Joe Thompson saw the future shifting with the invention of the refrigerator. So with innovation after innovation we now have convenience stores.

Dave Young:

Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is… Well, it’s us, but we’re highlighting ads we’ve written and produced for our clients, so here’s one of those.

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Dave Young:

Welcome to the Empire Builders Podcast, Dave Young here alongside Stephen Semple, and Stephen just whispered into my ear the name of the empire that we’re going to discuss today, and oh, thank heaven. I’ve been waiting for this one to come along, 7-Eleven.

Stephen Semple:

7-Eleven. Yeah.

Dave Young:

7-Eleven.

Stephen Semple:

It’s the largest retail chain in the world.

Dave Young:

Is it really?

Stephen Semple:

Yes. Yes.

Dave Young:

Is it franchises, or is it a combination of something?

Stephen Semple:

Oh, it’s franchises.

Dave Young:

Okay.

Stephen Semple:

Yes, it’s franchises. But 85,000 stores in 20 countries.

Dave Young:

That’s amazing. Yeah, they’re everywhere.

Stephen Semple:

There’s 13,000 in Canada and the U.S. alone.

Dave Young:

You know what I love about their name? It’s spelled the same no matter what language you speak.

Stephen Semple:

Well, that’s a good point. I never thought about that.

Dave Young:

Right. You look at a 7-Eleven sign, and it doesn’t matter what the native language is, it’s two numerals, and you recognize that brand by the color and the numerals, and you know exactly what to expect.

Stephen Semple:

Yeah. They’re the largest in the world. They’re also now owned by a Japanese company. It was bought out after a disastrous leverage buyout that was done by the Thompson family, but a story as old as life itself.

Dave Young:

Sure.

Stephen Semple:

But back to 7-Eleven, and it’s a story that starts back in 1927 in Dallas, Texas as the Southland Ice Company. Now, I wasn’t actually able to find the founding date for the Southland Ice Company, everything, I found said it was 1927, but I really believe it happened before that. But that said, that’s when our story starts, is in 1927, with the selling of blocks of ice. So we think about-

Dave Young:

Sure.

Stephen Semple:

… in those days, ice houses were really important. People would go and buy big blocks of ice and take them home, and that was basically your ice box.

Dave Young:

Yeah, or there would be delivery trucks going around with big blocks of ice. Yeah, either way.

Stephen Semple:

Yeah. But it was an important part of life. We forget that how you kept things cool was, you basically had… Let’s face it, what you basically had was a cooler in your house. You threw ice in the ice box, and that’s what kept things cool. And look, every town had one, or if it was a bigger town, more than one. So Joe Thompson is the owner of the Southland Ice Company, but he sees this new trend coming, and he’s a little bit worried. He’s worried that refrigerators are going to start to steal his business. Now, the early refrigerators are actually quite dangerous. They would break down, and they would release these dangerous fumes. But in 1927, GE releases a new refrigerator that runs on Freon, and it could also get below freezing.

Dave Young:

Okay.

Stephen Semple:

And look, electricity was starting to be in most homes. And shortly after GE’s launch, 56 other companies started to also develop refrigerators.

Dave Young:

So you could make your own ice. Stick it to the man.

Stephen Semple:

Yeah, there you go.

Dave Young:

Yes.

Stephen Semple:

So he’s thinking about other opportunities. He was wondering, “What other things can we do?” And along comes Johnny Jefferson Green. Now, Johnny Jefferson Green is a manager of one of the Southland Ice Company’s locations. Now, one of the things he did while people waited, Johnny would give them a freebie. He’d give them a slice of watermelon, he’d give them a cold drink when he was going down to grab the ice while they’re waiting-

Dave Young:

Gotcha. Yeah.

Stephen Semple:

… he would give them this. Little surprise and delight. Wonderful, right? Then one day a customer asks, while he’s waiting, saying, “Hey…” Because he gave him a bottle of Coke, went and grabbed his ice, and when he came and gave the customer the ice, customer said, “While I’m here, could I buy a couple of bottles of Coke off of you?”

Dave Young:

Right? Yeah.

Stephen Semple:

Yeah. And he did. But then he started thinking, “Why don’t I start selling some of these items at the ice house?” So he started selling these items like watermelon, and cold drinks, and all this other stuff, and it starts doing pretty well. And in fact, as it increases, he tells Joe Thompson what’s going on, because there’s so much demand, he actually can’t keep up. This idea is kind of unheard of in the time, because remember, in the 1920s grocery stores are starting, but they’re not really a big thing.

Dave Young:

It was still your neighborhood store, right? Your little general store?

Stephen Semple:

Yeah. You buy fish in one place, you buy meat somewhere else, and there’s maybe a general store. And the other thing that’s really cool is this also gives an opportunity to sell people something in the wintertime when there’s less ice demand, right?

Dave Young:

[inaudible 00:06:25].

Stephen Semple:

He tells Joe Thompson about this idea, and at the same time… So Thompson supports him, says, “Yeah, let’s lean into this.” But he also wants to run a little bit of an experiment, because let’s increase the price a little bit for the convenience. So he decides to charge a little bit of a premium price. After six months, Thompson visits to see the success, and basically it’s $1,000 in profit is his cut of it.

Dave Young:

Okay.

Stephen Semple:

Which is a lot of money back in the 1920s.

Dave Young:

Sure.

Stephen Semple:

That’d be 1/3 of an annual salary for most people.

Dave Young:

I mean, I’d take $1,000 today if somebody offered it.

Stephen Semple:

Yeah, there you go. There you go. So he pours company funds in all 16 of the stores in Texas, and he stocks them with 12 food items.

Dave Young:

Okay. Just 12?

Stephen Semple:

Just 12. He starts off with 12 food items. Now, there’s a backlash, because his big customers, he sells ice-

Dave Young:

To the stores. Yeah.

Stephen Semple:

… to people who sell food. And some of his biggest customers, he faces backlash on.

Dave Young:

Sure.

Stephen Semple:

And here’s the challenge, do you protect your existing business, or do you go after the new business? There’s this idea that was put together, and I know he didn’t use it, but this is one I’m going to share with listeners, there’s this idea called the Boston Consulting Grid, and it goes something like this, for helping make these decisions-

Dave Young:

Okay.

Stephen Semple:

… you drew a vertical line, it’s about the opportunity.

Dave Young:

Okay.

Stephen Semple:

Is the opportunity growing, or is the opportunity shrinking? So that’s your vertical line.

Dave Young:

Okay.

Stephen Semple:

Boston Consulting Grid would actually talk about market share, but I like to think about it as being opportunity growing, opportunity shrinking. Horizontal line is, does it take investment? Does it take cashflow, or does it create cashflow?

Dave Young:

Okay.

Stephen Semple:

So now, top right-hand quadrant are what you would call stars, because they have growing opportunity, and they’re creating cashflow.

Dave Young:

[inaudible 00:08:18]. Yeah.

Stephen Semple:

Your question marks are ones that have great opportunity, but require cashflow. So that’s where you make investments.

Dave Young:

Okay.

Stephen Semple:

Then you’ve got ones that create cashflow, but shrinking opportunity, those are your cash cows. And then your dogs, of course, are the ones that take money, and-

Dave Young:

Yeah-

Stephen Semple:

… have shrinking opportunity. Those are the ones you want to get rid of. But when you look at it, he had a cash cow in the ice business, shrinking opportunity, but creating money, but he had a question mark, which requires investment in this whole idea of selling food through the ice houses. So what does he do? Leans into the future, says, “I’m prepared to lose the customers.”

Dave Young:

The handwriting’s on the wall for him too with the ice business, just in the fact that these grocers, these people that he’s also selling a lot of ice to, they’re also looking at refrigeration.

Stephen Semple:

Yes.

Dave Young:

There’s no way they’re not, and on a massive scale.

Stephen Semple:

Right. So while it’s obvious, how many times we’ve seen businesses that have been unable to make that pivot because they can’t give up…

Dave Young:

That-

Stephen Semple:

They’ve become committed to the cash cow, which is not going to be a cash cow forever.

Dave Young:

Yeah. The cash cow isn’t necessarily committed to you.

Stephen Semple:

And the other is an investment, so it takes time.

Dave Young:

[inaudible 00:09:34].

Stephen Semple:

So that grid helps people figure out the pivot.

Dave Young:

Gotcha. That makes sense.

Stephen Semple:

So anyway, so he loses the customer, and they do represent more money than he’s making selling food, but he sees food as the future, but he also starts thinking about what more can he sell, and there’s another business emerging, gas stations. Because before this, you would go to a hardware store, and you would fill up a gas can, you’d take it home, and then… Because at this point, half of Americans own a car, and it’s being filled by an attendant. So he decides to put pumps in front of the store. So now he’s got ice, gas, food.

Dave Young:

I mean, these are things that you need all the time.

Stephen Semple:

Right.

Dave Young:

Yeah.

Stephen Semple:

Right. And in 1929, he starts even buying competing ice houses, because of course, ice business is going down, they’re struggling, it’s a great thing to buy. He buys them and converts them. They already have a customer base, and I can sell more to that customer base, because I’m going to put food-

Dave Young:

Multiple locations.

Stephen Semple:

… and gas stations in.

Dave Young:

Yeah.

Stephen Semple:

Yeah. Over the next decade, he adds product, including cold beer. After 10 years, he’s grown to 75 stores, and ice is just a product. 1940, hits a million dollars in sales. Now-

Dave Young:

Wow.

Stephen Semple:

… they hit another barrier though. After World War II, supermarkets really ramp up, and they’re a competitor with more selection-

Dave Young:

Sure.

Stephen Semple:

… better prices, and same convenience. So what do you do? What a lot of competitors would do would be try to meet the grocery stores on price, but you can’t, because they’re buying in bigger bulk, you can’t beat them at that. But here’s what he starts to notice, shift working has started.

Dave Young:

Okay.

Stephen Semple:

People are working longer hours. Supermarkets are open from 9:00 until 5:00. Even restaurants are closing at 7:00 and 8:00.

Dave Young:

Okay.

Stephen Semple:

So what does he decide to do? Expand hours. Because remember, what was his core thing? Convenience.

Dave Young:

Convenience. So be open before people head to work, and be open on their way home.

Stephen Semple:

So in 1946, he decides to open from?

Dave Young:

I’m trying to think, from 7:00, maybe? Maybe start opening at 7:00?

Stephen Semple:

Open at 7:00, and open until?

Dave Young:

And stay open until almost midnight? Like, 11:00.

Stephen Semple:

There you go.

Dave Young:

Let’s just say 11:00.

Stephen Semple:

11:00. And this is completely revolutionary at the time.

Dave Young:

Oh, yeah.

Stephen Semple:

So it’s 1946, and that’s when they decide to even lean into this so heavily, they changed the name to 7-Eleven.

Dave Young:

And I think-

Stephen Semple:

So now it’s 7-Eleven.

Dave Young:

And again, for reasons that they weren’t even thinking of then, it became a great name. Now I think most of them are open 24 hours.

Stephen Semple:

Yeah. A lot of them are now.

Dave Young:

But it became such an iconic thing, and again, it’s just numbers.

Stephen Semple:

Yeah.

Dave Young:

And so he accidentally broke the language barrier by just using Arabic numerals as the name of the place.

Stephen Semple:

Yeah. I don’t think that was ever the intent-

Dave Young:

No, but man-

Stephen Semple:

… but it was great.

Dave Young:

… it made it easy to grow into markets-

Stephen Semple:

Sure.

Dave Young:

… just like that. That’s just easily recognizable. Yeah, I love it.

Stephen Semple:

Revolutionary idea at the time. Start of the 1950s, they start to expand outside of Texas. They put them at highway exits. 1958, there’s 300 stores across Northwest, it now looks a little bit more like mini-mart. Thompson starts mentoring his kid, John. And then 1961, Thompson dies, and it’s now up to his son, John. Now, normally we would stop the story here, because they’re already kind of an empire at this point, there’s 300 stores.

Dave Young:

Right.

Stephen Semple:

But John really deserves some recognition here, because often, the second generation is not as innovative as the first. And John… Look, John was a chip off the block, and so I want to talk about John, because John did a bunch of amazing things for 7-Eleven. Because 7-Eleven’s now being copied by lots of companies like Circle K, and no one’s offering anything different, they’re all the same. And John has made a promise to investors that he’s going to hit a billion dollars in sales, which no retailer at this point has done. So he’s looking for a game changer. And again and again, so many businesses, when they’re facing this whole idea of everybody is the same, would drop into competing on price. So enter Omar Knedlik.

Dave Young:

Stay tuned, we’re going to wrap up this story and tell you how to apply this lesson to your business right after this.

[Empire Builders Ad]

Dave Young:

Let’s pick up our story where we left off, and trust me, you haven’t missed a thing.

Stephen Semple:

So enter Omar Knedlik, who owns a-

Dave Young:

Knedlik?

Stephen Semple:

I think that’s how it’s pronounced.

Dave Young:

I believe you.

Stephen Semple:

It’s K-N-E-D-L-I-C-K, so I’m guessing here. And he owns a Dairy Queen in Coffeyville, Kansas.

Dave Young:

Okay.

Stephen Semple:

And one day, Omar’s fridge breaks down in the middle of the summer, and he has all these sodas that are warm. So he throws the sodas in the freezer to cool down as quickly as possible, and of course, when he goes to get them, they’re partially frozen.

Dave Young:

Yeah. Sure.

Stephen Semple:

He tries it, and he loves it. He goes, “These are amazing.” And he wants to figure out how he could do this consistently with the same texture, because just putting it in the freezer is a norm.

Dave Young:

I mean, it became kind of slushy.

Stephen Semple:

You’re right, it did become kind of slushy. So he wants to make a machine that can do this. So he plays around with a DQ soft service machine to try to make it work. He plays around with refrigeration technology, and he ends up getting it down. And he starts to sell this thing called ICEE, which is I-C-E-E.

Dave Young:

E-E. An ICEE. Yeah.

Stephen Semple:

An ICEE. And he becomes the number one Dairy Queen in the state, and he starts to sell the machines. It becomes his other business. And he approaches John, but John wants exclusive rights to this, but he can’t give John exclusive rights, because he’s already sold this to others, but he points out to them, he can name them whatever he wants.

Dave Young:

Sure.

Stephen Semple:

Now, these machines are pretty expensive, they’re equivalent to a 30K today. And John decides to call it-

Dave Young:

Slurpees.

Stephen Semple:

… Slurpees. And they do this crazy design, and it’s a huge hit with kids. In the first year, it helps push 7-Eleven to 500 million in sales.

Dave Young:

Are they the ones that developed that spoon straw combo?

Stephen Semple:

I don’t know about that. That’s a great question. I have no idea. Wouldn’t surprise me.

Dave Young:

These are things, Stephen, that you really need to do deep research.

Stephen Semple:

I do. I maybe need to talk to you in future about these things.

Dave Young:

You knew I was going to ask about the straw.

Stephen Semple:

So John creates the innovation of the Slurpee in terms of naming it, and it’s a great name, it’s an amazing name, and doing some fantastic packaging and things along that line. So he understands this, but this is not his last innovation, he’s not done with his innovation yet. Let’s go forward to 1964. John has a franchisee that notices people are coming in early, because remember, they open at 7:00, and he offers coffee to-go, which is unheard of. Puts it in a cardboard cup. No one has invented the lid for the cardboard cup yet.

Dave Young:

Okay. That’s-

Stephen Semple:

So it’s literally pour it, put tinfoil on the top. But John sees an opportunity. People are spending more time in cars, they’re open early, “How do we get coffee in the hands of people in the car?” So in 1964, they launched the first ever branded cup of coffee on the go. 7-Eleven invented coffee on the go, not Dunkin’ Donuts, not any of these other places, 7-Eleven.

Dave Young:

Okay.

Stephen Semple:

This drives them to a billion dollars in sales. 1968, they’ve got 3,000 stores. 1974, 5,000 stores. Now, the new stores are kind of quite modern, and the older stores are starting to fall behind, and John’s not done yet in terms of his innovation. This is the reason why I thought we’ve got to talk about John. Think about it, John’s done Slurpee, John’s done coffee on the go, this dude is freaking amazing, right?

Dave Young:

Yeah.

Stephen Semple:

So there’s a manager in Southern California, Dennis Potts, who’s looking for an answer, because sales are down. He’s in one of the older stores, and he’s talking to the Coke rep, and the Coke rep has got this idea. No one likes the idea, but what the heck? Coke has gone and created these 32 ounce cups, and he goes, Well, what the heck?”

Dave Young:

That’s big.

Stephen Semple:

That’s big. Well, especially when in 1970, the average size that was sold, the average was six ounces. So when the average-

Dave Young:

[inaudible 00:18:41].

Stephen Semple:

… is six ounces, and you’re now offering 32 ounces, like, holy crap, it’s five times the size.

Dave Young:

We have a big coffee pot at the Tower at Wizard Academy that we bring out for a bigger event than a normal size class. And I always have to do a little research to figure out how much coffee grounds to put in. I call it the funeral coffee pot, right?

Stephen Semple:

Yeah.

Dave Young:

So it’s one of these, 100 cups, but a cup of coffee is six ounces, right?

Stephen Semple:

Yeah.

Dave Young:

Nobody buys six ounces of anything anymore.

Stephen Semple:

No, no, they sure don’t.

Dave Young:

By the way, by the way, I did a quick little search, and the Slurpee spoon straw was invented by Arthur Aykanian in 1968, and he was an industrial designer that they hired, and that’s in the Museum of Modern Art, the Slurpee spoon. So it came out in ’68, just as they were going at great lengths with the Slurpee technology.

Stephen Semple:

That’s amazing. So Dennis decides, “What the heck? Let’s give it a try.” Now, a few weeks later, John notices a spike in sales out of this location in Southern California, and goes out and visits. And looks at this thing and says, “This is great. We should do this.” But John’s a smart guy, he named the Slurpee, right?

Dave Young:

Right, right.

Stephen Semple:

So if you’re going to do a 32 ounce thing, you should name it, right?

Dave Young:

Yeah, you should.

Stephen Semple:

So what’s he name it? Big Gulp.

Dave Young:

Big Gulp. Yep.

Stephen Semple:

Big Gulp. And over the next five years, soda sales go up 400%, 400% increase. So when I was looking at the 7-Eleven story, I was amazed by the founder, he did an amazing, amazing job. Joe Thompson, from the standpoint of looking out there and saying, “Okay, I’ve got this ice house. There’s this challenge coming, let’s sell.” Now, he didn’t come up with the idea, somebody up with it, but ran with the let’s sell, but was committed to it. So even when it cannibalizes existing business… Look, Kodak couldn’t make that pivot-

Dave Young:

Sure, sure.

Stephen Semple:

… when it cannibalized their existing business, but then also recognize, “To make it work, I’ve got to sell more. What’s the other thing going on? Gas stations.” Really leaned into that. But then his son comes along and does Slurpee, and does coffee on the go, and does Big Gulp. Oh my God, that was… His son brought as much to the table as the dad did.

Dave Young:

Yeah, and it’s great. That’s a brand that actually grew by being known for something, right?

Stephen Semple:

Yes.

Dave Young:

They’re known for, that’s a place I can go get some gas, that’s a place I can pick up a few things, it’s a place I can go get… And then they become known for something that nobody else was really doing, the Slurpee and the Big Gulp. You want to just buy one soda for the day, go to 7-Eleven.

Stephen Semple:

Well, and what I loved was that they decided to name these things, because it could have been easy that they could have just… And they gave it an interesting… First of all, an interesting brandable, trademarkable name, because… Names that are kind of a verb. As you said, you slurp it, well make it a Slurpee.

Dave Young:

It’s a big gulp.

Stephen Semple:

[inaudible 00:22:02].

Dave Young:

It’s a big gulp. It’s a little stickier than small, medium, large, and extra large, or even tall, Venti. Who else has done this successfully? I think Starbucks did that, right?

Stephen Semple:

Yeah. Instead of-

Dave Young:

Right.

Stephen Semple:

… making small, medium, large, it was tall, Venti, Grande, right?

Dave Young:

Yeah.

Stephen Semple:

The customer creates their own language. As soon as you go in, a Big Gulp is different than, as you said, a super sized drink. Just in your mind, it occupies a different space.

Dave Young:

Yeah. It does. And 7-Eleven owns it. It’s a remarkable story, and still a very successful one.

Stephen Semple:

Still very successful. And I just love the fact that the son carried on the innovation, because so many times, we don’t see that. We don’t see the innovation being carried by the next generation. They become very defensive, and really protecting of things, rather than this whole idea of, “Let’s continue to innovate.”

Dave Young:

Sure.

Stephen Semple:

So that’s the reason why I thought the story needed to include some of the more modern things. And also, I was really surprised when to-go coffee was created by created by 7-Eleven.

Dave Young:

Yeah. That is interesting. And they not only created their empire, they created an empire in a category, right?

Stephen Semple:

Yes.

Dave Young:

A convenience store. They created that.

Stephen Semple:

Yes.

Dave Young:

I assume at some point we’ll probably talk about things like Buc-ee’s-

Stephen Semple:

Yes.

Dave Young:

… that have taken it to a different level.

Stephen Semple:

A whole other level.

Dave Young:

Yeah.

Stephen Semple:

Oh, yeah. Yeah.

Dave Young:

So-

Stephen Semple:

Yes, but they created that category, and then they created these other things. You don’t think about something like 7-Eleven as being innovative, but yet when you look at these companies, when they’ve gotten to their size, typically it’s because they did do something innovative. And they have been innovative, which is really quite incredible.

Dave Young:

Well, my alarm just went… You might’ve heard that, that it went off. I need to go get more coffee. So we’ll have to end it here.

Stephen Semple:

Well, at least you can get a lid these days.

Dave Young:

Yeah, yeah. Thanks for the 7-Eleven story, Stephen.

Stephen Semple:

All right. Thanks, David.

Dave Young:

Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app, and leave us a big fat juicy five-star rating and review at Apple Podcasts. And if you’d like to schedule your own 90-minute empire building session, you can do it at empirebuildingprogram.com.