The competition among 24-hour convenience stores is fierce. There is always one OK or 7-11 nearby, but they may dominate the world in the future.

Alimentation Couche-Tard (plus: ATD), the global owner of the Circle K brand of convenience stores, proposed to acquire Japan's 7-Eleven brand Seven & i (セブン&アイ, Japan: 3382). If successful, this transaction is expected to become the largest foreign acquisition of a Japanese company in history, and Couche-Tard will have more than 100,000 convenience stores around the world.

According to reports from Nikkei and Bloomberg, Stephen Hayes Dacus, chairman of the board of directors of Seven & i Holdings, has established a special committee to study the acquisition proposal. Seven & i Holdings said in a statement that it had received a non-binding preliminary proposal from ACT to acquire all of the group’s issued shares. Negotiations are "at a very early stage," a person familiar with the matter said.

The company stated that the special committee will conduct a prompt, careful and comprehensive review of the relevant proposals in accordance with the best interests of shareholders, emphasizing that no decision has been made at this time. If the transaction goes through, it will be the largest acquisition of a Japanese company by an overseas company in history.

7-Eleven has opened more than 85,800 branches worldwide and entered Happy Valley, Hong Kong in 1981

7-Eleven has a long history. It was established as early as 1927 in Dallas, Texas, USA. Later, in 1946, in order to advertise that it was open from 7 am to 11 pm, it was changed to its now well-known name. After nearly a century of development, 7-Eleven currently covers 21 countries and regions around the world and has opened more than 85,800 branches, of which 22,800 are in Japan.

In terms of entering Hong Kong, Dairy Milk Company (a subsidiary of Jardine Matheson Group, now renamed DFI Group) obtained authorization in 1981 to open its first 24-hour branch in Happy Valley, and expanded rapidly through franchising, with the slogan "There is one store for all." "Nearby" is the leading convenience store in Hong Kong.

Circle K opens 16,700 stores worldwide and will take back Hong Kong franchise in 2020

Circle K was founded in El Paso, Texas, in the United States in 1951. It currently covers 31 countries and regions around the world and has approximately 16,700 branches. Circle K entered Hong Kong later than 7-Eleven. In 1985, it was franchised by Leah Retail of the Fung Group (formerly known as Li & Fung Group) and opened its first branch in Hong Kong. ACT acquired all OK convenience stores from Fung Group in 2020 for a price of nearly HK$2.8 billion.

What is the background in acquisitions

Seven & i is currently being challenged by activist investor ValueAct Capital. In addition to the convenience store business, Seven & i currently also operates supermarkets Ito-Yokado, restaurants Denny's and even banking services. Activist investors threatened that if the company only had convenience store business, the company's stock price would reach 8,500 yen, much higher than the 2,161 yen after Monday's sharp rise.

OK buying 7 Chai may affect the Hong Kong retail market

If the two major brands eventually merge, there will be adjustment variables when 7-Eleven's franchise contract expires. For example, ATD may buy back the business from Jardine and reorganize it, or Jardine may continue to operate but give up part of the business or even franchise. Businesses can add terms to restrict competition with the Circle K brand, etc. In any case, the adjusted number of branches will face the possibility of decline in the short term.

The decrease in the number of leased branches may first affect the retail market. At present, due to the competitive relationship between the two major brands, there are a total of 3 OK and 7's stores in some shopping malls at the same time, resulting in a rush for rent. Examples of two or three convenience stores appearing on the same street can be seen in Hong Kong Weekend Street. News about convenience store leasing often appears in the market. In May this year, 7-11 Haiphong Road, Tsim Sha Tsui, caused widespread discussion because the rent of the shop was increased by 50%. The shop is located on the ground floor and first floor of No. 47 Haiphong Road, with a total area of ​​about 1,100 square feet. 7 -11 Convenience Store renewed its lease for about NT$470,000, with the rent per square foot being NT$427. Compared with the previous lease, the rent was increased by 50%. Netizens heatedly discussed that they had to sell 1,560 Slurpees a day to pay the rent; as for the same street, there are also Circle K, this shop is located on the ground floor of No. 31 Haiphong Road, with an area of ​​about 893 square feet. It is reported that the rent will be rented for NT$180,000 in 2022. If we refer to the rent increase rate of 7-11, the Circle K’s next lease may be close to NT$300,000. 

If the two stores can really complete the merger, the decrease in the number of stores will weaken the phenomenon of rent grabbing, or lead to a general decrease in store rents, and the number of leases may also drop significantly.

Mergers may lead to the replacement of small shops with large ones

If the two major brands merge, the same street mentioned above may not necessarily need two sales points. Some experts believe that the two major brands will reduce the overall size of their stores. If the design is reduced by 10%, the store will lose more than 140 leases, which is extremely detrimental in the long run.

However, there is also a possibility that on the one hand, the number of rental shops has dropped, and on the other hand, the two major brands may choose to consolidate their small shops to larger ones to provide more services. For example, some branches of Circle K in Hong Kong currently have "hot & in" "Gourmet Bar", there are a large number of 7-Eleven and "7-Eleven". The merger means that baked pineapple pizza and fish egg siomai can be sold at the same time, but it is necessary to expand the space.

After checking the information, ATD's Couche-Tard convenience store brand in foreign countries has branches that even provide restroom services. If 7-Eleven is operated by ATD, there will be opportunities to add related services. In fact, due to the increase in services, small shops are being moved to larger ones. Ginza Kingswood Circle K has already seen the situation of small shops being moved to large ones. The store is equipped with two coffee machines, a salad sandwich freezer, and three ice creams. Cabinets, etc. If you want to sell curry fish eggs in the future, you will need to move them at any time.

The merger of two major brands faces many difficulties

OK and 7Zai are in a direct competitive relationship. Traditional business theory holds that reducing competition will make services worse, causing consumers to ultimately suffer, and ultimately affecting the merchants themselves. However, the merger does not mean there is no competition at all. Today, the two services are diversified and compete directly and indirectly with different industries. For example, "7Zai Food Stall" is related to the breakfast and afternoon tea markets, and some takeaway brands even operate express daily necessities services. , competing directly with convenience stores. At present, 7 Chai in Hong Kong is under the same brand as Wellcome Supermarket, and its own brand Meadows also sells 7 Chai. If Jardine Matheson divests 7 Chai, it means that major retail brands can strengthen cooperation with 7 Chai in the future, and there is also the opportunity to exchange 7 Chai points for PARKnSHOP The "miracle" of coupons.

However, for the two major brands in Hong Kong to merge, the first step is for Seven&i to pass the test, the second step is for the Multinational Competition Commission to not obstruct the monopoly situation, the third step is for the management merger between Global Circle K and 7-Eleven, and the fourth step is for Jardine Matheson to take over. At least four levels must be passed before it can be accomplished, and the market remains to be watched in detail.

Yin Hui, a senior lecturer at the Department of Marketing at Hang Seng University, said that since the United States is about to cut interest rates and the yen exchange rate is rising, 7-Eleven's valuation needs to be at a premium. At the same time, taking into account the relevant regulations of the competition commissions of various countries, it is estimated that it will not be reached in a short time. . Even if the acquisition of Circle K's parent company is successful, it will have to wait for the management merger of both parties and the completion of commercial contracts with suppliers, franchisees, etc. to have a substantial impact.