I am concerned about the move by some suppliers to support the convenience channel over the newsagency channel. In Victoria, for example, Myki (transport tickets) were available in 7-Eleven ahead of newsagents and now Myki tickets feature in 7-Eleven ads. Tatts completed a direct to point of sale integration with 7-Eleven when they told me that they could not do any such integration because the government agreement precluded it.
It is concerning to see 7-Eleven get such arrangements in place ahead of newsagents. We were the natural home of each of these products. Now, 7-Eleven has a better and more relevant offer for convenience shoppers. This, coupled with their significant expansion in fuel, makes them our strongest competitor in this convenience space.
In the magazine space 7-Eleven is ahead of us too. They have control over their product mix and quantity. I suspect they are paid a promotion fee for counter offers.
In the telco recharge space I suspect they are treated differently too but I con’t be sure. Better margin maybe? Rebates? I am confident they are on a deal with Apple on their vouchers.
Does any of this matter? That depends on whether you see your newsagency as a convenience business or a destination store. I’ll be covering this fundamental question in the Newsagency of the Future series.
Just read annual statinery retail report for China Market, and found one of features is that competition changed from store/group vs store/group to supply chain vs supply chain. Chinese manufacturers are integrating with retail/distribution channels and service providers.
I think the key is how our channel integrates with supply chains and how much we need to invest for the integration.
According to 7-11’s own guidelines. Average cost to buy a 7-11 store is $900K, Average net profit is $150K, p.a.
That’s an earnings multiple of 6 !
Newsagencies are at best 3 and declining.
Our fundamental business isssues are the same; (i) getting people to buy stuff off us instead of the majors, (ii) leveraging traffic and (iii) basket size. We need to understand the reasons why their multiple can be so much greater.
KMc Tthe valuation is connected to the franchise agreement that underpins the 7-Eleven model.
Seriously why would you even consider purchasing a 7/11 for 900K returning a 150K income! That is a hell of a lot of money they are paying to sell petrol!- which is the only differential between the stores! Crazy… Why would the banking system even consider lending for it.. Makes newsagencies look fantastic value for money in comparison….
Natalie because its likely that the net return will grow signiicantly over the term of the franchisees holding. From my understanding of how 7/11 works from knowing someone who is a franchisee, 7/11 “own ” the site and the franchisees basically commit to manage the day to day running of the site to the standard set by 7/11 (Australia Post actually also does a similar thing with some of its businesses as opposed to having LPOs) . The franchisee is responsible for all hirings and firing though 7/11 provides a pay system for employees and full book keeping and reporting. 7/11 also provides all negotiated deals for the store though the size of the store allows some sites to opt out of certain products and ranges.
There is a two part payment to “buy” a 7/11. Theres a franchise fee paid to 7/11 and the previous owners goodwill. I believe this means it is possible to purchase a 7/11 with multiples that vary both above and below 6 times. From what I was told many of the new ones that have sprung up as a result of the Caltex petrol site takeovers should be returning much better than 150K and would have been purchased by the current franchisees for multiples of less than 6.
7/11 apparently also very much pushes that their business is a stable asset model with very very high levels of corporate support which is where there is a significant difference from newsagencies.