WHY DOES MORE THAN ONE 7-ELEVEn EXIST IN THE SAME MTR RAILWAY STATION

WHY DOES MORE THAN

ONE 7-ELEVEn EXIST IN

THE SAME MTR RAILWAY

STATION?

--THE REGIONAL CENTRALIZATION STRATEGY

GROUP 5

Ma Qiuyan 1155047010

Liu Mengyao 1155047007

Li Yuyang 1155046986

Ju Yibai 1155046945

Introduction

 One day, our group member Rachael shared with us one

of her interesting experiences in Hong Kong. When she

went out of the Kowloon Tong Station, she recharged her

Octopus in one 7-ELEVEn. However, just a few minutes

later, she surprisingly found another 7-ELEVEn after

turning the corner. Afterwards, we found that the same

phenomenon exists in many other places in Hong Kong.

According to the data, there is one 7-ELEVEn every 1.14

km^2 (1) in Hong Kong. We wondered why 7-ELEVEn locates

so densely. Won’t it decrease the profit obtained by one

single 7-ELEVEn store? Isn’t it a waste of resource?

Won’t it cause the dissatisfaction of the franchisees?

After we browsed the news reports (2), we knew that

the complaints from the franchisees do exist. And the

reduction of profit of single franchised 7-ELEVEn stores,

which is caused by the high density of the stores, really

bothers the franchisees. Here comes our question, why

does 7-ELEVEn still insist on setting up stores so

densely despite of these disadvantages?

In this report, we will analyze the reasons for

setting up stores so densely from the view of the parent

company of 7-ELEVEn.

Theory -- Regional centralized strategy

 Regional centralized strategy is a strategy in which

a company chooses to set up centralized and dense

branches in one particular area, especially in busy

areas.

Dominant position

 The high density of branches can help the company

gain dominant position in the market. Dense branches can

cover a larger scale of consumers than low-density

companies and then increase the market share to set its

dominant position, thus narrowing the living space of its

rivals.

Brand Effect

 The frequent appearance of the shop signs increases

the brand awareness. Not only the branch itself can be an

advertisement, but the frequent appearance of the shop

signs can have a multiplying effect on the image of the

company. Gradually, the image of the company will be

deeply into people’s minds.

At the same time, the regional centralization also

makes people realize the strength of the company and

believe in it, so that people will be more willing to buy

the products of the company.

With the brand name formed, the profit gained

increases.

Competition

 With branches gathering together, there exists harsh

competition among them. Since they supply consumers with

similar products and share the same brand name, the inner

competition forces them to offer better services and

provide a more comfortable environment for their

customers. This helps the parent company to ensure its

branches’ high quality operation.

Division of crowd

 Branches gathering together made us doubt whether the

branches would become useless and a waste of resources.

We must clarify that this kind of waste really exists on

some conditions. We must emphasize that this strategy

works only when the crowd’s mobility is great and the

passenger flow is large.

 Regional centralization does not mean opening two

same stores side by side. In fact, this is a strategy

which accords with the division of crowds. Each branch

caters to the need of different parts of consumers.

Lowering costs

 In the retail industry, when the branches of one

chain are densely located, the frequent appearance of the

store makes itself a natural advertisement. The company

does not need to invest a large sum of money to advertise

via other media such as TV, newspapers or broadcast. This

reduces the advertisement costs to a large degree.

 Regional centralization means that the distances

between branches are relatively small, which helps

decrease the delivery costs and increase the speed of

distribution. What’s more, to monitor the operation of

branches, inspection is necessary. The centralization can

smooth the process of inspection, which reduces the cost

of human resources and increase the efficiency.

Reasoning

Dominant position

 7-ELEVEn Hong Kong makes use of the regional

centralization strategy to help itself gain the dominant

position.

 In Hong Kong, there are currently over 970 7-ELEVEn

stores, while its biggest rival Circle K owns only 338

branches in HKSAR(3). In MTR stations and some urbanized

areas, there are even two or more 7-ELEVEn stores which

are located quite close to each other. Such high density

of 7-ELEVEn can help it monopolize the customer resources

in the nearby area. The goods and services provided by

the 7-ELEVEn chains within the same district can meet the

potential customers’ needs quite well, and thus reduce

the competitiveness of new comers. Given the fact that

the certain area is already crowded with 7-ELEVEn stores,

with little profit left to gain, its rivals tend to be

more unwilling to choose to set up branches in the area

as new comers.

 So we can see that, 7-ELEVEn uses the regional

centralization strategy to get the dominant position,

narrow the upside of its rivals and occupy the

marketplace in a certain area successfully and radically.

Brand name

 7-ELEVEn makes use of the regional centralization

strategy to make the frequent appearance of the shop

signs, which in order to increase the brand awareness.

 As we can find in the Google map(4), 7-ELEVEn

distributes around the public transport network and there

are more than one 7-ELEVEn stores in the stations which

bear the greatest number of passengers. The survey shows

that the passenger flow of Tsuen Wan  train station adds

up to about 2660000 every day(5),which means there are

about 70000 passengers passing the station every hour.

Apparently, setting up stores in this area can first let

more people know about the brand name. Applying

centralization in this area can increase the frequency of

people seeing the store sign. As is shown in the research

of psychology (6), if a word is repeated for only one

time, the rate of recalling is only about 28%. But if the

word is repeated for 2 times, the rate of recalling

arrives at 47%. According to these researches, the

specialists of repetition in advertisement hold the view

that the more times an advertisement is repeated, the

better effect the advertisement will have. Given that the

existence of a 7-ELEVEn convenient store is an

advertisement itself, the centralization of the 7-

ELEVEnstores means the repetition of the appearance of

the 7-ELEVEn store sign, and also means the repetition of

the advertisement to disseminate the brand name of 7-

ELEVEn.Moreover,the shop sign of  7-ELEVEn which exists

nearly everywhere really makes us believe in the strength

of 7-ELEVEn.People tend to be more unworried about the

quality of the products and willing to go into the

convenient store to consume.

 So we can see that, 7-ELEVEn uses the regional

centralization strategy to strengthen its brand effect

successfully by setting up 7-ELEVEn stores densely to

increase the frequency of the appearance of its brand

name, which makes 7-ELEVEn a store known by every family

in Hong Kong.

Competition

7-ELEVEn makes use of the regional centralization

strategy to form a competition environment between each

franchised 7-ELEVEn store and improve the condition of

the branches unknowingly.

As two or more 7-ELEVEn stores are so close to each

other in particular areas, it’s apparent that there

exists competition among them even though they belong to

one company. If one store fails to provide with customers

the high-quality goods and services they deserve, it will

fall behind its counterparts and be left out by its

consumers. Therefore, in order to attract more customers

and surpass other franchisees, every store must try its

best to behave better. Due to the competition, one

franchisee have to improve the soft power to be more

competitive, such as providing better service, keeping

the store clean and tidy, showing patience, smiling to

customers and so on. What’s more, they ought to make sure

their goods are fresh and displayed in order, they are

supposed to keep high speed when collecting money. In

this way, even when there is a lack of monitoring from

parent company sometimes, 7-ELEVEn stores can still

provide high-quality services to satisfy customers.

So we can see that, 7-ELEVEn uses the regional

centralization strategy to make a competition between its

branches in a certain area and motivate the development

of each 7-ELEVEn store successfully.

Division of crowd

7-ELEVEn’s making use of the regional centralization

strategy adapt to the objective condition. Although 7-

ELEVEn stores distribute very close to each other, they

are not likely to be side by side, because even though

they are close, they also serve for different group of

people.

For instance, 7-ELEVEn sets up stores in the same

train station, but not in the same exit. In fact, as is

shown in the Google map (7), 7-ELEVEn stores distribute

in the different exits of MTR station. And this realizes

what we called the division of crowds. This kind of

division exists only when the crowd has a specific

flowing direction and flow in a high speed. MTR station

is just a place which satisfies the conditions. It is

even impossible for the passengers to detour to buy

things. With the crowd flowing in the specific direction,

though stores locate densely, they actually serve for

different group of people who go in different directions.

If we set up only one store in the same station, we will

lose the other customers leaving from other exits. The

scientific dense distribution of 7-ELEVEn in fact

increases the market share of 7-ELEVEn and in fact not a

waste of resource.

So we can see that, 7-ELEVEn uses the regional

centralization strategy to meet with the division of

crowds and keep its market share.

Lowering costs

7-ELEVEn is a business organization. To own profit, it

makes use of the regional centralization strategy in

order to lower its costs. And the costs that saved

through this strategy includes the aspects of

advertisements, logistics and management.

As is mentioned before, the 7-ELEVEn stores themselves

are wonderful advertisements for the company, they help

the company lower the advertisement costs. The rough

budget of a single light box advertisement in MTR station

is about 10,000 Hong Kong dollars. (8) These statistics

tell us that the advertisement cost is a big part of

costs. In our daily life, because of the frequent

appearance of 7-ELEVEn stores, the outdoor advertisements

are not needed. The neon lights of the stores have

realized the function of advertisement and then reduce

the cost of advertisements.

7-ELEVEn HK has its own logistical system. To

guarantee that the goods provided by the branches are

standardized, the restocking process of  individual

branches relies on 7-ELEVEn’s  logistical system to a

large extent. Considering the high land rent and heavy

traffic in HK, the cost spent on the logistical process

such as storage and distribution can be considerably

high. If the 7-ELEVEn fail to control its spend on

logistic, they will certainly suffer from loss of money.

Regional centralization does not seem a bad way to reduce

the expenses on logistic. With the density of 7-ELEVEn

stores, one single truckload of goods, for instance, will

travel less distance compared with the situation where

stores are loosely located, because the branches within

the area itself are sufficient to digest the mass of the

goods. Accordingly, warehouses can be designed to be

located near the areas where 7-ELEVEn stores are rather

dense. Regional centralization plus scientific planning

do save 7-ELEVEn a lot on logistic. For the same reason,

the traveling expense and time spent on the inspection

process, which happens once a week when the 7-ELEVEn HK

headquarter sends inspectors door to door (9) to ensure

hospitality provided by the branches, is saved to a large

extent. This significant advantage caused by density is

the so called economy of scale.

So we can find that, using the regional centralization

strategy, 7-ELEVEn opens its branches densely, and the

economy of scale does have a profound effect on saving 7-

ELEVEn’s expenses.

Evidence

Dominant position

The centralization of the stores plays a very

important role in gaining the dominant position of retail

industry.

The failure of  7-ELEVEn in Guangdong demonstrates our

assumption.(10)Though 7-ELEVEn got into the  market of

Guangdong in 2003, 7 years earlier than V ango, 7-ELEVEn

lost its position in the retail industry because the wild

expanding of V ango. According to this news, V ango set

up 10 more stores along one single railway line and

realize the regional centralization strategy. This really

frustrates the sales of 7-ELEVEn. In 2013, 18 7-ELEVEn

stores closed because of the loss of market share. This

news insinuates the importance of centralization of

stores.

Centralization expands the market as large as

possible. When we face need of consumption, we can always

find the store among our choice, and this is just how

centralization works.

Brand name

As we mentioned above, 7-ELEVEn makes use of the

regional centralization strategy to make the frequent

appearance of the shop signs, this practice has a brand

effect on the customers. According to the psychology

research above, the repetition of the shop signs will

make people remember the brand more easily. During our

research, we also found a form of advertisement called

POP (Point of Purchase) advertising (11). The POP

advertising is a kind of advertisement that uses the

stores themselves to achieve the effect of publicity. So

the POP can account for our theory. Because the shop

signs of 7-ELEVEn stores are just an advertisement of

themselves. As the picture shows, the shop signs of 7-

ELEVEn are clear, concise and arresting, which can make a

good impression on the passers-by. Therefore, after

coming across many 7-ELEVEn shop signs, people will

naturally remember it and thus, the brand awareness of 7-

ELEVEn increases.

Competition

In education, there is a common method to motivate

student to study better, that is to make comparable

students compete with each other constantly. For example,

in mainland China, there are so-called “key classes”.

This kind of class gathers the top students of one grade,

which aims to make the top students compete with others

and make greater progress. To surpass other students, one

top student must spend more time in studying and

constantly improve his or her study methods. Similarly,

the competition among 7-ELEVEn stores is the same. Since

two stores are close, their competition can improve them

both and satisfy customers better.

Division of crowd

The location is always the key component of a store’s

success. The place where the store chose should guarantee

adequate customer resource. So it is very important to

recognize the division of crowd. A new group of customers

means a new market where a new store is needed.

In Hong Kong, Circle K and 7-ELEVEn compete with each

other but they can still profit without beating opponent

and develop healthily. That is because they recognize the

division of crowd during the competition process. You

will not find Circle K and 7-ELEVEn appear in the same

street or in the same exit of MTR. Though they might be

close to each other, they must target to different group

of people and this helps them to maintain their sales

volume.

However, in reality, it is very difficult to precisely

recognize the division of crowd. So this difficulty might

cause the failure of the stores. As we mentioned before,

the centralization arouse the complaints of franchisees,

the sharing of the same group of customers decrease the

sales volume and then influence the expansion of

business.

Lowering costs

In fact, the benefit of regional centralization

elucidated in the 7-ELEVEn case also lies in the economy

of scale in the logistic process. This economy of scale

phenomenon is also observed in transportation industry

such that the cost per unit reduces accordingly with the

expansion of transportation output network（12）. Take the

transportation industry in Zhejiang ， China ， for

example（13）.In 2002 , there were only 653 independent-

accounting transportation firms in Zhejiang Province,

none of which held more than 2% of Zhejiang’s market

share, with the total revenue no more than 13 billion

Yuan.  These dates insinuate that transportation industry

in Zhejiang was far from economy of scale. So it was

suggested by one economic researcher that managers in

those firms should merge single deals, vehicles and

storage, and in the meantime conduct rational planning of

logistics.

So now we look back into the 7-ELEVEn case. The dense

distribution of branch stores really creates conditions

for 7-ELEVEn to plan the logistic process more rationally

and display its advantage of mature logistics. From this

prospective, 7-ELEVEn does perform quite well in merging

resources and planning logistics.

Conclusion

At present, let’s return to the question that we rose

at the beginning.

Why does 7-ELEVEn still insist on setting up stores so

densely despite of the disadvantages?

Apparently, 7-ELEVEn insists on this strategy which we

call the regional centralized strategy owing to the

advantages of it. First of all, centralization helps 7-

ELEVEn to narrow the living space of its rivals and gain

the dominant position in every certain area. Secondly,

centralization helps 7-ELEVEn to strengthen the brand

effect through increasing the frequency of its shop sign.

Thirdly, the centralization can form the competition

among the 7-ELEVEn stores that have the same brand, and

this competition can motivate the development of the

stores such as the environment and the service attitude,

etc. Fourthly, the essential purpose that 7-ELEVEn sets

up more than one branch in one certain area where exists

a large flowing crowd is to serve for different group of

consumers. Last but not least, the centralization of 7-

ELEVEn does decrease the costs of advertisement,

logistic, management and so on which gains more space for

profits.

According to our theory, one important condition where

the centralization strategy works is the existence of the

division of crowd. However, how can we find a standard to

define the existence of division? How can we guarantee

the adequate customers resource for each branch? We

cannot find a specific answer. Can a distance of 1 KM

guarantee the existence of division? Perhaps in a city

with low living pace, 1KM cannot prevent the interference

between these two similar stores. Will the distance of

100 influences the sales volume of stores? Not always. In

the train station where the flow of passengers is fast,

the stores located in different exits can guarantee their

adequate customer resources. So we are confused and not

sure about our judgments. The possible errors really

contribute to the loss of some franchisees. (14) From the

news, we find that the blind expansion of scale of 7-

ELEVEn makes some franchisees hard to live their life.

Without the guaranteeing the profit of store, the

investment passion of potential franchisees will be

dampened. This will block the way of expanding the scale

of 7-ELEVEn. So we need to control centralization in a

suitable range and we must be careful to identify whether

the region is suitable for centralization.

During our research, we discovered many advantages of

regional centralized strategy. Later we associate our

campus with the strategy. The Chinese University of Hong

Kong is located on a mountain, the student’s hostels

spread from the bottom to the top of the mountain. There

actually are two groups of students: at the foot of the

mountain and on the back of the mountain. However, there

is only one supermarket and one snack store at the

central campus. This brings a great deal of inconvenience

to the students living on the top of the mountain. If

they are short of articles for daily use, they have no

choice but to spend a lot of time and energy in going

down the mountain to buy the necessities in the PARKnSHOP

supermarket. Meanwhile, some special snacks are only

provided by Women Cooperative Store. This forms what we

call division of crowd. Therefore, the limit of the

supermarket and the snack shops really trouble a number

of students. Some students will cut the times going to

the two places. This reduces the profit gained by them.

Then we can apply the regional centralization strategy.

We need more supermarkets and snack stores, at least one

more supermarket and the store built back in the mountain

to satisfy the students on the top of mountain. Thus, two

supermarkets and Women Cooperative Stores can caters to

the need of different students on the mountain. At the

same time, there will be competition among more

supermarkets and snack stores, gradually, they will

provide better services for students and earn more and

more profits.

In fact, the regional centralization strategy can be

wildly used in the retail industry especially the

operation of convenient stores, snacks stores and fast

food stores. The key is to find the suitable range of

centralization that can help the healthy development of

company.

References

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%22%5c%2fDate(1386076615812%2b0800)%5c%2f%22%2c%22Id

%22%3a%2230b98e79-7cb0-4d17-9ab5-a289015eb82a%22%2c

%22ProductDetail%22%3a%22Periodical_tqjj200501112%22%2c

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d24dd9fe90e0%22%2c%22Signature%22%3a

%22al3f3qr0XwvQhnUirSzin5%2bjNGqbVLNtB1WrSgwvkTcpXM9Lx2HG

gmafdxEmS%2bSM%22%2c%22TransferIn%22%3a%7b%22AccountType

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