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FTC to probe fairness of dealings between Japan's convenience stores, head offices

A stone nameplate for the Japan Fair Trade Commission and the Public Prosecutors Office is seen at a joint national government building in Tokyo's Chiyoda Ward. (Mainichi/Kazuo Motohashi)

TOKYO -- The Japan Fair Trade Commission (JFTC) is poised to launch a probe into dealings between convenience store head offices and franchises as early as this summer, investigating whether 24/7 operating models and other restrictions are putting some franchises at a disadvantage.

The probe will be the first since 2011. Due to a lack of staff, there has been a movement by stores to seek a review of their 24-hour business model, which would represent a significant change in their operating environment.

The JFTC will carefully investigate whether head offices are putting franchises, which remain in a weak position, at a disadvantage in light of the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade. In addition to probing whether head offices are using their superior position to unfairly force franchises into staying open 24 hours a day, the JFTC will look into their contracts with stores and their trade practices.

Furthermore, the JFTC will look into whether the head offices are advancing a dominant strategy by ignoring the wishes of stores as they focus on opening outlets in certain regions. It will also consider whether the head offices are unfairly restricting clearance sales for products approaching their use-by dates and putting stores at a disadvantage.

The commission will interview store owners and conduct questionnaires, and aims to compile a report by the end of fiscal 2019 on whether there have been any infringements of the antimonopoly act. It is considering issuing cease and desist orders after screening cases individually if any violations are detected.

In February this year, a Seven-Eleven Japan Co. store in the city of Higashiosaka in western Japan started shortening its nighttime operating hours. In response, the head office demanded that it pay a penalty of about 17 million yen, a move that upset stores.

Under the contract between the head office and franchises, the more a store earns, the more royalties the head office collects. But if there are any increases in costs resulting from personnel expenses, the franchise store is expected to foot the bill.

Worried about worsening business conditions, some convenience stores are asking for a review of the 24-hour business model, but major chains are steadfastly adhering to it.

To prevent head offices from violating the antimonopoly act, the JFTC formulated guidelines in 2002 stating that business models must not unilaterally put franchise stores at a disadvantage or unfairly restrict franchises alone. In 2009, the commission issued a cease and desist order against the head office of Seven-Eleven Japan for unfairly restricting the sale of goods at reduced prices in violation of the antimonopoly act.

(Japanese original by Naoya Matsumoto and Kenji Wada, Business News Department)

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