7-Eleven, Home of the Big Gulp — and Multimillion Dollar Venture Capital Investments

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Consumers tend to associate 7-Eleven mainly with Slurpees, Big Gulps, and hot dogs left under the heat lamp too long. So what is the real world’s Kwik-E-Mart doing by jumping into the sophisticated world of venture capitalism?

In recent months, 7-Eleven launched a venture capital arm called 7-Ventures and began investing in companies such as Belly, an innovative smartphone loyalty and payment program. To the average consumer, the idea that a forward-thinking outfit like Google has a venture capital operation makes sense because the company is obviously keen on innovation and technology. The fact that the company best known for Slurpee giveaways is now putting money into startups may sound puzzling.

However, Yael V. Hochberg, an expert on entrepreneurship and a professor of finance at Northwestern’s Kellogg School of Management, explained in a recent interview that the launch of 7-Ventures should come as no big surprise. “It’s becoming more common nowadays for companies to do this sort of thing,” she said.

Long ago, large companies tended to have in-house research and development departments working on the products and services that could hopefully help the business down the road. But over the years, Hochberg explained, a preference developed for what’s known as “outsourced R&D,” in which startups and smaller businesses take on the risks of creating new tools and technologies, and larger companies get involved later via mergers and acquisitions or investments.

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In the ’80s and ’90s, it was typical for big companies to make venture capital investments with an eye for pure profit. “They were simply looking for financial returns,” said Hochberg.

Lately, though, she said that VC arms are more likely to make investments that are “somewhat strategic in nature,” with the business being funded and encouraged to grow being one that is likely to somehow help the larger company. Pharmaceutical, health care, and tech companies are all regulars in the VC world. Companies that have some of the world’s best-known brands are jumping in as well.

General Motors’ GM Ventures, for instance, has invested in The Nanosteel Company, which develops steel technology that could be used in auto manufacturing. Venturing & Emerging Brands, created by the Coca-Cola Company in 2007, thinks of itself as “part venture capitalists, part brand incubators and part industry forecasters.” It has put millions into a range of little-known beverages that could one day be in stores and restaurants around the globe. Google has its hand in so many fields of technology that it makes sense for Google Ventures to invest in all sorts of startups and potential disruptive business models—most recently, with $258 million in Uber, an app that connects professional drivers with passengers looking for rides.

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“Corporate venture arms are commonly used in the technology and biopharma industries to obtain access to new innovation,” said Mark McCaffrey, global technology partner and global software leader at PwC. “However the model is certainly not limited to these industries and can be employed by other industries as a means to obtain the same result,”

Accordingly, the two investments made thus far by 7-Ventures would seem to have some direct strategic benefit for 7-Eleven. The convenience store chain sells an awful lot of coffee, and the first operation that 7-Ventures invested in was an undisclosed coffee company. More recently, 7-Ventures was announced as one of the contributors of $12.1 million in VC funding for Belly, a smartphone loyalty and payment program that could be of interest to all kinds of retailers. VentureBeat noted that Belly is already “working with 50 national chains representing 700 locations, including 7-11.” So ostensibly, 7-Eleven has gotten an insider’s view of how the technology works, and its potential use for retailers.

“Part of business development is to learn about new products, new retail models and new technologies that help improve retail traffic and engagement,” Raja Doddala, 7-Eleven business development executive and the leader of 7-Ventures, told Fortune. “Belly offers digital loyalty networks, and we want to learn how networks work as opposed to retailer-specific loyalty plans.”

What’s more, 7-Eleven’s investments make even more sense when you realize that its business is hardly limited to the familiar rundown locations in the American suburbs. There are more than 50,000 7-Eleven stores in 16 countries, including around 15,000 stores in Japan (compared to 8,600 in North America). The outlets in Japan are more lucrative as well, grossing $8,000 per day in sales versus an average of $4,500 in the U.S.

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“There’s a lot more to the company than the layman is aware of,” said Hochberg. “It’s a company that wants to be a leader and stay ahead of the competition. They’re constantly looking for things that’ll give them an edge in a business that doesn’t have the biggest margins.”