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Japanese convenience store owners who have been fighting for a break from their grueling 24-hour, 365-day-a-year operations may be closer to having shorter opening hours.

In a report Wednesday, the Fair Trade Commission took the industry’s top chains to task for business practices that have generated enormous profits by pushing growing operating costs onto franchise owners.

The report, which was based on a survey of more than 8,400 convenience store franchisees, detailed numerous problems with the companies’ business models, starting from the franchisee recruitment process and extending to the most fundamental aspects of store management.

It is the most comprehensive examination to date of an industry that is as opaque as it is ubiquitous. Companies like 7-Eleven, Lawson and FamilyMart have closely guarded their business practices, including from their own franchisees, making it difficult to ascertain the extent of the issues facing them.

Among the most serious problems cited by the report were franchisees being coerced into buying more products than they could sell, pushing them to maintain 24/7 operating hours and making misleading recruitment promises to store owners about the prospects for their new businesses.

The commission warned that those practices, among others, may have run afoul of Japan’s anti-monopoly law by “abusing a superior bargaining position.” It requested that the country’s eight leading convenience store chains submit a plan for taking corrective measures. The commission also said it would seek further information about possible legal violations by the companies.

Convenience stores are ubiquitous in Japan, with more than 55,000 locations so widely spread throughout the nation that the government considers them part of the national infrastructure.

But the industry has come under heavy scrutiny in recent years due to allegations by franchisees that companies have used strong-arm tactics to force them to overstock their stores and maintain 24-hout operations, leading some short-handed and overworked owners to collapse from exhaustion.

In early 2019, the decision by Mitoshi Matsumoto, a 7-Eleven franchise owner in the Osaka area, to close his store in defiance of company policy set off a media frenzy and put the issue in the spotlight. The trade commission began its inquiry nearly one year ago, amid mounting public pressure on the industry to change its practices.

7-Eleven severed Matsumoto’s contract in December after he decided to close his shop for the New Year’s holiday. The company has said the decision was made in response to customer complaints. The matter is now the subject of competing lawsuits.

Mitoshi Matsumoto, a former 7-Eleven franchisee, made headlines when he tried to close his store for the New Year's holiday. | NORIKO HAYASHI / THE NEW YORK TIMES
Mitoshi Matsumoto, a former 7-Eleven franchisee, made headlines when he tried to close his store for the New Year’s holiday. | NORIKO HAYASHI / THE NEW YORK TIMES

Reached by phone, Matsumoto — who has been working as a carpenter since losing his store — said that while he was encouraged by the commission’s report, he was concerned that big companies like 7-Eleven would still be able to avoid making major changes to their practices.

“If we don’t end the battle here and win a decisive victory, I think that the current situation will just drag on,” he said.

In a statement, 7-Eleven said that it accepted the commission’s findings and “is working toward improving,” adding that it had set up a team to address and resolve the issues raised in the report.

The company, which came under Japanese ownership in 1991, accounts for nearly 40 percent of convenience stores nationwide.

FamilyMart and Lawson did not immediately respond to requests for comment.

7-Eleven’s management model, which emphasizes 24-hour operations every day of the year and strict controls on store inventory, was for years considered the industry’s gold standard and became the norm across convenience chains nationwide.

But as Japan’s shrinking population pushed up labor costs, the major chains began to expand drastically in a battle of attrition for contracting market share.

In recent years, the commission’s report showed, the costs from that battle have been pushed onto owners.

In the past five years, annual sales in the surveyed locations declined steeply as the number of stores grew, dragging franchisees’ revenue down by an average of around 25 percent. At the same time, labor costs have shot up. Royalty fees paid by franchisees to headquarters, however, have remained steady.

Companies have already begun to make some changes. 7-Eleven changed its fee structure in March to increase the amount of revenue retained by franchisees. And companies across the industry have begun to allow some stores to shorten their hours in response to public pressure, a change that has been accelerated by the pandemic.

The commission’s report will be a “weapon” for owners who have been afraid to demand their rights, said Reiji Kamakura, the leader of the Convenience Store Union, a small group that has struggled to grow in the face of industry opposition.

“It will back up those owners who haven’t been able to show courage,” he said, adding that “they will start demanding vacation and other things, one after another.”

© 2020 The New York Times Company

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