Expanding the brand through acquisition

This Case Study investigates how 7-Eleven Australia managed the acquisition of 295 Mobil/Quix branded stores. It examines how 7-Eleven Australia developed strategies to effectively manage the complex integration of two business operations as part of a change management process. It also evaluates the ongoing success of this strategic change, with particular reference to the process of store conversions.

As a result of reading this Case Study, students should be able to:

• Describe the acquisition undertaken by 7-Eleven Australia in response to pressures and opportunities for change 
• Explain the activities undertaken by 7-Eleven Australia to integrate the two business operations with reference to a change management process
• Evaluate the success of the acquisition and store conversions program.

Introduction

7-Eleven is Australia’s leading convenience retailer operating more than 650 stores along the eastern seaboard of Australia. As a privately-owned Australian company, 7-Eleven Stores Pty Ltd develops and franchises stores under license from 7-Eleven Inc, USA.

What is change management?

The commercial world is a dynamic and evolving environment. Structural change refers to longer-term change that fundamentally alters the major structures and activities of an organisation thereby impacting on all internal and external stakeholders. 

Ensuring effective engagement

It is vital that organisations anticipate the effect that change will have on stakeholders and work processes so they can plan appropriately to manage problems and reinforce positive outcomes brought about by change. 

Getting the look

A key part of the acquisition was the rebranding of the Mobil/Quix stores. 7-Eleven has invested heavily in its brand, signage, promotional materials, store layout and other identifying features and needed to convert its new stores not only to its operational system, but also to the 7-Eleven look.

Managing processes and procedures

To reinforce the integration 7-Eleven Australia had to train new franchisees in the company’s systems and processes. One of the advantages of having existing franchisees take up another store was that they required less training. Conclusion

Conclusion

7-Eleven Australia has embarked upon an ambitious but well-managed expansion through horizontal acquisition. 

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Introduction

7-Eleven Australia, home of the iconic Slurpee, has been embarking on an ongoing strategic process of modernisation and change in order to remain competitive in the constantly evolving convenience retailing market segment. One of the key commercial pressures facing the company has been the move of the retail giants Woolworths and Coles (Wesfarmers) into the petrol retailing market segment.

In 2010, 7-Eleven Australia undertook a major strategic change by acquiring 295 outlets from Strasburger Enterprises (Properties), the retail subsidiary of Mobil Oil Australia which operated stores using Mobil and Quix branding. This horizontal integration involved 7-Eleven Australia taking over not only all of the stores (and their operators) but also all employees of Strasburger Enterprises (Properties). Corporate mergers and acquisitions are subject to approval by the Australian Competition and Consumer Commission (ACCC) as part ofregulations to limit unfair market power. The acquisition was approved; however the company had to divest three outlets. 7-Eleven Australia also on-sold 30 South Australian stores to another corporation as they did not have an operational base in that state.

One of the key objectives of this acquisition was for 7-Eleven Australia to become the market leader in convenience retailing throughout the eastern states of Australia. The acquisition increased the number of 7-Eleven outlets by 62 percent. As a result the company expects the number of transactions to grow by 75 percent and sales growth in

excess of 50 percent.

The acquisition sees 7-Eleven Australia grow to be Australia’s third largest privately-owned company (excluding superannuation funds). The challenges presented by this acquisition are complex and ongoing, and as such, they needed to establish an effective change management process to properly manage this major strategic change in a timely fashion.

What is change management?

Under the deal 7-Eleven Australia were to take over the retail outlets as well as the 105 ‘above store’ staff (i.e. corporate and management) and 1750 store employees. 7-Eleven Australia also had to anticipate the impact of the changes on its operations including finance, HR, marketing, merchandising and supply chain and other management, administration and operational functions. Essentially it had to manage the merger of two similar but separate corporate entities, without alienating key stakeholders, whilst still operating within the highly competitive retail convenience market.

In its simplest form a change management process can assist an organisation to move from a ‘current state’ to a ‘desired state’. There are many different change management processes with slightly different steps; however these processes usually include three main phases.

A change management process allows an organisation to develop a consistent planning and implementation framework that sets down clear objectives for relevant stakeholders. The development of this action plan unites stakeholders in the pursuit of common goals and supports communication and transparency.

Throughout its preparation phase, 7-Eleven Australia undertook extensive planning and consultation. This included confidential legal, financial and operational planning at executive and senior management level, as well as planning related to the acquisition itself. Activities associated with this planning phase included broader goal-setting, the development of key timelines and the establishment of key working parties and committees to drive the integration of the two entities.

Once the acquisition was announced on May 27th, 2010, the company moved into its integration phase. Key planning decisions were delegated and became shorter-term and more tactical so as to drive and support the logistics of the integration. 7-Eleven Australia established three discreet timelines to manage the change:

A platform of seven key objectives were developed (below) and communicated to all relevant stakeholders as integration priorities.

One of the most effective tools that can be used as part of a change management process is a SWOT diagram. A SWOT diagram allows an organisation to analyse its internal strengths and weaknesses and major external opportunities and threats that it might face. As an example, 7-Eleven Australia could be said to have been facing the following strengths, weaknesses, opportunities and threats leading up to the acquisition.

Ensuring effective engagement

The ongoing management of the integration was conducted by a Program Management Office (PMO) which was given responsibility for developing the master plan and other tactical applications of the integration process. 7-Eleven Australia identified 16 workstreams representing its key divisions and operations such as fuel, merchandise management, store conversions as well as finance, IT, HR and others. These workstreams were charged with the responsibility for integrating the ‘equivalent’ function in the acquired business.

The PMO developed and provided the tools and support needed to help these workstreams manage their responsibilities and activities as part of the integration process. Tools included planning templates, risk management models, communication processes and others. The PMO also handled all communication, liaising with both the senior steering committees and the action-oriented workstreams. This model allowed for maximum consultation, feedback and support with all communication

channelled through one working group. The PMO also implemented a framework to map dependencies across workstreams so as to ensure that physical, human and other resources would be available when needed to enable timelines to be met.

A key to effective change management is to overcome resistance and ensure stakeholder and employee engagement. One of the company’s key principles for the integration was “Creating one culture and avoiding an ‘us and them’ attitude.” The establishment of the Joint Steering Committee, featuring representatives across both businesses, meant that the decisionmaking processes were transparent and open.

When a business is acquired employees naturally feel threatened. This acquisition required 105 corporate and 1,750 store employees from Mobil Oil Australia and Strasburger Enterprises to be absorbed into the 7-Eleven team. 7-Eleven Australia itself had 450 employees with all stores owned by franchisees. It developed and offered comparable or alternative positions to new staff, conducted appropriate induction programs, converted employment contracts and working arrangements and expanded its corporate headquarters in Glen Waverley to house the new ‘corporate’ employees.

A key change management objective of 7-Eleven Australia was “clarity of decision-making processes”. During the planning phase the workstreams worked with the PMO to develop detailed integration plans. After approval by the steering committee each workstream leader had responsibility for delivering on the plans within timeframes and cost guidelines. This consultative process engaged key employees and franchisees, as well as potential franchisees from the Mobil/Quix stores and supported two-way communication.

The workstreams were as closely aligned as possible across the two businesses with key staff from each responsible for enacting the integration. The workstreams met weekly and determined issues and risks, reported on milestones and tasks and set down key objectives and decisions to be made. Demand for 7-Eleven franchises had outstripped supply so the acquisition provided hundreds of opportunities for both new and existing franchisees. More than half of the converted stores were taken up by existing franchisees and corporate staff and their family members. A small number of Mobil/Quix operators who previously ran their stores as commission agents, and some corporate Store Managers, took up the offer to become 7-Eleven franchisees and underwent a franchisee training program.

7-Eleven Australia had previous experience in managing acquisition-related change when it took over a number of Burmah and BP outlets in the early 2000s. At first they operated a number of co-branded sites because it believed maintaining the familiar fuel brand provided a more credible fuel offer for customers. However, as a trial they converted a handful of these stores completely to the 7-Eleven brand. The company discovered that after these sites were fully converted that although fuel volumes fell initially, merchandise sales grew significantly and overall profitability was enhanced for franchisees. The company applied these lessons to create synergies with this acquisition.

Getting the look

A key part of the acquisition was the rebranding of the Mobil/Quix stores. 7-Eleven has invested heavily in its brand, signage, promotional materials, store layout and other identifying features and needed to convert its new stores not only to its operational system, but also to the 7-Eleven look. As part of the ongoing integration phase many sites needed to be significantly upgraded. A key objective was to change these sites from being seen as ‘service stations’ and instead be remodeled and rebranded into sophisticated convenience retail outlets more associated with 7-Eleven’s core branding strategy.

Old Store

The changeover extended well beyond simple tweaks such as getting new signage and sticking in a Slurpee machine. Some stores required major building and site infrastructure work, retail fit-out and equipment had to be changed to match 7-Eleven systems and all signage and promotional material had to be changed.

7-Eleven Australia started to convert the first 30 stores between October and December 2011 as part of the ‘first 100 days’ phase. Planning permits were secured back in July 2010 so as to allow enough lead time for council approval. At first they converted the larger Quix sites as these required less external building work. Subsequent to this the company planned onconverting five stores a week, nationally, throughout 2011. By October 2011, it had converted in excess of 100 stores.

New Store

One of the key priorities for the integration was a focus on achieving, “business as usual as quickly as possible with minimal impact to the customer”. Therefore it was vital that the conversions were carried out as expertly as possible. Each conversion averaged about six weeks and conversions were spread across different states at the same time.

New franchisees reported that store customers felt the refurbished 7-Eleven stores had an improved atmosphere, with brighter lighting and a more functional layout. They added that features of 7-Eleven stores such as the ‘Slurpee zone’ and ‘munch’ fresh food range were proving exceptionally popular. Customer exit surveys also found an increase in satisfaction after the conversion due to the new layout, brighter illumination, more spacious aisles and, “friendly service from staff”.

Managing processes and procedures

To reinforce the integration 7-Eleven Australia had to train new franchisees in the company’s systems and processes. One of the advantages of having existing franchisees take up another store was that they required less training. The company also had to train some staff internally to act as changeover specialists. It also had to modify its franchisee training program and source and train new trainers.

7-Eleven Australia has developed a number of internal support systems such as the Franchisee Matrix used for store performance mapping, an automated stock reordering system, their sophisticated and timely intranet communications systems and more. As part of the synergies achieved through the acquisition these systems are

now deployed in the new stores with operators given appropriate training and ongoing coaching support. The company is now able to leverage its proven system to assist its new stores to increase profitability.

Stores can now take advantage of 7-Eleven’s innovative B2B system which automatically generates a stock replenishment order using scanned sales data, but which still allows franchisees to modify the order based on local conditions. The system can tailor stock levels, pricing, promotions and optimal store layouts to maximise customer spending. Franchisees can compare key performance indicators to benchmark against ‘like stores’. This allows franchisees to implement success strategies used in more profitable stores to improve their own performance.

The Franchisee Matrix allows real-time reporting of sales and profitability data by measuring store performance and engagement against ten financial and non-financial KPIs. This continuous improvement tool analyses strengths and weaknesses, and training and support is offered to franchisees through an Individual Store Development Plan.

The acquisition has also led to a strengthening of its supply chain. Fresh offerings are delivered overnight by Swire Cold storage. Dry goods are delivered on average twice a week by Metcash, who are now handling all dry goods deliveries throughout the entire 7-Eleven Australia store system, thereby improving economies of scale. Another outcome of the acquisition is that 7-Eleven Australia have signed an agreement with Mobil to be its sole fuel supplier.

Conclusion

those in the 7-Eleven Australia franchise system.