7-Eleven President and CEO Joe DePinto (pictured) fired a shot heard ‘round the industry calling for reforms to the direct store delivery (DSD) distribution system that helped grow the operator to one of the largest retailers in the U.S.
The system has been used effectively for some 30 years, but the problem is, not much has changed. Costs have been absorbed into the system creating an inefficient and unwieldy business model with lots of room for improvement.
“Many suppliers and manufacturers have strong feelings about DSD system and that it adds value to the industry. I don’t deny that. It served us well in the past,” DePinto told Convenience Store Decisions. “But with fuel costs rising, especially as diesel nears $5, and the minimal supply of qualified drivers that is driving up wage rates, it’s an inefficient and fragmented model that is not effectively serving small box retailers or the consumer of small box operators.”
DSD costs include product price, storage, transportation, refrigeration, idle truck time and even sales reps’ visits to each convenience store. “There is cost everywhere,” DePinto said. “We need to analyze this cost to see what cost can be stripped away.”
Then there is supply. “Consumers are demanding new and different products now, demanding they be on the shelves every time they visit one of our stores,” DePinto said. “The DSD model doesn’t always allow us to have the products in stock causing a growing number of out of stocks on fast movers.”
DePinto said out of stocks continues to be a big problem for the industry, much to the detriment of store operators. “C-stores, by nature of capital invested and the small margins we are already running on, is a very thin net profit business,” he said. “We have a finite box and must maximize the efficiencies of that box. It’s our job to work with wholesalers and manufactures to come up with a solution that is better and more efficient for our entire chain and pull cost out of the system across all levels.”
The Dallas-based chain, which operates 5,800 stores in North America, is looking to collaborate with all of its suppliers to create a win-win for everyone. “We have trust in our suppliers and are looking to them for leadership,” DePinto said. “We are working with many of them and as time goes by we’ll find out who is in and who is not, and when the time is right we’ll launch a test with the partners that want to work with us.”
DePinto called McLane, its long-time wholesaler, an important player in the overhaul. The Temple, Texas distributor has responded to 7-Eleven’s needs in the past with increased store deliveries, but DePinto said he’d like to see more frequent consolidated deliveries with a wider variety of the products stores carry, be it foodservice, tobacco or packaged beverages.
7-Eleven is embarking on a direct-store delivery experiment in Southern California in hopes of sharpening up the entire DSD process by bringing rival brands to each 7-Eleven store from a single warehouse similar to the model used effectively by operators in the UK and Japan, where 7-Eleven is also a recognized retail leader.