7-ELEVEN INDONESIA: INNOVATING IN EMERGING MARKETS Harvard Case Solution & Analysis

7-ELEVEN INDONESIA: INNOVATING IN EMERGING MARKETS Case Study Solution

7-Eleven model

PT modern had years of experience behind its back, therefore, it was able to utilize the experience when starting the 7-Eleven franchise. Other than the familiarity with the business model, PT modern had the advantage of Fuji film retail store where it started their all new venture, 7-eleven. The central kitchen was also built on the previous Fuji plant, the resource only available to the owners of PT Modern. PT Modern grabbed on to its opportunities which were only awarded to PT Modern. That is why it was difficult for other business to imitate this business model.

First of all, as rightly predicted by Honoris, not every new comer or any of the other market leader had the luxury to have vacant plants or even ghost retail stores. Due to this reason, it wasn’t possible for everyone to have their own central kitchen for fresh food. Moreover, the availability of a warehouse and a proper delivery system was the basic requirement of catering the customers with the fresh food and beverages. Secondly, there wasn’t enough trained staff to cater the needs of the customer. The new entrant would need to train the staff all over and would have to incur management cost. Thirdly, the convenient store owners had to make sure that they are being completely supported by the government. For that, there had to be certain restriction on the tradition small stores. But to their dismay, the government had no plans to regularise the mini-markets. Lastly, the other problem that would make this business model difficult to implement is that Indonesian youth consumed alcohol heavily. All the stores thrived on the alcohol sales but the alcohol sales be dented as the government was planning to restrict the sale of alcohol in convenience store. No alcohol in the hangout places would mean lesser young customers and low sale volume.

7-Eleven need to employ the following strategies:

• Though, Jakarta do have traffic problems, but 7-Eleven can start the online delivery service of its foods, beverages and other grocery items. The customers might get distracted by the small shops because they are conveniently placed near their houses, but if the people will have the food or other items delivered on their doorstep they might not go to the small shops.
• Opening more convenient stores through Indonesia would allow them to gain some market share. If they have to compete with other strong competitors, expanding the stores would be the right idea. (Mohanty, 2014)

Value Chain Analysis

The old Fuji film stores were converted into central Kitchen. The central kitchen helped 7-eleven to serve fresh food as it prepared 60-70 percent of its food. Though, the heavy traffic of Indonesia always created problems for delivering the food. The product couldn’t be delivered three or four times to the cafes hence it was only delivered at night. To have the safe delivery of the fresh food the company decided to take the help of Iron bird to deliver their products. The product was carried to the central warehouses from where they were delivered to the 7-Eleven stores via refrigerated trucks. Later in the day, the fresh food was easily packed and was served or delivered to the customers.

The taxi-calling service was offered in a partnership with Bluebird Group. People, especially females could call the taxi after filling a form on the tablet provided by Bluebird from the cashier department. The information of the taxi driver along with other information of taxi calling service was handled by the Blue Bird computer software.

VRIO Analysis

Value

Central kitchen was the major part of convenience store and it was highly valuable for 7-Eleven. The resource wasn’t expensive at all as, it was built on PT Modern’s already used Fuji plant. The company didn’t had to invest heavily on central Kitchen construction.

Rareness

Setting up the central kitchen required a big investment which is an essential part of the fresh food offering. The central kitchen requires investment in real estate and due to high real-estate prices, setting up Central Kitchen isn’t easy. One of the essential resources is hard build as 7-eleven had built it in Fuji plant which wasn’t available to every convenience store. Its rarity have given a competitive edge to the 7-Eleven.

Imitability

As discussed by Honuris, the competitors haven’t adopted the central kitchen idea as yet due to unavailability of complete funding. A heavy capital was required to build a central kitchen and plus have a huge chain of refrigerated trucks. Therefore, its imitability was highly difficult though possible due to heavy investment.

Organization  

The resources were supported by the convenience store and proper warehouse. The organization had plans to increase the eating area to better accommodate all the customers. The previous Fuji film stores have been converted into the 7-eleven stores hence providing efficient support to the resources.

Porter's Five Forces Analysis

Barriers to Entry:

1. The government doesn’t support the convenience stores, the way it is doing the small businesses like mom and pop shops. It is also planning to ban sale of alcohol in the convenient stores. As a result, newcomers will find it hard to establish their business and to compete with 7-Eleven.
2. 7-Eleven has the facility of its own central kitchen with an enhanced delivery service with refrigerated trucks. But, these luxuries are not available to the new entrants.

Threats of Substitute:

1. The items that are being offered by the convenience store are available at cheaper rates in small stalls located near residence of the Indonesian. People prefer to buy the everyday items from stalls located in nearby area. Hence threats of substitute is high.
2. Online shopping is one alternative to traditional shopping at the stores. People may order the items or food from any online store.

Supplier Power:

1. With the emergence of convenience stores in the emerging markets, many producers have fasten their seat belts to provide products at better quality. With the increased number of suppliers the bargaining power of suppliers is weak to moderate.

Bargaining power of buyer:

1. As there are huge number of suppliers for their grocery items, 7-Eleven have different supplier options to choose from.
2. Indonesia have abundance of rice producers, therefore, 7-Eleven can order rice for their rice dishes from any one of them. The company can negotiate the rates of raw material as per their budget.

Therefore, 7-Eleven has high bargaining power.

Competitive Rivalry:

1. Indomart and Alfamart were one of the fiercest rivals for 7-Eleven as they established themselves long before 7-Eleven. They also have a huge number of stores spread across Indonesia.
2. Warungs were the small stalls located in near residential areas, providing the utility items at cheaper rates.

It can be seen that 7-Eleven will have to face a tough rivalry from the competitors.

DEN STEP MODEL

Demographics

1. 7-Eleven had the opportunity to penetrate a hugely populated market as Indonesia had the total population of 252.8 million people.
2. The young population was 17.1% of total Indonesia population with youth and young adults falling in 15 and 24 age bracket.
3. With the growth of middle class people combined with young generation, 7-Eleven could see the demand for high quality product increasing.

Economic

1. Indonesia was a growing economy with a GDP of $888.5 billion. The income level of Indonesians were on a rise which could be seen by the increasing number of middle class people.

Social-cultural

1. 7-Eleven was eagerly interest to target young population because of their love for hanging out. This resulted in the idea of cafes alongside convenience stores.
2. Initially, there were no restriction on the consumption of alcohol as the young adults enjoyed drinking beer. This allowed 7-Eleven to earn from alcoholic products.

Technological

1. With the development of digitization, 7-eleven was able to provide digital services to its customers through digital kiosk called Sevelin.
2. People could call taxis from 7-eleven cafes using the application installed by Bluebird Group.

Ecological

1. The traffic problem of Jakarta wasn’t conducive for delivering the fresh food in the day time hence, the food was delivered in the night.

Political-judicial

1. The governor of Jakarta made stricter labor laws. The government ordered to increase the salaries of the employees by 12.5 percent increasing the cost for 7-Eleven.
2. The imposition of ban on selling beers in the convenience store would again cause problems for 7-Eleven as its business thrived on its sales.
3. The government was in no mood to regulate the mini-markets that threw tough challenges at the franchise

Recommendation

7-Eleven was a new franchise opened in the outskirts of Jakarta, Indonesia. The convenient store had one unique feature that it also shared space with a café specifically targeted for the young population of Indonesia. As people liked hanging out with friends, the owner Honoris came up with the innovative plan to combine store and café. The Franchise had its spate central kitchen that delivered fresh food and beverages to the café which was later served to the people. The convenience store made sure that it is adhering to the healthy lifestyle of youth and offered healthy and delicious food. With the central kitchen, the Franchise used Fujifilm stores for their good use and converted them to 7-Eleven stores.

The company however, is facing tough rivalry from the already established Indomart and Alfamart. Other than this, the government didn’t supported the convenience store as much as they should have adding to the difficulties of 7-Eleven. As a result, It is recommended to 7-Eleven to focus on e-commerce for the delivery of its products. If people will get the convenience of ordering the food and other products they will choose 7-Eleven over other rivals...........

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