7eleven Or Family Market

[realmadrid25]

they wouldn't be franchising if they didn't make more money that way than opening the new business by themselves. this should be common sense.

[realmadrid25]

It's important to note that there is no proximity rule in the their franchise terms and if extremely successful, there's nothing to stop them from opening up a CP owned branch nearby to compete with your franchised location. Given, it's usually not blatant like next door or across the street, but a few blocks over is considered fair play in their book.

In retail industry, opening a shop next door to the existing 2-3 shops is called "clustering" and usually means everybody benefits from that. Not hard to understand why: crowd and frustration in a single shop would make customers defer their purchase until they are somewhere with more choice and speadier service.

In my neighbourhood in Tokyo I have 7-11, Family Mart, Sunkist and Lawson not exactly next to each other but along 70-80 m strip of the same side of the road. Whenever I can I defer my purchasing until I am in that area.

if people know there are 5 furniture stores next door to each other, they will go shop there. you really think clustering applies to 711's? so people wake up and say "lets go to that intersection with the 4 7/11's to do our 7/11 shopping???

Edited May 25, 2008 by realmadrid25

[think_too_mut]

if people know there are 5 furniture stores next door to each other, they will go shop there. you really think clustering applies to 711's? so people wake up and say "lets go to that intersection with the 4 7/11's to do our 7/11 shopping???

To some, it's even harder to understand than I thought: if 7-11 or whoever is not on their way (or is packed with people), they don't stop to spend money. If there are several, good chance one will have short or no queue at all.

Convenience is the key word here.

Edited May 25, 2008 by think_too_mut

[think_too_mut]

An additional Family Mart, V Shop, and/or Fresh Mart doesn't increase the volume of people in the area either, it just equally (at best) divides the total foot traffic + revenue between all shops. Yes, often there is enough traffic for all to live well as you say.

This is close now: they don't divide total traffic. If that was the case, whoever sets the foot first would guard with their life the rest of the pavement.

What they really split is otherwise lost traffic as people don't want to queue 15 min to pay a bill or get a pack of something in a crowded shop, quite likely if there is only 1.

And that "lost " traffic is not bottomless - they know how far they can go and how many shops in vicinity can be healthy.

[Heng]

they wouldn't be franchising if they didn't make more money that way than opening the new business by themselves. this should be common sense.

It's not black and white like that. The do both, because there are positives and negatives to both business models.

[Heng]

An additional Family Mart, V Shop, and/or Fresh Mart doesn't increase the volume of people in the area either, it just equally (at best) divides the total foot traffic + revenue between all shops. Yes, often there is enough traffic for all to live well as you say.

This is close now: they don't divide total traffic. If that was the case, whoever sets the foot first would guard with their life the rest of the pavement.

What they really split is otherwise lost traffic as people don't want to queue 15 min to pay a bill or get a pack of something in a crowded shop, quite likely if there is only 1.

And that "lost " traffic is not bottomless - they know how far they can go and how many shops in vicinity can be healthy.

No idea what you're talking about guarding the rest of the traffic. Of course they divide (as in divide by normal flow of people, not by any kind of control or manipulation) the total traffic. If there are two 7-11's on opposite corners (A and , people who would have otherwise crossed the street to 7-11 A will instead stay on the same side of the street and go to the closer 7-11 B. Those who choose to go to 7-11 B are part of the *lost traffic* for 7-11 A. There is no benefit for 7-11 A in the opening and operation of 7-11 B.

True, you can argue that there might be some people who go into 7-11 A, find a long queue of what... 5-6 people at most? and then decide: *no, it'll be better if I run across the street and take my chances at 7-11 B for the sake of "convenience"*... but I think that kind of situation is not typical or normal consumer behaviour. One's own experiences may vary I suppose though. If anything, 7-11 data (mine is somewhat dated from 4-5 years ago) showing the most profitable/busiest 7-11 (CP owned of course) outlets are the bottom floor entry level 7-11 at Morchid 2 and the corner 7-11 near the entrance of the Ekkamai bus station. The calculated average as I recall was something like 23 seconds per customer with the average customer purchasing 79 Baht worth of product. Convenience is INDEED a factor as you say, but there are many types of convenience other than queuing time. The *location* convenience on a street, concourse, or corner is also important, and perhaps the most important factor.

[realmadrid25]

An additional Family Mart, V Shop, and/or Fresh Mart doesn't increase the volume of people in the area either, it just equally (at best) divides the total foot traffic + revenue between all shops. Yes, often there is enough traffic for all to live well as you say.

This is close now: they don't divide total traffic. If that was the case, whoever sets the foot first would guard with their life the rest of the pavement.

What they really split is otherwise lost traffic as people don't want to queue 15 min to pay a bill or get a pack of something in a crowded shop, quite likely if there is only 1.

And that "lost " traffic is not bottomless - they know how far they can go and how many shops in vicinity can be healthy.

yes, but this only maximizes profits for the franchiser which then minimizes profits for each individual franchisee. you are dreaming if you think there is no lost traffic to the original store. the way it usually works is, once you hit a certain number they let another shop open close by.

Edited May 25, 2008 by realmadrid25

[Heng]

if people know there are 5 furniture stores next door to each other, they will go shop there. you really think clustering applies to 711's? so people wake up and say "lets go to that intersection with the 4 7/11's to do our 7/11 shopping???

To some, it's even harder to understand than I thought: if 7-11 or whoever is not on their way (or is packed with people), they don't stop to spend money. If there are several, good chance one will have short or no queue at all.

Convenience is the key word here.

True, it's feasible for someone to avoid a shop that is full, but the fact is that people don't travel out of their way to find the street with the most 7-11's. Again, I'm just talking about most normal people, there may be some people out there who do this.

Cluster theory doesn't work with identical shops offering near identical products and service in this case.

[think_too_mut]

An additional Family Mart, V Shop, and/or Fresh Mart doesn't increase the volume of people in the area either, it just equally (at best) divides the total foot traffic + revenue between all shops. Yes, often there is enough traffic for all to live well as you say.

This is close now: they don't divide total traffic. If that was the case, whoever sets the foot first would guard with their life the rest of the pavement.

What they really split is otherwise lost traffic as people don't want to queue 15 min to pay a bill or get a pack of something in a crowded shop, quite likely if there is only 1.

And that "lost " traffic is not bottomless - they know how far they can go and how many shops in vicinity can be healthy.

yes, but this only maximizes profits for the franchiser which then minimizes profits for each individual franchisee. you are dreaming if you think there is no lost traffic to the original store. the way it usually works is, once you hit a certain number they let another shop open close by.

That's what I am talking about - there is a room for yet another store and customers would know - if one is packed, then another one might not be.

From the Uni, I remember those simulation models about a "queing" theory. See 6 people in a store at the counter and you don't go in.

When in a hypermarket, Tesco or Carefour, when approaching a checkout, what do u look first? How many people are queing and how big their trolley load is.

That same thing giants like 7-11 apply to their models.

[Heng]

You're right there.

It's good for the the second (and third, fourth, fifth, etc. with likely diminishing returns) store though, and not for the first.

The last thing Carrefour management is thinking is "I wish a Tesco-Lotus would open across the street so that it would take some pressure off our overworked cashiers." It's not different for a 7-11 owner.

[think_too_mut]

You're right there.

It's good for the the second (and third, fourth, fifth, etc. with likely diminishing returns) store though, and not for the first.

The last thing Carrefour management is thinking is "I wish a Tesco-Lotus would open across the street so that it would take some pressure off our overworked cashiers." It's not different for a 7-11 owner.

Sorry Heng, for all my admiration for you on the board, you could be coming from what the Economist said: Thai companies, they have no idea, they have no strategy, they just do deals. Among their own circles.

That does not save you from being thick and not understaning how world leaders in retail work.

[Heng]

You're right there.

It's good for the the second (and third, fourth, fifth, etc. with likely diminishing returns) store though, and not for the first.

The last thing Carrefour management is thinking is "I wish a Tesco-Lotus would open across the street so that it would take some pressure off our overworked cashiers." It's not different for a 7-11 owner.

Sorry Heng, for all my admiration for you on the board, you could be coming from what the Economist said: Thai companies, they have no idea, they have no strategy, they just do deals. Among their own circles.

That does not save you from being thick and not understaning how world leaders in retail work.

Nah, that's a cop out, TTM, and you know it.

First, you've left the issue that I've brought up: how a 2nd 7-11 opening up near an existing 7-11 does not help the original 7-11 in any way.

You go off on a tangent on how it's good for the 2nd 7-11 (no kidding) and how it's good for the consumer (again, no kidding).

And now you just try to personalize it about me, (again, while it's a topic that I love: me; it's rather off topic).

[soundman]

Nah, that's a cop out, TTM, and you know it.

First, you've left the issue that I've brought up: how a 2nd 7-11 opening up near an existing 7-11 does not help the original 7-11 in any way.

You go off on a tangent on how it's good for the 2nd 7-11 (no kidding) and how it's good for the consumer (again, no kidding).

And now you just try to personalize it about me, (again, while it's a topic that I love: me; it's rather off topic).

I know for a fact that I would rather be the owner of an individual 7/11 selling 4 mil per month than part of a cluster selling 2 mil per month in my store and not having any interest in the other stores in the cluster.

So clustering is not good for individual convenience stores unless you own or have shares in the entire cluster.

Tangent - Clustering seems to work well for some particular types of retail outlet activities. Some examples:

Klong Thom Market area - Tools and hardware. (& auto parts in chiang gong style street nearby).

Yarrowat - Gold etc.

Ban Moh - Audio & Electronic Products.

Ban Poh - Wood & cabinet making supplies.

Pratunam - Textiles.

Wat SaGate - Wood board products.

Numerous IT cetres around country - Pantip, Fortune etc.

Being part of these clusters exposes you to many more customers, more competetion, less advertising costs etc.

Cheers,

Soundman.

[steveromagnino]

ok, speaking as one of the few retail consultants working here in Thailand and consulting directly to a few firms whose names have come up, I'll add in my 2c.

There is basically not real clustering in 7-11s; that is not the business model. There is a slight element, perhaps, of opening a 7-11, and then a couple of other store types, e.g. a bookstore and a couple of F&B outlets open nearby, and then you have a clustering effect; 7-11 does all these business types, but a specialist provides more reason to go to 'that area' for something to eat/drink/read/convenience store type stuff...but 7-11 alone; it is designed to pretty much run standalone in a location which is most convenient to its catchment area.

If there is only one store in a catchment area, then there is an excellent chance someone will open another nearby; knowing that CP are not stupid, they usually try to open the best locations themselves; when a francisee identifies a new area of opportunity, they will attempt to calculate whether the opportunity is large enough to support several stores; if so then they will usually consider opening one themselves.

If an area is suspect, they will often try various new merchandising techniques and store formats, to try to keep a slight difference between stores (so they claim) but more likely to match which products sell best, and different shops even on opposite sides of the same road can have quite different catchments (e.g. the effect of a secondary school on one side means a lot more sugary drinks, different choice in magazines, etc).

Queue theory is almost completely irrelevant in a convenience store model. There is no parking, the time required to wait in one 7-11 vs. another would have to be massive to stop someone purchasing there (which is the essence of clustering; net new people come to that area who otherwise would not have). And unless a 7-11 acquired a reputation for slow service, there is almost no way to walk in and then look at the queue and walk out without wasting more time than probably what it would require to go to another store. The way the 7-11 is set up, there is no back of house, so easy enough to just convert a bit more floor area to another cash register....

There is no point in talking about Carrefour and Lotus here; their models are totally different and there are major differences in merchandising and layout between different hypermarkets. But I can GAURANTEE the worst thing for a Lotus is to have a Big C opening nearby/next door or vice versa; EVERYONE wants to be the only hypermarket in town; but if you are the second one, then you probably have the most to gain by opening near the first (and there are a host of zoning reasons why this might occur anyway).

The only loser in this scenario of a single store doing great so someone opens another next door...even if there are increased sales for the cluster overall, is the first store. They will almost always end up with a smaller slice of a (hopefully but not always) bigger pie. In the case of homogeneous products, I think you will find that marginal increase (or as they are called in this thread, lost people) is a very very tiny number immediately adjacent, probably larger across the road; larger again down the road; the further the physical difficulty of reaching one location vs. the other, the more likelihood of greater sales for all stores....

Incidentally, to offer another exampel McDs hates it that Burger King's strategy is to open up next door to a McDs.

So this being the case, why, if you were McDonalds, would you open 4 branches next to eachother, when you could open 4 branches with different catchment areas?

Effectively, 7-11 is like McDs and Burger King - the franchisees are all independent, and so any new store opening anywhere near them is a bad thing; another competitor who will ALWAYS reduce their sales even if the overall sales for the cluster increase slightly (and that is due to catchment areas and access primiraily, the driving factor in all shopping in Bangkok).

The time clusters really work is for things like luxury products; everyone can benefit, even Louis Vuitton, when a shopping mall has all the big brands together vs. standalone stores. But again, that is a specialist product like tires and the like.

Show me one executive from a hypermarket or 7-11 that would prefer a cluster of stores the same category as theirs compared to just them being standalone...and I'll have learned something :-). I've met a fair few of them (both Thai and foreign) and none would have anything like this to say!

The reason why 7-11's massive expansion has been to take a huge advantage given to them by TRT to take the market while hypermarkets were effectively blocked; and they have expanded as fast as possible to prevent any other players from gaining entry to the market. That's why the Thai Retailers Assocation (which until recently was chaired by CP staff) is so pro mom and pop/anti hypermarket.

There are a few factors going on driving why you see so many 7-11s....but clustering here or anywhere else in the world has nothing to do with it.

Edited May 26, 2008 by steveromagnino

[Heng]

Nah, that's a cop out, TTM, and you know it.

First, you've left the issue that I've brought up: how a 2nd 7-11 opening up near an existing 7-11 does not help the original 7-11 in any way.

You go off on a tangent on how it's good for the 2nd 7-11 (no kidding) and how it's good for the consumer (again, no kidding).

And now you just try to personalize it about me, (again, while it's a topic that I love: me; it's rather off topic).

I know for a fact that I would rather be the owner of an individual 7/11 selling 4 mil per month than part of a cluster selling 2 mil per month in my store and not having any interest in the other stores in the cluster.

So clustering is not good for individual convenience stores unless you own or have shares in the entire cluster.

Tangent - Clustering seems to work well for some particular types of retail outlet activities. Some examples:

Klong Thom Market area - Tools and hardware. (& auto parts in chiang gong style street nearby).

Yarrowat - Gold etc.

Ban Moh - Audio & Electronic Products.

Ban Poh - Wood & cabinet making supplies.

Pratunam - Textiles.

Wat SaGate - Wood board products.

Numerous IT cetres around country - Pantip, Fortune etc.

Being part of these clusters exposes you to many more customers, more competetion, less advertising costs etc.

Cheers,

Soundman.

Of course, who wouldn't? I doubt that even TTM would (away from the 'must-have-the-last-word-and-never-give-in' world of webforums).

Another good Bangkok cluster would be Wang Burapha for firearms. More selection for the consumer than having just one or a few shops. And more consumers for the retailers as a whole because they know that any one gun shop will never be able to stock a huge variety of firearms. Plenty of shops in the area also prefer to sell gun related equipment rather than firearms themselves. So effective is this cluster that there is no other like it in the entire country, drawing people from Chiang Mai and Phuket who choose to fly or drive here just to purchase/order a firearm instead of ordering through a local dealer, ...a handful of which do indeed exist.

A lot of the malls around town have become bank branch clusters as well. People go to do their banking at the mall because many folks (and most if not all commercial customers) bank at more than one bank. Increased traffic for the mall and all vendors along with increased daily deposits + a likely increase in size of customer base (because of convenience) for all banks involved. MBK has gone as far to establish a bank branch food court type setup on the 4th floor as most probably know.

[Heng]

And thank you Stevero for showing up with your ever effective WWF/WWE? Sledgehammer post.

[steveromagnino]

And thank you Stevero for showing up with your ever effective WWF/WWE? Sledgehammer post.

hardly - most all been said already, I just come in and wave some dodgy credentials ;-)

The whole concept of shopping malls inside tend to be clusters - clusters of fashion, clusters of cheap junk, clusters of audio.

And on a more macro scale you have clusters of malls, like clusters of clusters.

The best example of clusters is Bangkok's most expensive leased space - MBK. Clusters of similar products side by side...and it all works because you know that each shop is not the exact same thing. Ditto for software or mobiley phoneys. Probably more an illusion being that some of the stores are the same operator/owner, but nonetheless, it works in that environment.

On a sidewalk where location is key and we are talking about identical products and product mixes? Not so much.

And it must be said, anyone singling out Japan as a retail supermarket/convenience store leader must not be aware of the massive inefficiencies well documented about their industry (even the Economist has come down from their lofty yet ill informed perch more than once to comment on it).

[stumonster]

Steve

what would you say would be the minimum population density for a moobarn or village to make it worthwhile to open a 7-11 ?

[steveromagnino]

Steve

what would you say would be the minimum population density for a moobarn or village to make it worthwhile to open a 7-11 ?

that I honestly don't know; I've never done that sort of study and 7:11 have not been a client.

However, one of the hyper markets was and had an idea to try to block 7:11 that we worked on for a while during the TRT years where they were effectively blocked from opening any new stores at all due to zoning. Some of the cities they were considering for their smaller size operation (less than 400 sqm) were pretty tiny. I think our minimum and this is quite a few years ago that I did this, was 15,000 or 25,000 people within a 5-10 min drive, but bear in mind that the store size was like 4X bigger than a 7:11 and was also partly an attempt to block someone else with unfair market advantage.

Totally off the top of my head, assuming no competition at all, I'd say the catchment is probably anywhere within walking distance plus a further 5 min motorcycle ride beyond that. Total guess, you need to have at least 2,000 people in that area to reach a breakeven; something like 3-5,000 people would be the sweet spot (beyond that and there will be more than 1 store for sure, and despite all this clustering stuff, you will come out worse than if you are the only game in town). Being on major roads is a monster bonus. And the villagers need to have some cash, not a lot but at least some. The poorest villages of say Surin or Buriram are not going to ever support a 7:11 unless you are on the main road and can attract some transit traffic as well (and a good road can be well worth it). Schools or education or temples nearby; anything that draws in other people on a regular basis are good.

Our absolute minimum:

2,000 people

less 20% infants and invalids

1,600 people

assume market penetration 50% (which is fairly high)

800 people

assume purchases per person per week on average 2 purchases (richer areas could average 4-5, poor areas 1)

assume average purchase size 60b

96,000b weekly turnover

384,000b per month

COGS 288,000b (total guess)

less rent 10,000

less power 10,000 (fridges guzzle)

less staff 20,000 (assumes 4 staff on 5k a month)

less accounting/admin 8,000

less depn 10,000

less mgt (you / wife) 40,000

that's about breakeven. Not too hot at all. So you need to move beyond this, because the break even point and sensitivities for this type of business are all about driving sales.

If you contact 7:11 they will actually help you determine a lot of this sort of market sizing stuff.

Edited May 27, 2008 by steveromagnino

[stumonster]

thanks for the effort steve

[steveromagnino]

thanks for the effort steve

bill is in the mail :-) Spend some time checking market sizing; that is pretty much key to this sort of operation; walking around schools is a good one. for sure.

[007]

Why do you need a franchise?

What's wrong with renting a place, putting shelving in and stocking it?

Didn't corner shops exist before the likes of 7-11?

To talk of personal habit, I often go to 7-Eleven or Family Mart, buying standardised products. It's an American franchise which appeals to me as opposed to a Thai shop, where I neither know the product range nor the prices. I hardly ever visit Thai mini marts, so you wouldn't get much business from me if your shop was a "no name" place.

Edited May 28, 2008 by 7

[barky]

If you have the ability and cash and knowhow and the LOCATION to do it yourself you will make more profit and call your own shots.If its a real success you could consider franchising it on in the future.