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Opinion

Japanese convenience stores need empathy and entrepreneurs to thrive

Localization and personalization will help konbini stay relevant

| Japan
The job description for a "convenience store woman" will need to be rewritten under the new model.   © AP

In Sayaka Murata's award-winning novel "Convenience Store Woman," a customer makes a repeat appearance. This elderly lady on her walking stick contentedly claims, "This place never changes, does it?"

The protagonist, the 36-year-old store lifer Furukura-san, ponders philosophically that nothing there stays the same: the store manager, the store assistants and the merchandise all change constantly. Yet the lady is emotionally attached to the store, whose spirit is inseparable from Furukura-san herself.

This attachment is a revealing contrast to what convenience stores, konbini as they are called in Japanese, originally stood for: as their name suggests, convenience. Regardless of where you are in the country, you get the same assortment. You can be sure to find whatever you need, from milk to pantyhose, with decent quality at a slightly elevated price. You can also withdraw money, receive your packages and pay property taxes.

This all-in-one convenience was at the core of konbini. Yet 45 years after their introduction to Japan, curiously, many of us relate to the go-to store personally or even intimately. In fact, some older customers are known to drop in multiple times a day to a neighborhood konbini, often just to say hello to the store clerk they have befriended.

The growth of the personal relationship over the faceless transactional one offers a hint about the way forward for convenience stores, which suffer from outlet saturation, a labor crunch and the resulting stagnation of same-store growth. The pursuit of homogeneous utility could only bring the industry so far. Convenience stores must now outgrow conventional convenience.

To build a meaningful personal relationship, the outlet operation must be in tune with local needs. As the first step, headquarters must start lending an empathetic ear to the franchisees.

Last year, there was a prolonged dispute between one chain's headquarters and an overworked franchisee, who no longer wanted to run a 24-hour operation. While allowing diversions from a uniform system suggests a major logistical adjustment, this is one of the relatively minor items the headquarters would need to take up as store owners protest that they are human too and deserve a break.

Next, how do convenience stores further foster personal relationships with their customers? Ironically, the shortcut is revisiting the original value offered by those mom-and-pop shops they drove to extinction. They were the face of the main street stocked with merchandise painstakingly tailored to the needs of its neighborhood.

In this way, konbini may awaken again a delight in local shopping while leveraging national economies of scale from big data analysis and purchasing power. Ultimately localization may lead to new formats tailored to the type of the neighborhood.

For example, in remote areas where konbini are the only commercial venues, no-frills assortments of life's necessities are vital. If it needs to cover a wide area with a spread-out population, a konbini on wheels may be the right answer. While those shoppers' experience is far from 24-hour convenience, having a human touchpoint at a fixed time with a designated driver may prove valuable for lonely seniors.

An office-heavy neighborhood with a strong lunch demand, on the other hand, may be suitable for a food service focused outlet. Despite limited space, convenience stores have perfected in-store production of crowd-pleasing snacks from traditional oden, Japanese stew, to fried chicken. Such a venture would attract a chef-minded entrepreneur as franchisee.

Oden hot pot dishes at a 7-Eleven store in Tokyo: convenience stores have perfected in-store production of crowd-pleasing snacks. (Courtesy of Seven-Eleven Japan)

The increased level of localization will upend the dynamics between headquarters and the franchisees, now based on top-down directives strategizing everything from product development to mass marketing. A national format is rolled out and the outlets are responsible for execution without much room for creativity. Furukura-san, for all her affection for the konbini, leaves readers uneasy at her blind following of headquarters.

In the world of localization, the franchisees will be making decisions and sending the ideas back to the headquarter.

For the model to keep refining itself, headquarters needs to assist the franchisees with their personal relationship with the customers. The convenience store chains pioneered consumer segmentation analysis through point-of-sale data; now the analysis needs to be more granular, on a personal level, and the cycle of feedback to action shorter.

A major upgrade in data analytic capabilities using artificial intelligence will be necessary to support the tailored operation, outlet by outlet, from the suitable store format to merchandising and promotion.

Artificial intelligence, however, has its limits. It cannot create a new idea or have a bond with a customer. Therefore, the store owner's entrepreneurial insight and human touch need to act in combination with the digital capabilities at headquarters.

The job description for a "convenience store woman" will need to be rewritten under the new model. The franchisees would be more entrepreneurs than operators, with creativity and hospitality in mind.

So far, brick and mortar retail has globally been on the losing end of digitization, falling to the convenience of e-commerce. But if convenience stores can reinvent themselves with an entrepreneurial mindset assisted by digitization, they can prove that transactional convenience, after all, is not all that we are after. We yearn for a personal relationship.

Nobuko Kobayashi is Ernst & Young -- Japan -- transaction advisory services managing director and partner. The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.

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