43 years on, convenience stores still grinding out profits as demand for services evolves

Ubiquitous throughout Japan, convenience stores have come a long way since the first customer walked into the nation’s first 7-Eleven outlet more than 43 years ago and made the inaugural purchase.

What did he buy? Was it a beverage, rice ball, bento or other food item, or perhaps a magazine, underwear or some other basic necessity convenience stores typically stock nowadays? Legend has it otherwise.

At that moment during the mid-’70s, there was a heavy downpour and a customer walked into the store a little before 7 a.m.

“As I opened the door to see if the delivery truck had arrived, a middle-aged man asked me, ‘Are you open?’ ” Kenji Yamamoto, whose 7-Eleven opened its doors in Tokyo’s Toyosu district on May 15, 1974, said. “He looked around the whole shop and bought sunglasses (for ¥800). That man was our first customer.”

Yamamoto, who had been running the family-owned liquor shop until his father’s death, decided to open a konbini (convenience store) because of falling profits and rising competition. He currently runs seven konbini.

Convenience stores arrived in Japan after retailer Ito-Yokado Co. purchased a 7-Eleven franchise from Southland Corp. of the United States in 1973. This caught the attention of Yamamoto, who converted his father’s liquor shop into the nation’s first convenience store.

Japan’s konbini have their roots in the country’s small businesses, a model that “has allowed Japan’s mom-and-pop stores to modernize and respond to the need of customers,” said Gavin Whitelaw, a sociocultural anthropologist and executive director of Harvard University’s Edwin O. Reischauer Institute of Japanese Studies.

The arrival of supermarkets during the 1960s and 1970s left many independent liquor stores, dairies and other small businesses struggling to compete. As a result, franchise chains introduced the konbini concept, which involved selling various items including food, said Hiroyuki Ito, executive director of the Japan Franchise Association.

From their humble beginnings, konbini have evolved to become a familiar fixture in almost every neighborhood. Before then, there were general stores that supplied miscellaneous items but not food.

“In those days, a family would get in a car and go buy the stock for the week at a supermarket,” Ito added.

Because supermarkets were located further away and sold items in larger quantities, konbini eventually filled the gap in convenience. As more single people began moving away from home in growing numbers, they found even more demand to fulfill.

It was the “franchise system” that made convenience stores a hit, said Ito. Currently, nearly 90 percent of the convenience stores in Japan are franchise-based.

Based on the U.S. model, konbini have mushroomed in Japan since the 1970s. In fiscal 2016, the annual sales generated by its 57,818 stores reached ¥10.83 trillion ($95.14 billion), according to the Japan Franchise Association.

However, the ever-evolving convenience store will continue to change as Japan faces a persistent labor shortage.

Whitelaw, whose doctoral dissertation focused on konbini, attributes the success of convenience stores to their practice of employing an army of part-time workers that now includes foreign people and housewives, and their dedication to service.

“It’s not a vending machine; it’s people who keep them running 24/7. You are not going to be a millionaire running a convenience store — it’s hard work, something that is deeper than just profits,” he said.

Whitelaw argues that services, like letting customers use toilets and providing cardboard boxes free of charge, humanize konbini. In particular, rural stores have adopted a “traditional” style adapted from the practices of older local shops.

He himself was an employee at a convenience store in Yamagata Prefecture and said the owner “delivered products to people’s homes, because previously she ran a liquor store and that’s what you did. You took the beer to people’s houses and picked up the empty bottles, and she adopted these practices in her store.”

Reflecting on his nearly 18 months working at several convenience stores, Whitelaw said some owners described their shops as being half business, half service.

The shortcomings of this business model are high operating costs and large staff requirements. Inexperienced owners, in particular, often face a “shock” when making the transition from white collar jobs with monthly salaries and insurance, Whitelaw said.

Many couples who take over franchises have at least 20 part-time employees. And the initial costs can be staggering — with franchise fee estimates of between “$30,000 and $60,000.”

“The real big cost is you have to be prepared to basically live without a salary for many months because once the store starts you may not see a profit for six months or a year. It is not uncommon, especially today when the competition is very, very intense,” Whitelaw said.

While Yamamoto says “competition is the law of nature,” and existed even before convenience stores arrived, Ito says the massive number of konbini and the competition are indicators of strong demand.

“These are private companies and it will be a problem if each product does not sell well. The fact that there is intense competition means so many people are opening new stores and are earning profits,” said Ito.

Whitelaw disagrees, saying that this is only true from a macro perspective, whereas the reality is that the market has been saturated in an ongoing trend of “cannibalism.”

“If you work in a particular store your perspective might change. You see competition, you will see the struggle of owners,” he said.

“Basically right now it’s an era of scrap and build. For every store you see being opened, there is one being closed. You have to look at numbers carefully, but this has been going on for some time,” he said, adding that “it is an era where only professionals can compete and amateur owners cannot.”

Convenience stores also reflect a change in the social infrastructure of Japanese society.

In the beginning, single people would frequent convenience stores while housewives typically shopped at supermarkets. Today young men in their 20s overwhelmingly shop at konbini, although shops have seen an increase in women in their 40s in recent years, according to a media research group run by Dai Nippon Printing Co.

As for the future, amid a declining population and graying labor force, Yamamoto said “a further rise in foreign labor and rationalization at stores will take place.”

Attention, however, should be given to aspects of convenience, which are the stores’ selling point, especially for the elderly customers who represent a growing segment of the population.

“Impressions matter a lot in the retail industry, so connecting with customers is “one of the most important tasks” that the industry faces, Yamamoto said.