American retail giant 7Eleven on its way to Israel to bite into the convenience store market

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by Ifi Reporter Category:Capital Market Nov 17, 2020

American supermarket giant 7Eleven on its way to Israel. The chain is in talks with Electra Consumer, which is controlled by the Zalkind family, to hand over a franchise in which a Fox partner controlled by Harel Wiesel is expected to be a partner. The American company will try - with the help of the Israeli partners - to quickly bite into a share of the Israeli convenience store market, which has a turnover of about NIS 10 billion a year and enjoys growth, according to people close to the negotiations.
After the negotiations between the parties were exposed in the media, Fox (-2.05% 27210) and Electra Consumer (+ 2.66% 9532) were forced to report the contacts. Electra needs to report that it is in advanced talks with 7Eleven prior to signing the Memorandum of Understanding and does not require a franchise agreement, development and operation of convenience stores under the brand - through a company set up for this purpose. Electra clarified that after "the signing of the non-binding Memorandum of Understanding, to the extent that it is signed, the parties will negotiate a detailed binding concession agreement, subject to acceptable terms.
Its franchise partner - Fox - announced that "Following media reports about 7Eleven, the company reiterates that as part of its strategy, the company periodically examines business opportunities to expand and diversify its operations, and collaborations with various entities. As development develops, the company will report back as required by law. ".
If the contacts become a binding contract, Electra Consumer and Fox will be equal partners in the franchise for the next 20 years, with an option to extend. They plan to open up to 250 stores in Israel within a few years in light rail complexes, gas stations, office towers and residential neighborhoods. The cost of setting up a store will be between NIS 500,000 and NIS 1 million, with more than 50% of the cost being borne by the branch operator.
7Eleven was founded 93 years ago in the US, by Joe Thompson, under the concept of a store that serves its customers throughout the week, 24 hours a day. It used to be a public company but was delisted a few years ago. The group, headquartered in Texas , Operates through franchisees in 17 countries, mainly in the East Asian region and the Nordic countries in Europe.In 2019, the chain made an initial entry into Vietnam and India.
The chain operates about 71,000 stores worldwide. Its sales turnover is about $ 61 billion, and its annual profit is estimated at about $ 2 billion. The stores offer fast food such as sandwiches, salads, pizzas, soft drinks and coffee, alongside convenience products.
The chain recently launched a delivery service that operates in 1,300 cities in the US. Customers can order the products for parks, sports fields and concerts using its 7NOW Pins technology. It also introduced the 7Voice service, which allows customers to order products from stores. The chain stores also offer complementary services. Such as payment services for government entities, withdrawing money and renting lockers.The chain's strategy is to continue expanding and opening stores in the locations where it operates, alongside entering new areas and developing innovation products in the areas of fintech and shipments.
The signal that Harel Wiesel is staring at the food industry was given when Fox received the franchise for the Jumbo chain, which sells dry food alongside discounted items. In the past, Wiesel even tried to bring the Starbucks coffee chain to Israel. The money in Fox's coffers is enough to fund the new strategy: more than a billion shekels remain in the coffers at the end of the second quarter. After Fox presented a revenue turnover of NIS 1.2 billion, and cash flow from operating activities in the amount of NIS 210 million.
Electra Consumer, which recently sold Golan Telecom's cellular operations to Cellcom, held close to NIS 360 million at the end of the third quarter. The company, managed by Zvika Schwimmer, generated a net profit of NIS 281 million in the first nine months of 2020 out of a revenue turnover of NIS 1.86 billion. Following the sale of Golan, the company's chairman, Daniel Zalkind, decided to look for opportunities to expand its activities beyond marketing electrical appliances, consumer products and real estate.
The corona plague has boosted consumption from convenience stores. The parties to the deal probably also estimate that fast food activity in Israel, and maintenance of strategic real estate in major cities, will continue to benefit from the development of infrastructure even after the Corona period.
"Wiesel is a great partner in the American network," says Ilanit Sharaf, director of research at Psagot. "He has proven himself many times in retail - and he has great credit. Wiesel now holds many franchises - including American brands. Given Fox's desire to develop into more areas, connecting to the American chain is called for when convenience stores give Fox a foothold in street stores and entry into food." .
Sharaf adds: "Unlike other industries, the food industry in Israel is challenging in a variety of aspects, including kosher, freshness and logistics. Despite the direct connection they make between the deal and the increase in food and shipping chains - I estimate the move will be examined in a broader perspective. "An excellent opportunity in choosing many locations around the country, on favorable terms. Electra also needs a lot of knowledge in retail, but it is not clear to me why a collaboration was established between the two companies. This is an extraordinary deal for Wiesel, who does not usually bring in partners."
"It all depends on the franchise agreement: will it allow the sale of only the private label (private label; SA) of the chain, or will it allow the sale of local products. They will not immediately open 250 branches. The retirement will depend on milestones, and both parties will have to "We will examine the development of the chain in each area. The chain will compete mainly with the convenience stores of the fuel companies, the neighborhood containers, and the stores that sell complementary products. They will only open the delivery service after checking that it is a profitable move."

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