As the clock ticks on a potential $47 billion takeover by Canada’s Alimentation Couche-Tard, Japan’s Seven & i Holdings is rolling up its sleeves for a major transformation. With a strategy focused on revitalizing its 7-Eleven stores and offloading underperforming assets, the company is determined to prove it can enhance shareholder value and fend off the looming acquisition.
The Big Shift: New Focus on 7-Eleven
Seven & i plans to carve out its supermarket operations and about 30 other non-core businesses into a new entity named York Holdings. This move aims to streamline its operations and sharpen focus on 7-Eleven, a beloved brand known for fresh food and convenience. The company will rebrand itself as 7-Eleven Corp to emphasize this shift and attract strategic investors for York.
Veteran analyst Akihito Nakai calls this restructuring an “unavoidable decision” given the pressure from Couche-Tard, which has sweetened its offer by 22% since its initial bid in August. If the acquisition goes through, it would mark the largest overseas buyout of a Japanese firm in history.
Targeting Growth: The 7-Eleven Advantage
Seven & i’s ambitious plan includes a target of ¥100 billion ($670 million) in EBITDA for the York unit in the next financial year. But with a diverse portfolio employing over 157,000 people globally, many shareholders are eager for rapid action. Artisan Partners and ValueAct Capital have previously urged the company to streamline its operations, shedding what they see as unnecessary excess.
In Japan, 7-Eleven stores have become cultural icons, boasting a staggering operating margin of 27% compared to just 3.5% for stores outside Japan. However, as competition heats up with rivals like FamilyMart and Lawson, maintaining this profitability will require innovation.
Riding the Mini-Supermarket Wave
One promising avenue for growth is the mini-supermarket format, which caters to urban consumers seeking fresh food options. Competitor Aeon has seen success with its “My Basket” stores and plans to double their number. In response, 7-Eleven introduced its own mini-supermarket, “SIP,” earlier this year. Initial tests show promise, and analysts believe a broader rollout is on the horizon.
This new format underscores the importance of maintaining a relationship with the supermarket division, even after it’s spun off. Nakai points out that a cooperative relationship will be crucial for the success of the new strategy.
Navigating Overseas Challenges
While the domestic market presents opportunities, fixing the overseas 7-Eleven operations may prove trickier. Seven & i recently slashed its full-year profit forecast by 25%, attributing this to a challenging environment where consumers are cutting back on spending. With plans to close 444 underperforming stores globally, the company is also enhancing its fresh food offerings in the U.S.
The goal is to achieve a return on invested capital of 10% by the 2030 financial year, up from 6.5% last year. However, achieving this will require a significant overhaul of merchandising, marketing, and logistics.
The Clock is Ticking
As Seven & i embarks on this ambitious turnaround plan, the pressure is on to deliver results quickly. Investors are watching closely, and there’s a growing perception that the company has been slow to adapt. Whether it can execute this plan effectively and fend off Couche-Tard’s advances remains to be seen.
In a rapidly changing retail landscape, the stakes couldn’t be higher. Seven & i’s future hinges on its ability to innovate, streamline, and ultimately unlock the full potential of its iconic 7-Eleven brand.
hii Aditi Sahu this side..
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