7-Eleven, the Slurpee and a $47 billion takeover battle

The rainbow-hued blend of high-fructose corn syrup, flavoring and carbonated water—not exactly liquid, not exactly solid—is quintessential convenience-store fare. Quick, sweet, colorful and cheap, around $1 to $2 each.

Slurpees are big business, too. 7-Eleven, home of the Slurpee, sold 153 million of them in 2023—a brain-freezing cornerstone in an $80 billion empire of convenience. The sheer reach of 7-Eleven’s corporate parent, Tokyo-based Seven & i, spanning 85,000 stores dotted across 19 countries, is rivaled only by the range of goods stocked under its stores’ 24-hour fluorescent lighting. Potato chips. Bleach. Cigarettes. Sunglasses. Power-steering fluid.

7-Eleven’s drink dispensers and glistening roller-dogs have made it a cultural icon name-checked by Bruce Springsteen and Green Day, lampooned in “The Simpsons" and portrayed in the “Grand Theft Auto" videogame series. In the 2013 movie “Escape from Planet Earth," a Slurpee is given to an alien as a peace offering.

Now the chain is the object of a multibillion-dollar bidding war between would-be buyers on two continents. Quebec-based Alimentation Couche-Tard, which owns the Circle K convenience store chain, has offered $47 billion to buy it.

Seven & i rebuffed the Canadian firm’s initial offer, which would have augmented Couche-Tard’s existing stable of chain-store brands and powered international growth. This month, a son of the executive who founded 7-Eleven’s current owner submitted a higher bid, which would keep the brand in Japanese hands and prevent foreigners from meddling with the chain’s beloved rice balls and other local favorites.

7-Eleven was born in the U.S. a century ago. In the 1990s, it was acquired by a Japanese company that built it into the world’s largest convenience retailer on a diet of cutting-edge inventory management and logistics. Its green-and-orange branding is ubiquitous, but at the heart of its success are stores that are charmingly, assertively local: rice balls in Japan, Old Bay chicken sandwiches in the mid-Atlantic.

The 3,000-odd square feet of a typical 7-Eleven might look jam-packed and jumbled, but its roughly 3,000 different products are picked using detailed data that lets each store tailor its mix to local habits and tastes. One location should stock more bags of pretzels and another craft beer.

Thanks in part to the experience of its Japanese owner, which sells lots of fresh food from its stores, the chain is also mastering a distinctly American and surprisingly lucrative spot in food retail: “dashboard dining." The term refers to inexpensive food that can be eaten with one hand—boneless chicken wings, a Taco Cheese Taquito or a hot dog—and is suited for customers on the go. All that could be retail gold, its would-be buyers think.

But inflation has pinched the low- to middle-income shoppers who are the convenience-store industry’s mainstays, and 7-Eleven hasn’t been immune. (The majority of its sales are outside Japan.) Shares of the parent company were down 13% in the 12 months before Couche-Tard’s initial offer in August. In October, the company slashed its profit forecast for its current fiscal year by more than 40% to about $1.09 billion, citing sluggish demand caused by inflation.

That has given Couche-Tard an opening: A deal would give the combined companies the scale to cut costs by increasing their leverage over suppliers and consolidating deliveries to stores.

Texas-born

Before it was 7-Eleven, it was known as Southland Ice Co. Founded in Dallas in 1927 by Joe C. Thompson and several partners, the company started out marketing ice, but soon expanded, thanks to the suggestion of one employee, to groceries, cigarettes, gas and other products, a one-stop shopping concept that helped spread locations throughout the U.S. via franchising agreements. After expanding its hours of operation from 7 a.m. to 11 p.m., the chain decided in 1946 to change its name to 7-Eleven.

Another landmark came in 1959, when Kansas inventor Omar Knedlik and his business partner, Dean Sperry, collaborated with a Dallas manufacturer to perfect a frozen-beverage machine. Six years later, 7-Eleven bought three of the “Icee" machines and in the late 1960s renamed the beverage the Slurpee. The Icee, now produced by another company, is still popular at movie theaters and rival convenience chains.

After an Austin, Texas, store’s successful experiment with staying open 24 hours a day to tempt college students with late-night Slurpees, 7-Eleven had its formula.

“7-Eleven really represents in many ways the American dream," said James Keyes, who served as chief executive of 7-Eleven in the early 2000s.

The chain helped pioneer pairing retail with gas pumps, and spread automated teller machines that enabled basic banking within arm’s reach of beef jerky and granola bars. 7-Eleven’s franchisee program, Keyes said, is the first step for many immigrants looking to run a business in America.

In 1968, 7-Eleven parent Southland went public to help finance its expansion, which reached 8,200 stores by the late 1980s. It wasn’t immune to that decade’s financial turbulence, however. Seeking to avoid a takeover, the founding Thompson family in 1987 took Southland private in a leveraged buyout. It began selling assets to pay off its debts.

The chain filed for bankruptcy in 1990, and shortly afterward received a boost from across the Pacific.

Hurricane Suzuki

In 1974, a little-known Japanese retailer opened a 7-Eleven outpost in Tokyo. The store, which still operates on the same site today, was the starting point for an unlikely role reversal: The Japanese 7-Eleven chain within two decades grew big enough to take over its older U.S. sibling.

In the early 1970s, Toshifumi Suzuki was a midlevel executive at a company called Ito-Yokado, which ran a chain of Walmart-like general retailers in Japan. On visits to the U.S., Suzuki became intrigued with 7-Eleven stores, and how they made a much smaller format work.

Suzuki negotiated a licensing deal with Southland. Soon after opening the Tokyo location, his Japanese 7-Elevens rapidly multiplied, initially selling hamburgers and sandwiches. While U.S. 7-Eleven stores bet big on the Slurpee, the Japanese locations introduced rice balls and a traditional Japanese hot-pot dish called oden.

Like Southland, Suzuki tinkered with operations. At first, deliveries from as many as 70 trucks a day would cause traffic jams in front of Japan’s 7-Eleven stores. Starting in 1976, the company developed a new system that centralized delivery of products from various brands and suppliers, allowing the chain to replenish a store’s inventory with fewer than a dozen trucks today.

In 1982, 7-Eleven in Japan introduced item-by-item inventory management, using a computer system that helped stores order only what was needed based on real-time sales data, minimizing waste.

Suzuki stressed product freshness, frequent restocking, and a diverse lineup including ready-to-eat dishes matched to local tastes, and the chain thrived in Japan. When Southland filed for bankruptcy, he was ready to act, and in 1991 his Japanese company acquired a 70% stake in 7-Eleven’s parent. It bought the rest of the company in 2005.

When Suzuki started restructuring the chain’s U.S. operations, he was shocked by some stores’ condition—dimly lighted, dirty, with beer and cigarettes and soda cartons piled in the aisles. He wrote in an autobiography that he wondered: “Is this a warehouse?"

His determination to build everything from scratch, which he wrote earned him the nickname “Hurricane Suzuki," turned around the company in three years.

Part of the chain’s strength in the U.S. has come from an operational structure that grants individual store managers autonomy to decide on their product mix and delivery schedules. For example, stores on a college campus could carry more beer and chips; an interstate off-ramp location might keep a broader range of auto supplies and sunglasses.

7-Eleven stores monitor daily sales, and collect demographic information on which loyalty members are buying what. The stores also use a distribution system in which franchises place orders every day based on company recommendations of what’s selling well nationally and regionally.

The company has spent years trying to enhance its food offerings. It now uses more than a dozen so-called commissaries that make and supply food to its U.S. locations. Each individual commissary can tailor its products to what’s popular for the stores in its region. A new Virginia commissary makes an Old Bay chicken sandwich and a jalapeño steak sandwich. The company says some of its top-selling products include hot food: wings, pizza and taquitos.

Keyes, the former 7-Eleven CEO, said this model keeps 7-Eleven flexible compared with competitors that are beholden to centralized ordering systems. The company has been drawing on sales data as it stocks a wider range of food, adding more fresh fruit and prepackaged sandwiches, Keyes said. 7-Eleven these days commands nearly 2% of grocery sales in the U.S.—more than Trader Joe’s or Whole Foods, according to industry tracker Numerator.

7-Eleven’s strategy has been especially successful in Asia. In Thailand, which has the second-largest number of locations behind Japan, stores feature a range of traditional Thai food, including chicken Thai curry.

O Canada

Across the Pacific, a rival has had its eye on 7-Eleven for almost 20 years.

Canada’s Alimentation Couche-Tard started as a single convenience store outside Montreal in 1980, since then growing to include 16,800 stores spread across 31 countries, including Canada, Scandinavia, Germany, Hong Kong and the U.S.

Alain Bouchard, the company’s founder and executive chairman, built the company through a string of deals that included Total Energies retail assets in Europe and ConocoPhillips’s Circle K convenience stores in the U.S.

Bouchard approached executives at Seven & i, 7-Eleven’s parent, informally in the early 2000s to gauge whether there was any interest in a deal, but he was rebuffed, according to the authorized 2016 biography of Bouchard by Canadian journalist Guy Gendron.

Couche-Tard has been trying to diversify away from fuel and cigarette sales and sell more fresh food, which makes up 12% of its sales, according to a research report by Stifel. Fresh food represents about a third of 7-Eleven’s Japanese sales.

“We continue to see a strong opportunity to grow together and enhance our offerings and service to millions of customers across the globe," a Couche-Tard spokesman said. “We also remain confident in our ability to finance and complete this combination."

The U.S. is Couche-Tard’s largest market, where it has more than 7,100 stores operating under the Circle-K brand, second only to 7-Eleven’s nearly 13,000 stores.

Couche-Tard made its opening bid for Seven & i this summer, when it sent a proposal to buy the Japanese conglomerate for $39 billion. Seven & i—whose stock-market valuation in Tokyo was equivalent to about $30 billion the Friday before Couche-Tard publicly confirmed its offer—rejected the deal, saying the offer “grossly undervalues" the company.

Couche-Tard later raised its offer to roughly $47 billion. Seven & i is resisting. Alex Miller, Couche-Tard’s CEO, and Bouchard, the founder, visited Tokyo in October but couldn’t get a meeting with Seven & i executives.

Last month, Seven & i CEO Ryuichi Isaka said that the company had “potential for significant growth globally" and aimed to nearly double its revenue to about $200 billion by 2030. He also announced a restructuring plan including spinning off noncore businesses, including supermarkets.

Last week, Junro Ito, a Seven & i executive who is a son of late founder Masatoshi Ito, offered a proposal to take the company private. Steven Hayes Dacus, head of the Seven & i special board committee considering the proposals, said the committee was “committed to an objective review of all alternatives before us."

Pressure is growing on Seven & i to decide its future. 7-Eleven executives said in October they plan to close nearly 450 North American locations to cut costs as the company struggles to keep inflation-weary shoppers coming in. Cigarette sales are down 26% since 2019, an 80-year low, the company said.

Over the past year, 7-Eleven has been trying to improve some of its store-branded food offerings and sell more specialty beverages such as cappuccinos and lattes, which could help diversify the chain further from gas and tobacco sales.

Hidenori Yoshikawa, a consultant at Daiwa Institute of Research in Tokyo, said the cultural differences in the deal weren’t just about rice balls versus Slurpees, but also about the consequences of a big, disruptive transaction.

In the U.S., Yoshikawa said, “directors feel it’s their duty to sell to the highest bidder even if they offer one yen more." At Japanese companies, “more so than shareholder profit, the first point people turn their attention to is what the proper shape of their community should be."

Megumi Fujikawa contributed to this article.

Write to Patrick Thomas at patrick.thomas@wsj.com, Vipal Monga at vipal.monga@wsj.com and Miho Inada at miho.inada@wsj.com