial "snake swallowing the elephant," the latter perceives this endeavor as a serious threat to its legacy and operations. The stakes are particularly high, as the late Masatoshi Ito, a pivotal figure for 7-Eleven, and former president Toshinobu Suzuki, who greatly influenced the company's trajectory, have both passed, leaving a void in leadership during this turbulent time.
This ongoing battle is not merely a corporate acquisition; it reflects deeper tensions between the original family founders of 7-Eleven and the pressure exerted by foreign investors. The recent trends in the Japanese market, particularly the deaths of prominent figures like Kazuo Inamori and Akio Toyoda, symbolize the fading glory of Japanese corporate legends, making ACT's renewed interest in acquiring 7-Eleven appear strategically motivated.
Back in 2005, when ACT's founder approached Masatoshi Ito in Tokyo with intentions to acquire 7-Eleven, he was met with a firm refusal. Now, ACT has successfully built its own convenience store empire through continuous acquisitions, setting its sights once more on 7-Eleven for market expansion in Asia.
If the acquisition is successful, ACT could combine its operations with 7-Eleven to oversee a staggering 100,000 stores worldwide—a retail network the likes of which has never before been seen. The potential for such growth is undoubtedly appealing, not only to ACT but also to overseas investors backing Seven & I.
After ACT's acquisition proposal, Artisan Partners reached out to Seven & I Holdings, urging them to consider ACT's offer seriously. Simultaneously, a California-based fund called ValueAct has expressed skepticism towards 7-Eleven's profitability and strategic direction, calling for transformation.
Over recent years, foreign investors have intensified scrutiny on Seven & I, disrupting the company’s corporate stability. In 2016, Third Point, an American hedge fund, orchestrated a campaign to oust the long-standing executive Toshinobu Suzuki, who had helmed the company for nearly 24 years, resulting in Ryuichi Isaka taking the reins. Just a month after Masatoshi Ito's death, ValueAct submitted a shareholder proposal seeking the removal of Isaka and three board members.
This acquisition saga is less a straightforward contest between 7-Eleven and a foreign competitor than a complex internal struggle between the founding family and foreign shareholders. Should foreign interests unify against the company, the chances of 7-Eleven succumbing to a sale are dramatically heightened.
The proposal for a management buyout presents a glimmer of hope, illuminating the strong stance of the Ito family, which holds over 10% of the company's shares. This stake gives the family considerable influence in negotiations, and they are likely motivated to deter major shareholders from succumbing to ACT's enticing offers. Furthermore, previous plans to divest non-core assets—something the family had resisted—are being pursued to appease foreign investors.
A management buyout could stave off ACT's aggressive acquisition efforts, but it does not necessarily mean that 7-Eleven’s crisis has passed. ACT’s ambition arises amid concerns that 7-Eleven is hitting a development plateau and experiencing stagnant growth, creating a window of opportunity for ACT to swoop in like a predator.
The question arises: can 7-Eleven continue to lead into the next era of retail? The growth narrative of the convenience store format historically stems from expansion, yet even the largest giants eventually reach their limits, a threshold that 7-Eleven appears to be approaching.
According to a financial report from Seven & I Holdings, the company recorded revenues of 603.55 billion yen for the first half of fiscal year 2024 (March-August), a rise from 55.47 billion yen in the same period last year, equating to an 8.8% increase. However, operating profits plummeted by 22.4%, highlighting that while revenues grew, profitability is under pressure.
In overseas markets, particularly in North America, the situation is dire. As of August 2023, U.S.-based 7-Eleven stores have faced a year-long decline in same-store sales, leading to the closure of 444 stores across the continent—an unthinkable outcome for a company once synonymous with retail success.
Japan has not been immune to declines either. In 2020, consumer traffic at mainstream convenience stores fell by 10.4%, and despite slight recoveries in subsequent years, the numbers have yet to return to pre-pandemic levels. This backdrop has contributed to a growing chorus of voices predicting 7-Eleven's decline. However, to hastily conclude that the brand is on a downward trajectory based solely on recent figures could be shortsighted. The distinctiveness of 7-Eleven lies in its pioneering approach to redefining the convenience store model, managing logistics innovatively, and consistently adjusting to consumer demands long before big data became a norm.
Importantly, 7-Eleven's global strength rests on its ability to adapt products and services to align with the cultural and lifestyle needs of various regions. While it has excelled in localizing its offerings, recent trends indicate that Gen Z consumers are drifting away from 7-Eleven, signaling a weakening of this core competency.
This decline is not due to a lack of product innovation or creativity. Instead, it reflects a resistance to compromise on product pricing in an economic landscape increasingly driven by value. Even younger consumers, once drawn primarily to novelty, now prioritize cost-effectiveness more than ever.
In Japan, the rise of discount retail giant Don Quijote exemplifies this shift. Despite the prolonged economic malaise known as the "Lost Two Decades," Don Quijote has unfurled its wings, recording revenue exceeding 2 trillion yen for the 2024 fiscal year, an increase of 8.2%. This stands in stark contrast to 7-Eleven's struggles, highlighting a growing consumer preference for discount offerings in an environment where price sensitivity reigns supreme.
7-Eleven's commitment to maintaining product value has undeniably shaped its reputation, but this zeal also creates hurdles when it comes to attracting younger consumers and expanding into overseas markets. As competition stiffens, 7-Eleven must grapple with redefining its identity and value proposition.
In China, the landscape is shifting too. Lawson has surpassed 7-Eleven to become the leading foreign convenience store brand within the country, achieving profitability for the first time in 2020. Lawson's rapid ascent owes much to its strategic focus on lower-tier markets and its consumer-friendly pricing strategy, with many popular items priced under 10 yuan.
With intensifying competition, 7-Eleven is pushing to innovate the concept of the "next-generation convenience store." The recent launch of the "SIP store" by the chain might represent an effort towards innovation, yet consumer feedback suggests it still functions more like an expansive convenience store, rather than a distinctive upgrade.
The Ito family, as the controlling shareholders, is understandably apprehensive. Their ownership stake confers significant influence during these acquisition discussions. With the MBO plan now proposed, the family has unequivocally expressed its unwillingness to sell.
However, they are not alone in their concerns. Should 7-Eleven fall into foreign hands, the quintessentially Japanese aspects of its identity may dilute, leading the brand to lose its status as a national treasure. There is widespread anxiety that if ACT acquires 7-Eleven, a precedent could be set, emboldening other foreign investors to capitalize on Japan's illustrious corporations that have significantly shaped its economy.
This phenomenon is already visible in various sectors where established Japanese firms have seen their growth trajectory decline. The once-invincible manufacturing giants are experiencing reputational hits, and now the retail sector is showing signs of strain as well. Well-known retailers like Uniqlo and MUJI are wrestling with stagnation in a saturated market, demonstrating the tough competition that all brands are facing in maintaining their market position.
Historically, Japan has birthed entities that have achieved global prominence, yet many such companies remain rigidly attached to now-outdated business models and practices. As these monolithic companies struggle to adapt to modern consumer behavior, their once mighty legacies hang in the balance.
In this climate, foreign investors see ripe opportunities for acquisitions, especially given the depreciation of the yen. Companies like Calbee, Kao, Square Enix, Asics, and Sapporo may likewise become attractive targets, paralleling the potential fate of 7-Eleven.
While such acquisitions may pose challenges, they also herald change. If Japan's corporations cannot effectively pivot from the past, external influences might catalyze much-needed transformations. Yet for many Japanese consumers, the fear of losing national brands and yielding to foreign capital breeds a profound sense of uncertainty and loss of identity.
In May 1974, the very first 7-Eleven store opened its doors in Japan, marking the beginning of what would become a five-decade journey of growth and success. If 7-Eleven aspires to continue as a stalwart for the next century, redefining its path in this new landscape will be essential.
