As 7-Eleven's Japanese owner mulls bid, American fans crave 'conbini' food By Reuters

By Rocky Swift and Maki Shiraki

TOKYO (Reuters) – Seven & i Holdings has turned the humble 7-Eleven convenience store into a popular dining destination in Japan by serving fresh sandwiches, rice balls and rows of packed lunches, changing the way millions of people eat.

Five decades after opening its first store in its home market, the company is on a mission to bring some of its most popular items to the U.S. — a strategy enthusiasts don't want to see jeopardized by a takeover bid from Canada's Alimentation Couche-Tard.

Couche-Tard, the owner of Circle-K convenience stores, has approached Seven & i, which has a market value of $36 billion, about a possible acquisition, the companies said this week. The potential value of the deal has not been disclosed and there is no guarantee it will go through.

Analysts and industry experts believe Couche-Tard is interested in synergies in North America, where Seven & i has more than 15,000 convenience stores and petrol stations, although they are much less profitable than the firm's Japanese “conbini” stores, which number about 21,000.

“The quality of the food is much higher and more unique” at Japanese 7-Eleven stores than in the United States, said New York-based food influencer Jeremy Jacobowitz, who has more than 500,000 followers on instagram.

“I'm nervous that they're going to mess with what I consider perfection,” he said of a possible buyout. Jacobowitz said he receives no financial compensation from Seven & i.

According to LSEG data, Seven & i has an operating profit margin of 27% at its Japanese convenience store, but at its overseas convenience stores the figure is just 3.5%.

Seven & i sees fresh food as the key to solving its U.S. profitability and said it will introduce more than 200 new foods to its U.S. stores this year — some of them distinctly Japanese — a move that has been met with enthusiasm by fans on social media and food-related websites.

Much of that plan relies on plants run by Japanese firm Warabeya Nichiyo Holdings, in which a unit of Seven & i is the largest shareholder.

In Texas, it will produce “onigiri” rice balls and “Lone Star Sliders.” In Virginia, it will launch Japanese-style sandwiches using thin, slightly sweet white bread, as well as chicken curry rice bowls.

Food-driven growth

Conbini have become an essential part of everyday life in Japan, where people pay bills, send packages and collect concert tickets. But it is food that has been the main driver of their growth.

The stores receive multiple deliveries daily of sandwiches, onigiri and ready-made meals aimed at consumers too busy to cook. They also stock fresh fruit, including bananas and individual packets of peeled and sliced ​​apples, as well as bread and pastries.

A recent innovation at 7-Eleven in Japan: the introduction of fresher-tasting bread in stores by using a new defrosting process on bread frozen at the factory.

“What Seven & i did to make convenience stores work was logistics,” said Michael Causton, co-founder of retail research firm JapanConsuming.

For the past 24 years, Seven & i has been Japan's top-selling retailer, he said, although it faces stiff competition from convenience store rivals such as Lawson and FamilyMart.

By contrast, foreign retailers have had a poor track record of making inroads into Japan, one of the world's toughest consumer markets, and analysts are questioning what Couche-Tard can bring to Seven & i's home market.

“The U.S. is the world's largest market and it will be easier to achieve synergies there,” said Shun Tanaka, a senior analyst at SBI Securities. “But I don't think Couche-Tard knows anything about how to manage Japanese convenience stores.”

FROM TEXAS TO TOKYO

Seven & i, formerly called Ito-Yokado, was founded by Masatoshi Ito, who expanded it rapidly in the postwar era. In 1973, it licensed the 7-Eleven franchise from Dallas-based Southland Corp. and a year later opened the first 7-Eleven in Tokyo.

When Southland went bankrupt, the Japanese company took it over in 1991 and now controls more than 80,000 7-Eleven stores worldwide.

Seven & i's Japanese businesses include supermarkets, department stores and a bank. It also operates Denny's (NASDAQ:) and Tower Records restaurants.

It has come under fire from activist shareholders, most recently ValueAct Capital, for what they say is unnecessary inflation.

Founder Ito was thought to have long been opposed to unit segregation.

Following his death last year at age 98, Seven & i abandoned its apparel business and closed dozens of Ito-Yokado stores, making plans to spin off the rest.

Couche-Tard may try to let the Japanese business operate independently, said James Halse, co-founder of Senjin Capital, a Sydney-based fund focused on Japan.

“Probably the main reason they want Seven & i is to give them exposure to the gas station business in the US,” he said.