Lawson Inc. President and Chief Executive Officer Sadanobu Takemasu is interviewed by The Japan Times at his office in Tokyo earlier this month. | YOSHIAKI MIURA

Business / Corporate | Taking the Lead

Lawson chief bets on health, tech as future of convenience

by Alex Martin

Staff Writer

Back in 2014, Sadanobu Takemasu was asked by his boss to go to Lawson, the convenience store chain known for its white milk can logo on a blue signboard.

Takemasu thought Ken Kobayashi, then president of Japan’s largest trading house, Mitsubishi Corp., was suggesting he go shop at a Lawson store in the basement of their Tokyo office building. Takemasu was perplexed. Kobayashi had other staff on hand to take care of such mundane errands.

“I replied, ‘Me?'” Takemasu, 48, said in a recent interview with The Japan Times.

Instead of going to the convenience store, however, he was appointed vice president of the national chain. And in 2016, he was promoted to president and chief operating officer of Lawson Inc., taking the helm of the company — now a Mitsubishi subsidiary — that is seemingly in perpetual competition with leading rivals Seven-Eleven Japan Co. and FamilyMart Uny Holdings Co.

Takemasu is focused on expanding the chain abroad and sticking with the brand’s emphasis on health, while overseeing a technology drive focused on tapping automation and artificial intelligence to counter a shrinking workforce and a saturated domestic market.

“From now on, it won’t be just a battle about convenience store chains, but about where Lawson stands in the entire retail industry and how we can offer products and services that can only be provided by Lawson,” he said.

His position in the company as chief executive officer, however, does have its drawbacks. Takemasu said he can no longer step into a Lawson store without being recognized by employees.

“I’ll have to go to rival stores when I need something,” he joked.

Convenience stores, or konbini, as they are known in Japan, are part of the landscape, and arguably, life.

The 55,000 or so outlets ubiquitous throughout the nation have taken the meaning of convenience to a new level compared with their American counterparts.

Besides buying bento, drinks, including alcoholic beverages and fresh coffee, snacks and magazines, customers can pay their utility bills, get concert tickets, send and receive parcels and draw money from ATMs.

New products are introduced every week, generally on Tuesdays, in a relentless race to out-do competitors. It’s not rare to find street corners in major cities crammed with three or four conveniences stores.

But the 24-hour business model supported by an army of part-time workers is becoming increasingly difficult to maintain.

The jobs-to-applicants ratio in January was 1.59, the highest level in 44 years, according to the labor ministry. Part-time wages are on the rise as companies sweeten offers to recruit staff in the tight labor market. In the meantime, 28 percent of the population — which peaked a decade ago — is over the age of 65.

“The population is falling, and the nation is aging. We have fewer younger consumers, and older folks don’t eat as much, so what we’re facing is a shrinking market,” Takemasu said.

The Osaka native began his professional career at Mitsubishi and was involved in the import and sale of livestock. His superior at the time, Takehiko Kakiuchi, went on to replace Kobayashi as president of Mitsubishi, giving Takemasu — who served as Kobayashi’s secretary before moving to Lawson — close personal ties with both the current and past heads of the trading house.

With nearly 14,000 shops in Japan, Lawson ranks No. 3 behind industry leader Seven-Eleven Japan, a subsidiary of retail giant Seven & I Holdings Co., which operates around 20,000 shops in the nation.

Backed by Itochu Corp., Japan’s second-largest trading house, which owns around 38 percent of its shares, FamilyMart overtook Lawson in 2016 when it merged with Uny Group Holdings Co. — operator of convenience store chain Circle K Sunkus — boosting its outlets to around 17,500.

Facing little space to grow domestically, however, all three have been stepping up expansions abroad.

Lawson has been focusing on Asia and has opened shops in China, Indonesia, the Philippines, Thailand and Hawaii, but those are only a fraction of the overseas stores run by its rivals. Seven-Eleven Japan and its subsidiary, 7-Eleven Inc., run and sign area-license agreements with around 44,300 overseas stores, while FamilyMart operates roughly 6,800 overseas outlets.

“We landed in China 20 years ago with outlets in Shanghai, but it was tough getting recognized,” Takemasu said. Six years ago, he said the company began localizing in earnest, hiring a Shanghai resident as its local manager and analyzing store locations, products and services based on regional needs.

Mitsubishi, which finished increasing its stake in Lawson last year to take on a majority share, is heavily involved in Lawson’s overseas expansion. Most of its regional headquarters are now headed by Mitsubishi employees accustomed to local culture and languages, Takemasu said.

There are currently around 1,600 overseas outlets, with 850 in Shanghai alone. Takemasu wants to see the number of overseas stores grow to around 2,000 by the end of the year, and to 3,000 by 2020.

The retailer is also hiring a considerable number of foreign people in Japan to counter the shortage of workers.

Takemasu said around 30 percent of the Lawson staff in its Tokyo stores are from overseas, compared to around 5 percent nationally. At its headquarters, around 15 to 20 percent of new hires every year are foreign students, he said.

The company also began conducting training courses in Vietnam and South Korea in 2016 for students planning to study in Japan, reviewing working conditions and differences in services and customs with prospective employees.

Among its peers, Lawson considers itself a pioneer in promoting health as a central part of its strategy. It introduced the health-conscious Natural Lawson chain of stores in 2001 — known for its hit Green Smoothie drinks — and the grocery-type chain Lawson Store 100 in 2005.

In 2013, it tweaked its corporate slogan to include the word kenkō, which means health in Japanese.

“No one dislikes health,” Takemasu said.

Michael Allen, an analyst at investment bank Jefferies in Tokyo and a long-time konbini watcher, said the top three chains are nearly identical in terms of products and services, “but trying hard to distinguish themselves because the market is saturated and there’s not much growth.”

“Lawson, considering it’s the third-largest, has done a great job emphasizing healthy food — they have attracted a slightly higher percentage of female customers,” he said.

Allen, however, said that Seven-Eleven had the first-mover advantage.

In Japan, it opened its first store in Tokyo in May 1974, roughly a year before Lawson opened its first shop in Toyonaka, Osaka Prefecture. Seven-Eleven adopted a high-density, area-dominant strategy, focusing on opening stores in proximate locations and thus making distribution cheaper.

Lawson meanwhile opted to cast a wider net, becoming the first convenience store chain to open outlets in all 47 prefectures by 1997. Seven-Eleven will begin opening outlets in Okinawa in 2019, finally landing on the only prefecture in Japan without a Seven-Eleven.

All three chains, however, are turning to technology to improve operational efficiency and absorb the growing labor costs in Japan.

The situation has been weighing on Lawson’s earnings as well. For the nine-month period that ended Nov. 30, the company saw operating profit fall 5.9 percent to ¥54.26 billion from the same period the previous year, as it increased spending to cope with the labor crunch. Net profit for the same period fell 3.1 percent to ¥32.79 billion.

In 2015 Lawson began using a semi-automated order-placement system based on sales data, hoping better-stocked inventories will help shop owners reduce sales losses and lost opportunities. Last summer, it deployed tablet-style terminals to outlets to improve management of work schedules, and in November began introducing point-of-sale cash registers to speed up calculations and money management.

In April or May this year, Takemasu said the company will begin testing unmanned checkout counters at select Tokyo outlets from midnight to 5 a.m.

Customers will have to download a special smartphone app to enter the stores and pay. Staff can concentrate on managing inventories while monitoring customer payments. Eventually, Takemasu said he’d like to see the system used during other times of day.

“For example, if you go to a store at 8:30 a.m., you often see a long line of people waiting to buy a cup of coffee. There’s quite a number of people who see the queue and decide against going in — those are lost opportunities,” he said.

“Then why not let customers use their smartphones to pay? It’s very common in places like Shanghai,” he said.

Lawson is also beginning to use artificial intelligence to decide on where to open new outlets. Takemasu said that over the years, the company has manually collected enormous volumes of data on both successful and unsuccessful stores, including household distribution patterns, automobile and pedestrian traffic, customer visits and purchase rates. By letting AI tap this data, the company hopes to find places suitable for new stores, the first such attempt in Japan’s retail sector.

It is testing first with the Lawson Store 100 shops but plans to expand the introduction of AI to its other stores, including Lawson and Natural Lawson.

Allen of Jefferies said the tech-shift will be a big trend for convenience stores, “because the top line is not just going to grow as fast as wage costs, unless they do something to really improve productivity.”

He said with limited space, convenience stores require significantly more manpower to sell the same amount of goods as supermarkets.

“But they are also the most tech-savvy, so I think you will see them at the forefront of labor-saving technologies in the world,” he said.

Takemasu said the convenience store model has a distinct advantage in a graying nation where the traditional retail sector is being disrupted by e-commerce players.

The proximity of convenience stores to work and home, the wide range of services and small portions of products available are appealing to a rising number of aging, single-person households. And while firms like Amazon.com are revving up fresh-food delivery services, visiting the nearby konbini uses less time than waiting several hours for parcels to arrive, he said.

“It’s about who can ride the sweeping trend in society, and I think a big opportunity is approaching convenience stores,” he said.

This series presents exclusive interviews with top business leaders and executives.