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Business trends

58,000 shops later, Japan's convenience stores turn fresh page

Consumers push 7-Eleven and peers to shorten hours and reduce food waste

Seven-Eleven, the largest convenience store operator in Japan, has recently come under fire for its insistence on 24/7 operations. (Photo by Tomoki Mera)

TOKYO -- Japan's ubiquitous convenience stores are facing a key turning point amid growing labor and environmental concerns, first with the pushback against 24-hour operations and now with efforts to reduce food waste.

The number of convenience stores in the country has grown 70% over the last two decades to about 58,000, turning them into a fixture in society as single-person households and late-night work hours climbed. Their total sales have surged 90% to nearly 11 trillion yen ($100 billion).

But the stores' two defining characteristics -- all-day operations and an exhaustive product lineup -- are now under pressure. The change began in February, when a Seven-Eleven Japan franchisee cut business hours at an Osaka store to 19 hours a day in defiance of corporate headquarters.

The dispute triggered unprecedented backlash against the business model, forcing not only the industry leader but rival Lawson to reduce the number of new stores they open this fiscal year, as well as to experiment with shorter hours.

Now, the Seven & i Holdings unit will in the fall start offering 5% cashback on bento lunchboxes and onigiri rice balls near their sell-by date. This marks a departure for the company, which until now has largely avoided discounts thanks to a meticulous inventory system that predicted minute changes in demand. Lawson on May 17 announced a similar plan as well.

The three biggest costs for franchisees are labor, utilities and losses on unsold goods. Headquarters and franchise owners split the gross profits -- the difference between sales and procurement costs. But franchise owners can bear losses that arise from throwing away leftover products such as old bentos. They have argued that discounts could help them mitigate that burden.

Seven-Eleven sells a wide range of products at its stores, from boxed lunches to books to grooming products. (Photo by Tomoki Mera)

Convenience store chain headquarters had restricted franchise owners from discounting products. Even after Japan's Fair Trade Commission in 2009 deemed Seven-Eleven to have been abusing its dominant position on the matter, the company remained hesitant. The latest development represents a changing power dynamic between headquarters and the owners.

The discounts are not just about franchise owners. Convenience stores are more competitive when they always have items in stock. Seven-Eleven has been particularly successful at managing inventory, which has allowed the chain's average store to make 660,000 yen a day in sales -- 100,000 yen more than at other chains.

But this meant a lot of unsold products ended up in the trash. While neither headquarters nor franchise owners were too concerned when business was growing, cutting that loss has become key in the now-saturated market.

The growing interest in environmental, social and governance issues is a factor as well. For example, a special sushi roll sold by convenience stores during a February holiday has become a hot-button issue, because so much of it never leaves the shelves and is thrown away every year.

In addition, franchise owners are often forced to man their stores themselves if they cannot find or afford part-time help. Many cannot even find the time to sit down for a meal with their families. A growing number of customers say there is no need for convenience at such a high cost.

"We became so big that there's no question that we gave less thought to the franchise owners," a Seven-Eleven executive said.

Convenience stores and other chain retailers have long relied on cheap labor and new locations to help shore up earnings. But measures that prioritize corporate profit over all else no longer work amid a shrinking population and changing attitudes, and players are exploring a new growth strategy for a new Japan.

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