Eleven's turnaround plan requires heavy lifting to prevent the Couche-Tard acquisition. world news

The move shows Seven & I's determination to abandon the discounts that have weighed on its shares over the years.

Poor performance in the supermarket business didn't help either, making the Japanese company a ripe target for a takeover bid for Alimentation Couche-Tard Inc., owner of Circle-K.

The Canadian company announced an initial public offering on Seven and August, and sources said last week it increased its offer by 22 percent to about $47 billion. If the deal goes through, it would be the largest foreign purchase by a Japanese company.

Given pressure from Couche-Tard, Seven and I made an “inevitable decision” to split the business, said veteran independent analyst Akihito Nakai.

“It’s the only thing they can do,” he said.

Seven&I said it is “confident” it can unlock value for shareholders through a series of strategic actions and has set near-term growth targets, including an EBITDA revenue target of 100 billion yen ($670 million) in next fiscal year. York Unit.

Still, it's unclear how long shareholders will be willing to wait. Shareholders Artisan Partners and ValueAct Capital had previously asked Seven&I to take on what they saw as unnecessary bloat. The Japanese giant employs around 157,000 people around the world, in a business that encompasses clothing stores, supermarkets and restaurants.

The shift in portfolio strategy underscores Seven&I's “urgency to unlock value for shareholders,” Shunsuke Kuriyama, an analyst at Jefferies, said in a note.

In Japan, 7-Eleven stores have become a cultural landmark, known for their fresh food and ready supply of everything from toothpaste to socks.

Japanese stores are also highly profitable: operating margins are 27%, higher than the 3.5% for 7-Eleven stores outside Japan.

About 21,000 of 7-Eleven's 85,000 stores worldwide are in Japan, most of which are franchises. The Japanese convenience store market is also saturated: in addition, 7-Eleven faces stiff competition from rivals FamilyMart and Lawson.

Same-store sales fell slightly in the six months to September compared with a year earlier.

Reuters reported last month that some 7-Eleven owners are unhappy with the company's current strategy, citing concerns about competition from rivals, among other things.

Rapid implementation

One area poised for growth is mini-supermarkets, which stock larger, fresher foods than convenience stores.

Rival Aeon has built more than 1,100 of its “My Basket” stores, focusing on urban areas where the format is sought after by single and older shoppers. Aeon said it plans to double the number of My Basket stores.

7-Eleven launched its own mini-supermarket “SIP” in February.

“The minimarket SIP format is being tested and will ultimately create a second internal growth segment for the business,” said Michael Coston, analyst at consultancy Japan Consuming.

“The test results are promising and, once everything is finalized, it will be launched quickly,” he said in a note on investor research platform Smartkarma.

The focus on SIP stores shows that Seven and Ike will need to maintain some kind of relationship with the supermarket business it will operate in York, veteran analyst Nakai said.

“If they completely separate themselves from supermarkets, they won’t be able to implement new strategies,” he said. “Regardless of capital ties, they must continue to have a cooperative relationship.”

foreign business

Fixing 7-Eleven's large foreign business may be more difficult.

Seven&I last week cut its full-year profit forecast by a quarter. Morningstar analyst Lauren Tan said in a note after the earnings that it reflected “a more challenging environment with reduced consumer purchases.”

Seven & I appears unable to cut costs quickly enough to ease pressure on its margins, he said, adding that cost cutting is key to plans to increase returns in U.S. convenience store operations.

So far, the company has announced plans to close around 444 underperforming stores abroad. It is also developing fresh food offerings in the US.

The objective is a return on invested capital (ROIC), measuring profitability, of 10% by fiscal year 2030, up from 6.5% last year.

The question now is whether it can be delivered to investors quickly enough, especially given the perception that the company has been slow to respond to calls for change.

Consuming Japan's Coston said there is a lot of work to be done to transform foreign convenience stores into high-margin businesses like Japan's, including merchandising, positioning and marketing, as well as logistics.

“We might see some good improvements in three years, but five years is the minimum to start showing real gains,” he said.