7-Eleven, the world’s largest convenience retailer, revealed last week that it plans to shutter nearly 450 underperforming convenience stores and sell $750 million worth of locations in North America via sale-leasebacks as it faces financial and operational headwinds.
Speaking to investors last week during an earnings call, CEO Joseph DePinto blamed this underperformance on several factors, most notably “inflation-weary and pressured U.S. consumers and a decline in industry-wide cigarette sales.” He added that 7-Eleven’s fuel gross profits “were not as strong as we had forecast.”
These challenges have hindered 7-Eleven’s sales and merchandise gross profits across its entire business in North America — especially in the U.S., DePinto said.
As a result, the company has dropped its fiscal 2024 operating income forecast by nearly 28%, from $2.9 to $2.1 billion, DePinto said. This coincides with parent company Seven & i Holdings slashing its fiscal 2024 net income by 44%, from 293 billion yen to 163 billion yen, amid similar challenges in Japan and abroad.
As its income forecasts drop, 7-Eleven now aims to cut $500 million in North America by the end of the calendar year, up from plans for $350 million in savings targeted earlier this year, DePinto said. He added that the store closures and sale-leasebacks — as well as several other initiatives — fit under this strategy.
“We'll continue to reduce and manage our costs across this business and aggressively pursue efficiency opportunities through our scale and sourcing capabilities,” DePinto said.
Pricing pivot and ‘modernized’ items
Although inflation continues to decline and is currently the lowest it’s been in over three years, DePinto said it’s still 7-Eleven’s biggest challenge in the U.S., as costs of rent, utilities, fuel and groceries continue to “put significant pressure on mid- and low-income consumers.”
“Their purchase habits are changing as more consumers are seeking discounts and are shifting channels to find value, as well as choosing more private brand items,” he said.
Meanwhile, cigarette sales have taken a major nosedive not just at 7-Eleven but across all convenience retail for the past several years as smokers quit or pivot to alternative nicotine products. DePinto noted that U.S. cigarette sales are down 26% since 2019, which is an 80-year low.
7-Eleven is banking on its private label and food and beverage modernization programs to help dig it out of its current financial hole, DePinto said.
7-Eleven launched the modernization program in late 2023 to improve the variety of food and drinks on offer. It includes bake-in-store and self-serve products, roller grills and specialty beverages such as espresso, cappuccino, iced coffee and lattes, DePinto said.
The modernization program is currently available in 5,000 7-Eleven stores, and the company expects to add it into another 1,900 by the end of the year, with 650 more during Q1 2025, DePinto said.
7-Eleven will also cut costs as it continues integrating Speedway’s stores into its network. 7 Eleven is installing its proprietary retail information system and fuel dispenser experience into Speedway’s locations, DePinto said. Besides reducing costs, he said these systems will help 7-Eleven standardize systems across both banners, simplify operations. and enable item-by-item management so it can localize its merchandise assortment.
Finally, DePinto said 7-Eleven will take “a more targeted, local and regional pricing approach to offset any margin impact” in the coming quarters. This will likely differ from the company’s previous pricing strategy, which included raising costs in certain categories.
“Price elasticity among customers was more sensitive than anticipated,” DePinto said.
So far, 7-Eleven is seeing “promising results” from these cost cutting measures, DePinto said, particularly in its promotional work around private label. He said the company anticipates its 2025 same-store sales in the U.S. to grow by 1.5%.
“We remain confident in our long-term strategy, and we are optimistic about our future,” DePinto said.
