Friday, April 4, 2014

Why are so many 7/11 in Thailand - 7 in my street alone?

Yeah we will get a 7/11 across the street, a new one. Not that we don't have 7/11s here - we have about 7 in a stretch of 1 Kilometer. But this one will be even closer - just across the street. I am wondering about the business concept: Why is 7/11 opening a new shop even next or opposite to an existing one?

So I did a little bit of research and found two kinds of answers: One is that Thai people don't like to walk (far), and so there is enough business for all of the shops.

The other explanation is that CP, who is the franchise business owner, doesn't really care about the success - so it gives you a licence as long as you pay for it. People told me that CP would even wait until it turns out your 7/11 runs well and then opens it's own one just next to you. That doesn't makle sense to cheat on your own business partners, but it wouldn't surpass me either if true.

Some numbers:

The first 7/11 in Thailand opened - according to Richard Barrow - on June 1st 1989 on Patpong Road in Bangkok.

The 7/11 Website says: "At the end of the year 2012, the Company had a total of 6,822 7-Eleven stores nationwide. Of the total, 3,177 stores are in Bangkok and vicinity (47 percent) and 3,645 stores are in provincial areas (53 percent). According to type of store, there are 2,984 corporate stores (44 percent), 3,320 franchise stores (48 percent) and 518 sub-area license stores (8 percent). Presently, an average of 8.3 million customers visit 7-Eleven stores each day."

So indeed nearly half of the shops belong to CP, while the others are franchised. The Global Post was running a story about the success of the minimarts in South East Asia. In Thailand the story is even more successful since CP is on e of the countries biggest food producers and can sell it's own products in it's 7/11 shops. A perfect combination.

On Thaivisa people gave advice about the estimated costs of a franchise licence (1.6 million Baht/5years) and the risks that comes with it (long working hours, competition, small profit margin).

CP itself gives a detailed overview about the costs for a 7/11 franchise:
Costs: Type 1 Type 2
Total - 1,480,000 ฿ 2,630,000 ฿


My conclusion is that the risk is pretty low for CP and Seven Eleven and it the benefits are bigger. First of all, rent and salaries are still low in Thailand for those shops. The turnover should cover it. CP clearly wants to dominate the market and location is key to this. They target Family Marts and others, but I doubt they could harm Tesco Express because of its fresh products.

Also, a Seven Eleven shop is very standardised, and can be set up within days. That saves a lot of money. Same goes for equipment: CP just orders large scale of shelves and gets good prices, I assume. And as above mentioned being your own supplier with some of the food things are more easy.

Do I like 7/11? Yes, because it is convenient and available. Forgot the milk? No problem? Want a snack: They wave it for you (what is modern Thai for heating, and means to warm it up in a microwave).