Decoding the Pros and Cons of 7-ELEVEn Franchise

 

The third issue of the “Franchise Talk” section of Retail Business & Finance is here as promised.

7-ELEVEN, which originated in the United States and expanded significantly in Japan, is regarded as a pioneer in the convenience store industry, having shaped its century-long history. For the fiscal year 2022 (March 1, 2022, to February 28, 2023), 7-ELEVEN reported revenue of ¥11.8 trillion (approximately CNY 575 billion), with 85,000 stores globally, making it the second-largest retail group in Asia.

In 1992, 7-ELEVEN entered the Chinese market and introduced a more standardized and professional convenience store business model. Over the past three decades, as the Chinese consumer market evolved, local convenience store brands quickly emerged, and capital-driven growth spurred an expansion that changed the competitive landscape. 7-ELEVEN’s competitive edge has gradually weakened.

According to the 2023 China Convenience Store Top 100 report by the China Chain Store & Franchise Association (CCFA), eight of the top ten convenience store brands are local Chinese brands, far ahead of 7-ELEVEN (ranked 7th) and Lawson (ranked 5th) among foreign brands. Among them, Meiyijia’s scale of over 30,000 stores is particularly notable.

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Although 7-ELEVEN retains its status as the world's largest convenience store chain, its position in the Chinese market is no longer dominant.

Based on various public data and research findings obtained by Retail Business & Finance, 7-ELEVEN’s franchise score is 3.5 out of 5, indicating that its current franchise value is slightly above average.

01 Franchise Management Capability ★★★

Overall, 7-ELEVEN adopts a “franchise model” in China, partnering with leading local retail brands to develop franchises. This model facilitates rapid brand expansion and reduces initial investment, but it also presents challenges due to varying conditions among partners, which can lead to inconsistent service quality and increased management costs.

Franchisees do not work directly with 7-ELEVEN’s main office but rather with regional partners, adding an element of uncertainty.

According to 7-ELEVEN’s website in Chengdu, there are two main types of franchises: A-type (investment management) and D-type (entrusted management). The investment management type requires the franchisee to provide a store and manage it personally. The entrusted management type has 7-ELEVEN provide the store and delegate management to the franchisee.

The initial investment for the investment management type is approximately CNY 332,000, including franchise fees (CNY 100,000), training fees (CNY 110,000), store preparation (CNY 21,000), deposit (CNY 100,000), and initial inventory (CNY 100,000). Including rent, renovation, labor, utilities, and working capital, the total cost can reach CNY 600,000–700,000.

A franchise manager in Wuhan, identified as “Mr. L,” indicated there are three franchise options available but did not mention an entrusted management type. In Wuhan, the franchise fee is CNY 50,000, with a deposit of CNY 100,000 or 150,000, equipment fees of CNY 300,000, and renovation costs of CNY 150,000.

The options vary in initial investment and profit-sharing structure. For instance, in the B-type plan, the total investment is CNY 600,000 with a 25% revenue share. In the C-type plan, the investment is CNY 350,000 with a 35% revenue share. In the V-type plan, the investment is CNY 150,000, and the franchisee operates as a store manager without covering renovation or equipment costs. Generally, the lower the initial investment, the higher the share, but the franchisee's profit also decreases.

7-ELEVEN's commission structure can be illustrated by the C-type plan. Assuming daily sales of CNY 8,500 and a monthly gross profit of CNY 90,000, the franchisee's income formula is as follows:

60,000 × 85% + (83,000 – 60,000) × 55% + (90,000 – 83,000) × 60% = CNY 67,850.

A manager in Wuhan noted that, as of late August, the city had 47 7-ELEVEN locations, mostly near schools and office buildings. With the rise of online shopping, convenience store profits have declined. For instance, net monthly profits, which used to reach CNY 40,000–60,000, are now around CNY 20,000.

In increasingly saturated first- and second-tier cities, some franchisees are exploring third- and fourth-tier cities to capture growth. Data shows that the number of convenience stores in China has increased from 130,000 in 2019 to 300,000 in 2022, with rapid expansion into smaller cities.

However, the convenience store model often does not align with the habits of consumers in smaller cities, where convenience store dining is not customary. For example, a franchisee in Jingzhou, Hubei, invested CNY 500,000 in a county store that only averaged CNY 1,000 in daily sales after six months, falling far short of break-even.

A franchisee in Guangzhou stated on a short video platform that he invested CNY 500,000 in the C-type plan. The store, located under an office building, had daily sales of CNY 8,500 on weekdays and CNY 6,000 on weekends, amounting to monthly sales of around CNY 240,000. However, after deducting commissions, rent, utilities, bad debt, and staff salaries (6 employees), the monthly profit was only CNY 6,000, less than expected. He noted that since the store had only been open for seven months, there was room for improvement.

In summary, the franchise entry barrier includes high investment costs, long return periods, and high expectations for franchisee capabilities and dedication, adding to the investment risks.

02 Brand Strength ★★★★

Brand strength is evaluated based on history, store scale, and brand recognition.

Founded in 1927 by the Southland Ice Company in the U.S., 7-ELEVEN established its franchise system in 1964, sparking its expansion in the U.S. and worldwide. The first store in Japan opened in 1974 under a regional franchise agreement with Ito-Yokado, which later acquired a controlling stake in 1991 and fully bought out the company in 2005, forming Seven & i Holdings.

7-ELEVEN has expanded globally but has not seen explosive growth in China. The 2023 China Convenience Store Top 100 from the CCFA ranked 7-ELEVEN (China) at 7th with 3,906 stores, behind Lawson’s 6,330 stores.

WeChat data shows 7-ELEVEN has the highest brand recognition in China. This suggests that store numbers and consumer interest do not always correlate—fewer stores can create a sense of exclusivity and attract customers.

This was evident when 7-ELEVEN opened new stores in cities like Zhengzhou and Yantai, breaking single-day sales records. However, recent reports indicate potential acquisition talks involving 7-ELEVEN, revealing major changes ahead. The economic slowdown in Japan and increased competition from new business models have also challenged its growth.

In China, 7-ELEVEN is experiencing fierce competition from both established regional players and new business types like food delivery and instant retail, which have further divided the convenience store market.

03 Business Operations ★★★

7-ELEVEN operates under a franchise model in China, with various regional partners holding rights in different areas. For example, the Beijing-Tianjin area is managed by 7-ELEVEN (Beijing) Co., Ltd., while Guangdong Saiyi Convenience Stores handles South China.

The core competitiveness of 7-ELEVEN, according to its China chairman and general manager Yan Qian, lies in its products.

Since 2005, Seven & i Holdings has developed its own high-end private label, Seven Premium, focusing on high-quality, safe, and competitively priced products. By 2023, Seven Premium accounted for 70% of sales in 7-ELEVEN stores and had over 3,400 product items, with 300 exceeding annual sales of ¥1 billion.

7-ELEVEN typically offers around 2,900 SKUs per store, with private-label items making up more than 68%, covering categories from food to daily necessities.

Additionally, 7-ELEVEN has invested in improving fresh food, with teams supporting factories in areas such as rice, sandwiches, and noodles. It has also strengthened its online sales, with FF fresh food accounting for half of its delivery share.

7-ELEVEN's supply chain is highly developed, using a unified, temperature-controlled distribution model, with daily deliveries three times per day to maintain freshness.

While 7-ELEVEN promotes 24-hour operations, not all stores operate round-the-clock in China. Stores in some areas, such as near universities or remote locations, close early.

Despite strong back-end infrastructure, 7-ELEVEN has shown few innovations compared to competitors like Lawson and FamilyMart, which have implemented new store formats and strategies.

04 Brand Value and Consumer Preference ★★★

Although 7-ELEVEN has high consumer acceptance, its marketing efforts in China have not always been successful, leading to reputational issues. For instance, incidents like the banning of Nongfu Spring products in two stores in Jiang