A recent decision by Seven-Eleven Japan Co. to change its policy requiring franchisees to run their convenience stores around the clock and allow some stores to operate on reduced hours is yet another indication that the industry’s business model based on uniform 24-hour operations among all stores is no longer sustainable due to the nation’s growing manpower shortage.
Most of the more than 50,000 convenience stores across Japan are run by small-scale franchisees who often find themselves in a weak position vis-a-vis the big chain operators. But the convenience store industry itself — as well as consumers who have come to take the convenience of those stores for granted — will stand to lose if the staffing shortage and the greater strain on store owners endanger their business. The big chain operators need to explore and shift toward a new model that can sustain the operation of the small franchisees.
Seven-Eleven Japan is the largest convenience store chain in Japan, boasting some 21,000 stores nationwide. It began 24-hour operations at its stores in 1975 and established the current model that has become the industry standard. Even as doubts were cast over the sustainability of the uniform 24-hour operation of convenience stores — triggered by its own dispute with a store in Osaka Prefecture that had curtailed its nighttime operations due to staffing difficulties despite opposition from the chain — the firm had been the most hesitant among the major operators toward reviewing their round-the-clock service.
Last month, the company announced that it will allow scaled-back operations, which had been launched on a trial basis in recent months at more than 200 stores, in full this month. It will initially start with eight of the stores that took part in the trial and then gradually increase the number of franchisees operating on reduced hours.
Seven-Eleven Japan says the decision whether to shift from round the clock to reduced hours will rest with each franchise holder. President Fumihiko Nagamatsu says he expects the number that choose to operate on curtailed hours will be low. The company also says it will give favorable treatment to franchisees that maintain 24-hour operations in terms of the royalties they pay to the chain operator — which may result in discouraging store owners from cutting back on their service hours.
But in a survey that the company carried out on its franchisees across the country in July, some 2,200 stores, or about 15 percent of those that responded to the survey, said they wish to close their shops during late-night hours. More than half said they may consider reducing their nighttime operations in the future. The chain operator should take the results as proof of the seriousness of the staffing shortage that is making it difficult for many franchisees to sustain round-the-clock operations.
Other major convenience store chains are also moving to review 24-hour operations. More than 600 stores under the FamilyMart Co. banner have started shortening their hours on a trial basis, while Lawson Inc. says that nearly 100 of its stores already run on reduced hours based on its contracts that do not require them to operate around the clock.
The convenience store chains’ review of the 24-hour business model also comes at a time when their industry appears to be at a crossroads due to saturation of the market and the staffing problem. Total sales for the Seven-Eleven chain in July fell from a year earlier for the first time in more than nine years, while the number of its stores in Japan declined in September for the first fall in five years. It plans to review the operation of some 1,000 stores and close or relocate unprofitable outlets.
The major chain operators have long claimed that they need to maintain 24-hour service to keep up sales. However, the trials on reduced-hour operation have reportedly shown that may not necessarily be the case.
To enable the franchisees that wish to curtail their service hours to do so, the chain operators need to review their strategies in the production and distribution of their products that are based on the uniform 24-hour operation of their stores. Shops that choose to curtail their nighttime operation may find it difficult to cope unless the current practices are changed.
The major chains’ strategy of opening large numbers of shops in the same area for a dominant share of the local market and efficient distribution to the stores reduces each outlet’s sales and profitability. Since the shops will have to compete with the same chain’s other stores in the area, the franchisees may balk at curtailing their hours. The chain operators need to take steps to remove the hurdles to each shop flexibly determining its operating hours on the basis of its staffing situation and other conditions.
IN FIVE EASY PIECES WITH TAKE 5