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,