National | Regional voices: Chubu

Behind the scenes of 24/7 service: The realities of 'owning' a Japanese convenience store

Chunichi Shimbun

A familiar orange and green signboard glares in the pitch-dark, quiet street in a residential area. There, the owner of a 7-Eleven franchise store located in the suburbs of a small city in the Chubu region works the night shift every day by himself.

The owner, in his 40s, said he works 500 hours a month. He consulted with the Labor Standards Inspection Office, only to be told that it doesn’t deal with complaints from owners.

When his wife works with him, the couple keep their 6-year-old son and 4-year-old daughter in a room at the back of the store and let them play games or watch videos using a smartphone.

The floor has stains made by the children eating chocolates. When the daughter caught the flu, they placed a couple of chairs side by side for her to lie down on.

“This is almost like abuse,” the owner said, looking at a family picture from when they took a trip to a theme park in the Kanto region. “We need more time to spend with our children.”

Things went well for him at first after he opened the store in 2012. There were about 20 employees — double the current number — and he had to work night shifts only once a week. But in the fall of 2016, a FamilyMart store opened nearby, followed by another 7-Eleven outlet not far away from his store.

Intensified competition among the stores led to plummeting sales and hiring part-timers became almost impossible.

One Monday night in late March, only 10 customers came to the man’s store in the three hours before dawn, and the sales during that time were a little more than ¥6,000. The store will be in the red if he hired someone for night shifts.

Convenience store chain operators stress their stores’ role as being part of the social infrastructure, including the prevention of nighttime crime and supplying goods in the event of disasters.

But the man, who has recently been suffering often from high fever, asked: “Does (being part of the) social infrastructure mean shortening my life to keep the store open all the time?”

Franchise owners’ struggles are reflected in the statistics as well. Seven-Eleven Japan Co. increased its outlets by some 1,000 every year between the 2011 and 2017 business years. During the same period, the labor shortage became more severe: The ratio of job-offers-to-job-seekers rose from 0.56 to 1.54, and the weighted national average minimum wage rose from ¥730 to ¥848.

Nobuo Kawabe, a professor emeritus of management history at Waseda University who is well-versed in issues related to the convenience store business, pointed out that the background of franchise owners have changed as well.

According to Kawabe, many owners of newly opened stores are former company employees, lacking management knowledge, assets or experience. Traditionally, many franchise owners were self-employed store operators who switched their business to a convenience store, possessing the shares of the chain operator and the land where their stores are located.

“Those who quit companies (to become franchise owners) are complaining that they are not making money although they were told that the business would be profitable,” Kawabe said.

Seven-Eleven Japan “has forgotten the philosophy of coexistence and coprosperity with franchise stores and failed to listen to their voices,” he said, calling on the chain operator to either make up for the labor shortage or revise the stores’ business hours.

After the first 7-Eleven store in Japan opened in Tokyo’s Toyosu district in 1974, convenience stores became a great hit, functioning virtually as a fridge for young people and single households.

As one mom-and-pop store after another turned into convenience stores, the number topped 10,000 in fiscal 1988 and 30,000 in fiscal 1996, according to the Japan Franchise Association.

After the turn of the century, however, the growth in the number of convenience stores slowed down, with many saying the market is saturated. Convenience store chains sought to expand their services by accepting over-the-counter bill payments and parcels for delivery, introducing ATMs and signing agreements with local governments for cooperation in times of disasters.

Kawabe said the revival of convenience stores came with the Great East Japan Earthquake in March 2011. “People in disaster-hit areas felt relieved to see the stores open even after the disaster,” he said.

Today’s convenience stores are welcomed by all generations including the elderly, and their operators, especially Seven-Eleven Japan, started opening new stores again. Many regarded this as a sign that the views on market saturation had been proved wrong.

On the other hand, many franchise store owners are struggling under the overwhelming dominance of the parent company.

Last year, when Fukui Prefecture was hit by the heaviest snowfall in decades, it was discovered that a 7-Eleven franchise store was banned by the parent company from closing temporarily even after the store owner’s wife fell ill from overwork.

In February, convenience stores’ around-the-clock service was brought into the spotlight again when a 7-Eleven franchise store in Higashiosaka, Osaka Prefecture, cut its operating hours without permission from the parent company, which the chain operator disapproved of. Following criticisms, Seven-Eleven Japan said it will review its 24-hour operating policy and began experimenting with reduced-hour operations at some of its directly managed stores and franchise stores.

The Fair Trade Commission, meanwhile, is exploring the possibility of applying the antitrust law, which prohibits companies from abusing their positions of power, to convenience store chain operators forcing their franchisees to operate around the clock.

In response to Economy, Trade and Industry Minister Hiroshige Seko’s request, on April 25 convenience store chain operators released action plans on managing and supporting franchisees. Seven-Eleven Japan’s plan included measures to expand support to franchise stores and introduce stricter rules for opening new stores.

“We will let the owners (of franchise stores) make the final decision (on whether to shorten operating hours),” said Seven-Eleven Japan President Fumihiko Nagamatsu.

Mitoshi Matsumoto, 57, the owner of the Higashiosaka store, said he decided to cut business hours as a last resort. He lost his wife in May last year and he “was on the verge of falling ill or dying from karōshi (death from overwork),” he said.

Matsumoto had expected the store’s sales and net income would drop, but as a matter of fact his net income rose.

Mitoshi Matsumoto speaks in front of his 7-Eleven store in Higashiosaka, Osaka Prefecture, which has a sign at the entrance saying the store’s operating hours have been reduced since February. | CHUNICHI SHIMBUN
Mitoshi Matsumoto speaks in front of his 7-Eleven store in Higashiosaka, Osaka Prefecture, which has a sign at the entrance saying the store’s operating hours have been reduced since February. | CHUNICHI SHIMBUN

According to the store’s profit and loss statement, the average daily sales in February last year — when the store was operating 24 hours — were ¥570,000 and the total monthly sales were about ¥16 million.

In February this year, after the store started operating from 6 a.m. to 1 a.m., monthly sales dropped to around ¥15 million and the royalty fee paid to the chain operator based on gross profit also declined. But his net income increased by ¥400,000 compared with February last year because the labor cost — the cost that franchisees have to bear — was reduced significantly.

The second largest expense that franchisees bear after labor cost is the cost to dispose of food that has expired, because Seven-Eleven Japan’s system effectively makes franchisees purchase all expired food items such as rice balls and bento.

In late February, Matsumoto began discounting foods nearing expiration and his net income in March rose by about ¥100,000 from the previous month. He said he used to think that food disposal leads to more profit, as he was told by the chain operator.

While Seven-Eleven Japan says franchisees and the chain operator “have an equal relationship,” Matsumoto says the relationship is “that of ants and an elephant,” citing a large gap in power and information.

“The system works in a way that the more exhausted franchisees get, the more profitable the chain operator becomes. I had been fooled,” Matsumoto said.

In sharp contrast, Sapporo-based Secoma Co., which runs the convenience store chain Seicomart with 1,189 stores mainly in Hokkaido, has succeeded in establishing an equal relationship with its franchisees.

Seicomart has been chosen as the most satisfying convenience store chain in the Japan Productivity Center’s Japan Customer Satisfaction Index for three years in a row since fiscal 2016.

A Seicomart store in Sapporo says its operating hours are from 6 a.m. until midnight. Nearly 80 percent of Seicomart stores do not open 24 hours a day. | CHUNICHI SHIMBUN
A Seicomart store in Sapporo says its operating hours are from 6 a.m. until midnight. Nearly 80 percent of Seicomart stores do not open 24 hours a day. | CHUNICHI SHIMBUN

The company, which started its business as a sake dealer with a management philosophy of supporting liquor stores, gives franchisees control over their business.

The stores’ business hours are basically between 7 a.m. and 11 p.m. They extend the hours based on their own decisions, with only 23 percent choosing to operate around-the-clock.

“I’m happy that I don’t get calls late at night,” said a 45-year-old woman who runs a Seicomart store near Sapporo University which is open from 6 a.m. until midnight. The woman, who used to work at a 24-hour store, said she now has more time to spend with her child as she is able to come home by 9 p.m.

The company also offers territory rights to its franchisees so that new stores will not be set up close to the existing ones, protecting them from having to take customers and workers from each other.

Secoma sets its franchise royalty fee at 10 percent of gross profit — which is low compared with other convenience store operators — and makes profits by selling to franchisees products manufactured by its affiliates.

Seven-Eleven Japan, on the other hand, adopts what is called the “area-dominant strategy,” intensively recruiting franchisees within limited areas, and asks for 40 to 75 percent of gross profit as a franchise fee — the highest in the industry.

“The area-dominant strategy results in expansion of the chain’s overall market share, thus helping its stores increase their sales significantly,” an executive of Seven & I Holdings Co., a holding company of Seven-Eleven Japan, said. “In exchange (for the high franchise fee), the chain operator provides management advice and other support.”

Frustrated by the firm’s area-dominant strategy and moves to discourage discount sales by threatening to cancel franchise contracts, some 7-Eleven store owners created a labor union for convenience store franchisees in 2009. But the union has so far failed to negotiate with the company, and the Central Labor Relations Commission in March dismissed the union’s plea to gain the right to collective bargaining, admitting the company’s claim that franchisees are independent business owners.

Secoma President Tomoyasu Marutani said that major convenience store chain operators “are exploiting franchisees by signing unique contracts, using the freedom of contract as an excuse.”

“In order to realize sustainable management, franchisees need to make a profit,” Marutani said. “Even if they manage to cope with the issue of 24-hour operation, they will soon face another problem.”

This section features topics and issues from the Chubu region covered by the Chunichi Shimbun. The original articles were published May 8, 9 and 11.