Who's Mining the Store?

CIO — 7-Eleven stores have always been packed with all kinds of stuff, from the mundane (cigarettes and beer) to the delightfully bizarre (Pina Colada Slurpees?!). But until recently, the stores were bare of IT systems.

By the mid-'90s, in an industry that thrives on local decision making, 7-Eleven had punted many of its stocking decisions to vendors such as Coke and Frito-Lay. These suppliers knew better than headquarters what was selling and what wasn't, according to James Keyes, 7-Eleven's president and CEO. "We have lost our way a bit," he says, using the present tense because he believes the challenge of pinpointing what customers want—and when they want it—is far from over. Since Keyes took over in 2000, he has put a heavy emphasis on IT, not only to improve stocking decisions but also to deliver new services to customers.

Keyes' eyes were opened to the strategic importance of IT during a trip he made in 1990 to visit 7-Eleven's licensees in Japan. (At the time, he was an executive with 7-Eleven's retail gas business.) He was amazed by the way the stores customized their offerings to local demand and by the assortment of fresh foods they offered, from sushi to sandwiches. The Japanese did it with scanning data, rudimentary data warehouses and a nascent in-store ordering system. When he became CEO, Keyes knew that the U.S. stores had to do the same. At a time when 7-Eleven's traditional niche is being invaded by everyone from drug stores to Wal-Mart, the survival of the business may depend on it. We asked Keyes to explain what he does to get the people in his IT department to think like retailers.

CIO: How has 7-Eleven's use of technology changed over time?

James Keyes: Back in the '20s when people started buying refrigerators and stopped buying ice, we were small enough that the people in the stores were able to talk to customers one by one and ask, "You don't need ice, so what do you want instead?" In the next 50 years, the business became so complex that we lost touch with the customer; we couldn't just talk to them any more.

[Until 1995], we had virtually no technology in the stores at all. We didn't know what we sold by store. It was total guesswork. It would take us almost 20 days to collect sales data from the stores because it was all manual. Vendors were stocking our shelves themselves. The first step in 1995 was to automate the basic accounting functions. Then in 1997, we began layering other capabilities on top of that with the intention of being able to put decision making back into the stores.

We discovered that, with technology, we can track every item literally every hour and use that point-of-sale data to drive revenue. In effect, we have come full circle in our ability to respond to the needs of the customer. Because now, we can use technology as a surrogate for being able to talk to every customer who walks in the door. We don't just have to rely on items we know will sell quickly, like 12-packs of beer; we can actually stock something that we're taking a chance on. And in short order, we'll understand how the customer responds.

Before we had much technology in the stores, we used the approach of "space selling." To build sales and traffic, you'd use big displays and make customers literally trip over the product. But we discovered that you don't need a whole door full of Coca-Cola Classic for it to sell well, you can sell just as much with one shelf. That's freed up space to try something new—let's say Red Bull. We partnered with Red Bull and said, Let's give it a couple of shelves. When customers went to buy their Coca-Cola, they saw an equivalent display of Red Bull. And pretty quickly, we discovered that using space to drive new opportunities, rather than using it to [push known products harder], allowed us to increase our sales-per-square-foot in the stores.

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