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7-Eleven keeps Slurpee cool even as it hits 40

As the convenience store looks to redefine its place in the market, it turns to its top-selling name brand.

By MARK ALBRIGHT
Published March 2, 2005

ORLANDO - This just in from 7-Eleven.

Sales of the $3.49 yellow Slurpee cup that is shaped like Sponge Bob Square Pants are brisk. Expect an outbreak soon of make-a-face-like-you've-got-brainfreeze radio contests. In May a Mountain Dew-flavored Slurpee arrives with a lid shaped like Yoda's head.

"You pick up Yoda by his ears and his head turns green," said Kevin Cooper, manager of all-things-Slurpee at 7-Eleven Inc.

The world's largest convenience store chain is celebrating Slurpee's 40th anniversary this year. Frawg, an apple-flavored Slurpee with a kick of caffeine, will make its world debut this summer followed by a root beer float and a retro cherry lime-flavored Slurpee straight out of the 1970s.

The Dallas-based chain hopes to not just boost the sales of its top-selling brand name. It also is trying to get shoppers to associate 7-Eleven with food rather than beer and cigarettes - which together provide 41 percent of its merchandise sales. The chain, which uses Slurpee as its version of McDonald's Happy Meals to lure in the younger set, has dramatically increased the variety of its fresh food-to-go in the past five years.

"We have to change perceptions that we're just beer and beef jerky," said Jim Keyes, chief executive of the chain, which has 5,800 stores in the United States and about 100 in the Tampa Bay area. "It is imperative people learn we sell good fresh food too."

Indeed pressure is intensifying on convenience stores to find new ways to survive. A pack of smokes now costs $3.45 in Florida, but the price has soared over $7 in places like New York and Illinois.

Meanwhile beer sales remain stagnant and promise to shrink as baby boomers enter middle age. Gas prices may be soaring, but gas station margins remain static at about 13 cents a gallon.

Worse for convenience stores, pay-at-the-pump card readers send fewer customers inside the store. Refineries are stepping up their efforts to be retailers. Chains like Costco, Wal-Mart and some supermarkets now sell gas at below-market prices just to draw in shoppers. The outlook is dim enough that Retail Forward, a Columbus, Ohio, retail think tank, estimated this week that such alternative types of stores will see their share of retail gas sales rise to 15 percent of the market, up from today's 10 percent. Convenience stores as a group will see their robust annual sales gains of 12 percent over the past five years shrink to half that.

"As more convenience stores transition away from fuel and fill-in stops they increasingly will go toe-to-toe with entrenched" fast-food restaurants, says Sandy Skrovan, a Retail Forward vice president.

One big difference is 7-Eleven is faster than fast food. Most of its offerings are grab-and-go. Virtually all of them are sold in cups shaped to fit car cupholders or are wrapped in paper to be eaten while driving.

7-Eleven entered the fresh food fray more seriously five years ago. It makes daily sandwich and baked goods supply runs from a central commissary in Orlando. The company hired a firm that prepares airline meals to make its sandwiches. Food that doesn't sell the same day goes to food banks. To ensure freshness, 7-Eleven is talking of increasing deliveries to its stores to twice daily.

While the faithful ham and cheese is the top-selling sandwich, the chain is upgrading its menu. New items this year include smoked turkey with cilantro poblano spread on jalapeno bread, turkey with havarti cheese on walnut wheat scallion bread and pastrami with sweet hot mustard.

So far it has been slow going. A few years ago about 70 percent of 7-Eleven customers were men. Now women have increased to 40 percent of the customer base.

"We're still seeing just the tip of the iceberg," said Gary Rose, executive vice president and chief operating officer.

The chain, which had $12.2-billion in sales in 2004, sells more Budweiser than any other retailer. It wants to be careful not to chase off its core customers: young males. So one new 7-Eleven sandwich this spring is meat loaf, and its latest new drink is a cut-rate knock-off of Red Bull in both can and chewing gum form. All those fancy new wraps and sandwiches will be stocked in a department called Big Eats (after another 7-Eleven icon, the Big Gulp).

"We've been talking a lot lately about changing that name to something more generic," said Jim Read, the company fresh food director.

Slurpee goes back to 1965 and has been marketed almost on a shoestring. It was invented in 1959 by Omar Knedlik, a Kansas drive-in restaurant owner who kept bottled soft drinks in a deep freeze in case his soda fountain broke. Customers loved the flavored slush. So a Dallas manufacturer rigged an auto air conditioner to freeze soft drinks in a sherbet-like consistency that could be sipped through a straw. Mitchell's Icee machine drew a lukewarm reception from retailers before 7-Eleven jumped on the bandwagon.

An ad agency dreamed up the Slurpee name after an agency executive noted the "slurp" sound of the concoction being sucked through a straw.

Since then, 7-Eleven has developed more than 200 flavors and countless cute promotional tie-ins to keep the brand fresh and the product volume growing. Coming this summer are more retro flavors, ever larger cups (32-ouncers that fit in cupholders) and the Triple Split-so that enables a customer to keep three flavors separate in one drinkholder. Not to be outdone by a 64-ounce Big Gulp cup that glows in the dark, Slurpee this summer will offer a cup that changes color in your hands.

Company research kept peanut butter and jelly and popcorn flavored Slurpees off the market. But some things research cannot explain.

Slurpee sales soar in the summer, but the biggest sales in winter are in Manitoba. Detroit is another Slurpee hot bed. There, many stores stock up to 12 different flavors at a time.

Thirteen-million Slurpees are sold each month and sales have not yet peaked.

"We try to stay relevant to our customers by being cool," Cooper said. "One of the first things I learned was if you make anything blue, like our Blue Blunderberry, kids just cannot get enough of it."

[Last modified March 2, 2005, 00:48:07]