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Business trends

Japan's convenience store managers dealt blow by labor board

Franchisees' quest for royalty relief rejected

Convenience stores around Japan have been squeezed by higher wages and a shortage of workers.   © Reuters

TOKYO -- Franchise owners of Japanese convenience stores, struggling to cope with a tighter labor market, suffered a setback Friday in their quest to bring corporate chains to the negotiating table.

With stores questioning whether they can remain open 24 hours, the situation appears to be reaching a breaking point. A serious labor crunch and rising wages pressed store managers to seek relief from the corporate chain operators that collect the royalty checks.

The Central Labor Relations Commission ruled that a group comprised of convenience store managers cannot engage in collective bargaining with chain operators. The panel, which handles labor disputes for the Ministry of Health, Labor and Welfare, reasoned that the business owners did not qualify as employees.

The group, called the Convenience Store Merchant Union, vowed to appeal the decision in Tokyo District Court. "This is absolutely unacceptable," said executive officer Takanori Sakai. The appeal could be heard as early as May.

Seven-Eleven Japan, a subsidiary of Seven & i Holdings, issued a statement welcoming the ruling by the labor board. But the decision does not change the fact that franchisees are barely getting by.

"The minimum wage increases every year, and labor costs have jumped nearly 30% over a decade," said a convenience-store manager in Tokyo. Between 40% and 60% of a store's gross profit goes to royalties paid to chain operators. What is left over covers wages and other expenses.

The rising labor costs have squeezed the net earnings at franchisees. When there are not enough workers, franchise owners themselves have had to staff stores to maintain a 24-hour operation.

Back when the convenience store market was thriving, franchise contracts were mutually advantageous. But now that same-store sales are no longer growing, franchise owners are taking the brunt of the pain. Last year, same-store customer traffic sank for the third straight year.

Yet despite these problems, chain operators are opening more outlets. Additional stores within a specific area reportedly improve brand awareness, leading to higher sales. But for franchisees, a same-branded store is the worst kind of rival. "We compete for both sales and workers," said a franchise owner in Kyoto.

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