Editorial: Convenience store industry needs to depart from current business model

The convenience store industry, which has grown through its traditional business model of operating 24 hours a day, seven days a week and selling goods at fixed prices, has reached a crossroads.

Under contracts, franchise stores are required to open 24 hours a day and the more these shops earn, the more profits convenience store companies gain. However, such franchises, which are suffering from labor shortages, have found it increasingly difficult to continue operating.

The practice of selling goods at fixed prices, which is aimed at preventing price wars like those between supermarkets, has supported convenience stores' high profit margins. At the same time, the industry's traditional business model has led to the discarding of a large number of food products, such as boxed lunches and rice balls, whose use-by dates have approached, and is being criticized for wasting massive amounts of food.

Seven-Eleven Japan Co. and other major convenience store companies have worked out countermeasures recently, but they are just small-scale changes such as shortening business hours at some stores on a trial basis and discounting food products whose use-by dates are drawing near by rewarding shoppers with points.

When convenience stores were not widespread in sparsely populated areas and it was easy to secure human resources, both franchises and convenience store companies could gain profits once stores newly opened featuring round-the-clock operations.

However, as there are more than 55,000 outlets across Japan in an age when the population is declining, convenience stores can no longer expect to attract as many customers and gain as much profits as before. Franchises are being forced to bear the costs of operating 24 hours a day, including rising wages for those working late at night.

In a recent survey conducted by the Ministry of Economy, Trade and Industry on managers of convenience stores, approximately 60% of them admitted that they face labor shortages and about 40% said they are not satisfied with their franchise contracts.

Nonetheless, major convenience store companies are slow to reform their operations apparently because they do not want to change their existing business model that has supported the firms' high profits. If a growing number of stores discontinue their round-the-clock operations, the headquarters will gain less income and be forced to review their efficient distribution networks through which they deliver goods to stores from late at night to the predawn hours to prepare to serve a large number of customers in the morning.

Major convenience store firms claim that customers want their stores to operate 24 hours a day. However, consumer awareness has changed as a result of the government's policy of reforming the way people work. Surveys of the public conducted by private firms show that over half of respondents are in favor of shorting the business hours of convenience stores.

Convenience stores that accept utility fee payments, handle parcel deliveries and provide ATM services now make up infrastructure for people's livelihoods. If convenience stores operating under franchise cannot survive, they will not be able to fulfill their role of supporting people's lives. The whole industry has come under pressure to swiftly change its business model so that it fits with the times.