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Looking for a spark, convenience stores try shared-bikes, laundromats and gyms

Successful models in Japan could spread throughout Asia as saturation hinders growth

Seven-Eleven Japan will provide thousands of bicycles through a bike-sharing service to attract customers from next year. (A store in Saitama Prefecture, north of Tokyo)

TOKYO -- Japan's largest convenience store chain, Seven-Eleven Japan, is making it easier for customers to get to and from its stores, providing 5,000 bicycles through a bike-sharing service at 1,000 stores across the country from the fiscal year starting next April. It thinks the growing number of foreign tourists to Japan will appreciate the service too.

Rival chain FamilyMart has announced it will launch "coin laundry" services at many of its stores to meet demand for self-service laundries from single people and families with both spouses working. The company will open 100 self-service laundries at store parking lots in the fiscal year from April, and if all goes according to plan, raise the number to 500 the following year.It also plans to start running a chain of 24-hour fitness studios on the second floor of its stores. 

Four decades after the birth of the Japanese convenience store, major chains seem to be branching into all manner of businesses, expanding their roles in communities and styling themselves as the core "infrastructure" of the town.

It is a trend that could spread beyond Japan to elsewhere in Asia, where Japanese convenience stores have been setting the industry standard in countries like Vietnam, Thailand and China with their high standards of service, presentation and product range. 

What is behind this aggressive push into new business areas? The chains want to attract more customers, of course, but there is more to the story. The real impetus is that the industry may have hits its saturation point and run out of room to grow, while at the same time facing rising labor costs.

The market is already so crowded that it is difficult to increase sales by opening new stores. At the end of October, there were as many as 55,000 stores operated by the top eight operators. That is 2.3 times larger than the number of post offices spread across the country. 

A customer examines frozen fruit offerings at a Seven-Eleven Japan store.

Convenience stores have been described as the winners in the retail industry, wresting customers away from supermarkets, shopping malls and mom and pop stores. But growth has slowed in recent years. According to the Japan Franchise Association, the combined same-store customer count fell for 20 straight months year-on-year through October.

First fall in 5 years

Even the industry champion Seven-Eleven saw same-store sales fall from the year-earlier period in October for the first time in 63 months, since mid-2012. The company blamed two weekend storms that hit Japan, but the fall was significant nonetheless.

In addition to exponential growth in the number of outlets, the rise of e-commerce and home food deliveries means the industry faces an uphill battle.

Calculations based on franchise association data show the average number of customers per store was 854 per day in October, down by about 40 from two years earlier. However, spending increased 21 yen per customer to 617 yen ($5.45), as more shoppers fell into the habit of buying things they did not originally intend to buy.

But the spending rise is far from sufficient to offset the falling customer numbers.

One optimistic Seven-Eleven senior executive says there are still many locations in Japan where the company does not have stores. But the other chains already have a presence in many of these areas.

President of FamilyMart Uny Holdings, Koji Takayanagi, says this is not a good time for aggressive expansion. Instead, the company is grappling with how to raise the quality of its store experience. The number of FamilyMart outlets has risen to 18,000 since a merger with smaller chain Circle K Sunkus in 2016.

FamilyMart hopes customers of its self-service laundries will buy food at the adjacent stores and consume it in the eat-in areas. Similarly, the company hopes gym-goers will come down to the stores to buy supplements and soaps after their workouts.

Lawson President Sadanobu Takemasu shows off a Pepper robot that offers customers information about products.

Increasing customer traffic is an urgent challenge for all the convenience-store operators. Tests of Seven-Eleven's bike-sharing service have shown a 2% increase in customer traffic.

Asia next?

The experiments underway in Japan could spread to the rest of Asia.

"The Chinese convenience store industry is always watching Japan carefully, so it will be only a matter of time until coin laundries and gyms appear in Chinese stores," said Kosuke Okame, an executive at Shanghai-based Cast Consulting, which serves Japanese companies in China.

These stores will likely have a Chinese twist, he said, predicting a "reverse trend" in which unstaffed convenience stores appear in conjunction with personal services businesses like gyms, hair dressers, nail salons and massage parlors.

In Japan, customer numbers and weak growth are not the only problems. The principal management challenge is the labor shortage, and the rising costs that entails.

One Tokyo convenience store owner says he uses the temporary staffing service Otetsudai Networks about five times a month, since he cannot find part-timers willing to work late-night shifts. The service caters to emergency needs for part-timers for very short-term work, such as five hours of nighttime work the following day. But it can be costly.

"You cannot hire such part-timers unless you offer high hourly wages, and you have to provide travel expenses as well," the owner said. "In addition, you have to pay 3,000 yen to the service for every hire. Hiring part-timers through this service costs 50% more than usual."

The owner of several FamilyMart stores echoed this, saying there is no room for the convenience store business to grow further in light of rising labor costs. He said he planned to downsize his convenience store business gradually and start operating coffee shops, instead.

In search of a formula

Rising business costs only make things tougher for franchise owners who must also pay sizable loyalty fees to franchise operators.

CVS Bay Area, a franchisee that mainly operates Lawson outlets in the Tokyo Bay area, has decided to sell most of its 107 stores to Lawson for about 4.8 billion yen.

"Besides dwindling new business opportunities, rents have risen sharply," the company said. "It is becoming increasingly more difficult to keep expanding our business operations by opening new stores."

All these pressures are forcing the established industry players to try out new business lines in search of the formula that will keep customers coming back.

As competition gets stiffer in the coming years, a new wave of alliances could appear, including tie-ups with businesses in different areas. 

Seven-Eleven's bike-sharing service is a partnership with an affiliate of telecom giant NTT Docomo. There are plans to team up with SoftBank Group as well.

Lawson is expanding its range of ready-to-eat food, such as vegetable soups.

But ultimately, the strategy of expanding into new businesses such as self-service laundries is not a real solution to the challenges facing the industry.

The fundamental solution is to offer products and services that really appeal to customers. Convenience store chains have not come up with any innovative new services since they began offering freshly brewed coffee.

Now, the major chains are working to improve their offerings of precooked food, hoping this will be the new sweet spot. Lawson President Sadanobu Takemasu believes there is good growth potential for sales of this category. FamilyMart, too, has expanded its offerings of precooked food and side dishes.

In the five years to 2016, sales of ready-to-eat food products in Japan grew 20% to 9.84 trillion yen, according to the Japan Ready-made Meal Association. The share of convenience stores in the market has risen to 30%.

But there may be room for more growth in this particular area. The Japanese total market for food products and services, including restaurants and prepared food products, is worth a hefty 70 trillion yen.

"As more women join the workforce while the nation's population ages and the size of families shrinks, households will inevitably reduce the time they spend on cooking and other chores," said Takemasu. "There are good business opportunities in growing demand for food."

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