The news that the giant convenience store chain 7-Eleven is on its way to Israel is the story of the right business for the coronavirus era joining hands with two proven retailers with a lot of cash on their hands.
Confirming reports that leaked out on Monday, Fox-Wizel and Electra Consumer confirmed in a Tel Aviv Stock Exchange filing that they were in advanced negotiations to sign a non-binding memorandum of understanding with 7-Eleven.
Sources said the two Israeli companies will be equal partners in a joint venture company that will get 20-year rights to operate 7-Eleven stores in Israel, with an option to extend it. The plan is to roll out 250 outlets in gas stations, train stations, office buildings and residential areas in the first few years.
Led by Harel Wiesel, Fox is a giant retailer by Israeli standards, operating 750 stores around the country under 15 different brand names, including its flagship Fox apparel shops and global brands such as Children’s Place and American Eagle. Electra Consumer, a part of the Elco Group, is a major appliance and electronics retailer.
“Wiesel is a great partner for the American chain,” said Ilanit Scharf, head of research at the brokerage firm Psagot. “He has proven himself time and again in the retail business and he has an excellent reputation. He has a lot of franchises already, including American brands.”
Although Israel is in the midst of a coronavirus slump that has hit the retail sector especially hard, convenience stores like 7-Eleven have done relatively well. People are eating more at home because restaurants have been shut or out of contagion worries.
Many experts said they expect the trend to continue in the post-coronavirus period, boosted by mass transit projects like the Tel Aviv Light Rail, which encourage more on-the-go eating and shopping.
- Israel's Stores Reopen, but Retail Sector Will Take Years to Recover From Closure
- Economy Rebounded in Third Quarter but Still Smaller Than Before the COVID Crisis
- Double-digit Growth in Israel? Coronvirus Is Playing Havoc With Statistics, Too
That could spell a bright future for convenience stores, which are already an established institution in Israel and do about 10 billion shekels ($3 billion) in annual turnover.
Food and convenience stories is one area Fox has not been involved in, but Wiesel is known to be looking to expand into it. In September, Fox signed a franchise agreement with Greek retailer Jumbo, which sells discounted goods, including some food products. Wiesel has tried in the past to lure the Starbucks chain to Israel.
The blighted commercial property market, meanwhile, is creating a glut of retail space even in rime locations. A quarter of Israel’s 40,000 downtown retailers have gone out of business and the market research firm Czamanski Ben Shahar estimates commercial rents have fallen in many cities between 20% and 40% as landlords struggle to find new tenants.
“A deal like this [with 7-Eleven] creates an excellent opportunity for Fox in choosing many locations around the country, on favorable terms,” said Scharf, who said she was skeptical that Fix and Electra Consumer were hoping to leverage the growth of groceries and home delivery with 7-Eleven.
7-Eleven itself has begun offering delivery service in 1,300 U.S. cities. Its 7NOW Pins app allows customers to order food to parks, sports fields, entertainment venues and other public locations that may not have traditional addresses. Another app called 7Voice accepts telephone voice orders and lets customers order through third-party apps such as Uber Eats and Grubhub.
Founded in 1927 and based in Irving, Texas, 7-Eleven operates, franchises and/or licenses more than 71,100 stores in 17 countries, including 11,800 in North America. Its annual turnover is more than $60 billion. Its offerings include the famous Slurpee frozen drink, groceries and prepared foods such as sandwiches and salads.
Another asset Fox and Electra bring to the table is a lot of cash.
At an estimated cost of 500,000 shekels to open each 7-Eleven, a 250-store chain would cost 125 million shekels to develop, although more than half of the cost would be borne by the local franchisee.
At the end of the second quarter, Fox had more than 1 billion shekels of cash and equivalents on its books, boosted by operating cash flow of 210 million shekels in the three months. Electra Consumer had close to 360 million shekels at the end of the third quarter. After it sold its Golan Telecom cellphone business to Cellcom Israel earlier this year, Electra Chairman Daniel Salkind said he was looking for new business areas to enter.
Despite the powerful players behind it, Scharf warns that success for 7 Eleven in Israel is not assured. It will face competition, mainly from energy companies that operate convenience stores attached to their gas stations. Delek Israel, for instance, has close to 200 Menta-branded outlets.
“Everything depends on the franchise agreement – whether it will only let them sell the chain’s branded products or let them sell local products, too,” she said. “They’re not going to open 250 stores all at once. The roll-out will depend on meeting milestones and the two sides will have to examine developments.”