Meet what could be the world's most accurate recession predictor: the cooler at 7-Eleven

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Shift in milk, beer sales was first clue

Meet what could be the world's most accurate recession predictor: the cooler at 7-Eleven

Sean Silcoff National Post Chris Bolin, National Post

7-Eleven's computerized retail tracking system alerts the chain's executives in Dallas almost immediately to any change in consumer buying patterns. The 7-Eleven above is at St. Clair and Bathurst in Toronto.

MONTREAL - Anyone confused by the parade of CEOs, economists, analysts and U.S. Federal Reserve chairmen who think they know where the economy is headed should pop down to a 7-Eleven. Not for a mid-summer refreshment, but for a study in economic forecasting.

Senior executives at Dallas-based 7-Eleven, Inc., the world's largest convenience store operator, say that by late last summer they could foresee the slowdown now gripping North America and other parts of the world. That was two months before the rest of us began to read about a sudden falloff in demand that triggered stock market tumbles and hundreds of thousands of job losses.

The source of 7-Eleven's oracular projection? A computerized retail information system -- one of the most sophisticated retail tracking systems in the world -- that tracks its sales shifts in the U.S. almost instantly.

All of its U.S. stores are plugged into the system, which can tell -- item by item, store by store, day by day -- what is and is not selling.

Around late July or early August last year, sales of six- and 12-packs of beer throughout the company's 5,300 U.S. stores began to slip, while sales of single cans and bottles picked up the slack, says Keith Morrow, vice-president of information systems.

The total shift in sales was only one or two percentage points between the two categories. But in a business ruled by almost ritualistic impulse purchases, "a 1% shift is a very significant piece of business," says Mike Blair, category manager for beer and wine, which make up about 11% of the company's sales.

Beer isn't the only category where the onset of hard times became apparent. Shoppers began switching to smaller sizes in cigarettes and milk, too, eschewing cartons for single packs and gallon jugs for half gallons. Wes Hargrove, the company's category manager for tobacco products, says single-pack sales have risen steadily to 82% of tobacco sales, up from 72% last fall.

7-Eleven quickly responded to the shift in sales by putting more single beers out for sale and introducing mini-cartons of cigarettes containing five packs. The minicartons now account for 3% to 4% of 7-Eleven's tobacco sales.

The company has also changed its in-store advertising to single out its lower-priced brands in cigarettes, alcohol and other categories such as bottled water.

The company began computerizing its U.S. stores in 1994, at a time when there was little consistency to how information was reported or used. Three years later, 7-Eleven added bar-code readers and began capturing and analyzing data. The system was completely rolled out in the United States by 1999 (the company's 495 Canadian stores have yet to switch to the system).

Now, the company's level of information is so precise that, based on sales patterns, data gurus at headquarters can tell individual stores precisely what time of day they should load up the chips and hot dogs for their newly launched lunch combos.

Weather forecasts are now fed through the system to determine what to order on a region-by-region basis.

Such advances have helped 7-Eleven post 49 straight months of same-store sale increases.

But can they accurately predict where the harbinger U.S. economy is heading?

Neil Stern, a partner with Chicago retail consultancy McMillan Doolittle, says 7-Eleven's beer tally is about "the one-millionth" economic indicator he's heard of. "The most interesting explanation I heard was that prostitutes in Las Vegas indicated their business was slowing down last fall." Besides, he says, "as much data as retailers have -- and they have tons available -- it's difficult to get a clean read."

But Mr. Stern says a pre-recessionary shift in beer purchasing habits could be explained as one of "the subtle things people do unconsciously to step back" before consciously deciding to hold off on larger purchases amid economic uncertainty.

If management at 7-Eleven is on to something, it is worth noting that sales for the most recent month were notably stronger for the first time in a year. "I would have to say that unlike June, July was more reflective of what we would consider to be a normal July sales increase after several months of really lagging or flat category increases," Mr. Morrow said.

Could an economic recovery be far behind?

"If we're just talking consumer spending in our stores ... it firmed up in July," he said. "We still feel robust about August and we see traffic more reflective of a normal year than a recession year."

http://www.nationalpost.com/financialpost/story.html?f=/stories/20010731/632951.html



-- Martin Thompson (mthom1927@aol.com), July 31, 2001

Answers

This is a real interesting analysis. Sure hope they are right.

-- Uncle Fred (dogboy45@bigfoot.com), August 01, 2001.

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