Here's a timely article talking about the difference between 7-Eleven stores in North America versus Japan, and why the Canadian company, Alimentation Couche-Tard, wants to buy the Japanese company for $47 billion:

So far, owner Seven & i Holdings Co. hasn’t been able to replicate that success at its 13,000 US and Canadian stores, better known for their constantly rolling hot dogs and 30-ounce soft drinks than their fresh food or their ability to inspire effusive posts from social media influencers. The Tokyo-based company, which has been closing underperforming North American stores faster than it’s been opening new ones, is now the target of a $47 billion takeover bid by a Canadian rival that says it can do a better job translating that overseas magic to the market.

I have no idea if this will happen, but Couche-Tard has been trying to buy the company since 2005. If successful, this will create the largest convenience store operator in the world. It will also go down as one of the largest foreign takeovers in Japan. (On a related note, Couche-Tard tried to buy French grocery chain Carrefour SA in 2021, but that was blocked by the French Finance Minister.)

What is clear, though, is that there's an obvious user-experience gap between the stores in Japan and the stores in Canada and the US. As we talked about here, convenience stores in Japan serve solid food and act very much as community hubs. I didn't know this until right now, but in Japan, people also use these stores to do things like send parcels and pay utility bills, and top chefs regularly judge the food.

However, this is based on a supply-chain network that is, at least right now, unique to Japan:

In Japan, which is much smaller, the chain relies on a robust supplier network, where inventory and food preparation take place at more than 150 factories churning out breakfast, lunch and dinner. Product lineups and displays change quickly based on consumer tastes, with each store responsible for analyzing the sales of every product and adjusting orders to reduce waste and control inventory. It’s a management method known as tanpin kanri, which was even taken up as a Harvard Business School case study. “Japan’s convenience stores’ food preparation central kitchens and logistics infrastructure would be more challenging to establish and operate efficiently over vast areas in the US,” Boston says.

There appears to be universal consensus that the key to unlocking additional value is more fresh food and overall better offerings. And presumably Couche-Tard is of the opinion that it will be a better operator and that it can figure out whatever supply chain is needed. Time will tell. But I find it interesting that all of this is arguably about creating a kind of "local corner store" that better serves people's needs.

Cities used to have these in spades. But then we zoned them away, scaled everything up, and optimized around rolling hot dog cookers and big gulps. So in many ways, this story is about a return to fundamentals. It's about figuring out a way to serve quality products to local neighborhoods, in a globalized world. That sounds simple enough, but it's clearly not easy.

Cover photo by Lisanto 李奕良 on Unsplash

We have spoken before about how hotel brands don't typically own their real estate. But the same is also true of many other businesses. And one common reason for this is that it ties up a lot capital that could be otherwise deployed in the core business. If, for example, you're in the business of producing exclusive handbags, it usually makes sense to spend your excess cash on making better handbags. And if you find that you're actually making more money on real estate, then it could be a sign that you're in the wrong business.

There are, however, instances where owning your own real estate may make the most sense. Maybe you have an irreplaceable location that you want to secure for the long term. And so there's real strategic value. Or maybe you keep having annoying legal fights with your landlord and you just want to get back to focusing on luxury handbags. There are other motivating factors to consider here, but these two seem to be behind Prada's recent acquisition of 724 Fifth Avenue in New York.

Prada has had a flagship 5-storey retail store at this location since 1997 (and most recently was paying US$22 million in rent). In December, they announced that they had acquired the entire 12-storey building for US$425 million. (That works out to be about $5,395 psf on the gross building area!) And then shortly after, they announced that they had acquired next door -- a hard corner -- for another US$410 million (total US$835 million).

All of this makes the deal one of the largest in New York last year. But was it a good deal? I would need some more information to answer from a quantitative real estate perspective. But if I'm Prada, I know that I need to be on Fifth Avenue for the foreseeable future. And now I get access to a hard corner and I no longer have to deal with my landlord. These are clearly strategic things. Last year was also a pretty good time to be buying retail/office buildings with all cash, which is what Prada did.

Summit County Council is holding a special meeting this week to vote on the acquisition of an 8,576-acre property next to Jeremy Ranch and around the corner from Parkview Mountain House.

The County Manager has recommended approval of the deal and these are the terms:

- $55 million total purchase price (about $6,413 per acre)

- Structured through a $15 million three-year option to purchase, with a right to extend for another year for an additional $5 million (option fees to be applied toward the purchase price)

- During the option period, the County will have control of the property and pay $5,000 per month in rent

Another way to look at this deal is that Summit County needs to initially come up with $15 million of equity. This is because they are getting seller financing for the remaining $40 million. (Implied loan-to-value of about 73%.)

After 3 years, they will have to put in another $5 million, which lowers the implied LTV to about 64%. But in both cases, and assuming the $5k per month is all the County needs to pay, there’s effectively no interest on this 4-year “financing”. ($60k per year on $40-45 million.)

The purchase price is also only ~$6k per acre, which should tell you that this is not development land. Its value is what you see here:

And this is exactly what Summit County intends to do with the land: conserve it. As one of the last contiguous mountain ranches in the area that is privately owned, this sure seems like a win for the community. It’s a pretty good deal, too.

Images: Summit County, Utah