Since introduced into Japan in the early 1970s, the business model of the CVS has continuously evolved. In the following, this development will be described, focusing on changes in stakeholders, capabilities, and the societal discourse surrounding CVSs (Chart 1).
When CVSs were first introduced, Japan’s traditional retail infrastructure was still relatively intact. While in the US, CVSs had developed to complement supermarkets that were either located too far away from people’s homes or too large for quick shopping, in Japan most people still had stores selling necessities close to their homes, and used them on a daily basis. Thus, the introduction of CVSs based on the US business model initially met with significant skepticism from potential suppliers, and indeed even within the very companies that introduced the CVS to Japan (SIJ 1992; Koyama, 1993). Japan’s CVS companies still succeeded, but only after significantly adapting their business models from those developed in the US, as well as learning how to appeal to a new customer group: adolescents, students, and young singles, who began to demand snacks and beverages for quick consumption at all times of the night and day, nearby or on their routes between homes, places of education, or work (Kawabe, 2013; Larke & Causton, 2005; Meyer-Ohle, 2003). A significant success factor in the introduction of the CVS was the application of the franchise model. Franchisees were initially mostly small retailers who converted their stores into CVSs, thereby providing the franchise operators with retail experience, shop locations, some acceptance in local communities and, when converting liquor stores, the otherwise difficult to get license to sell alcohol. In addition to building close relationships with franchisees, CVS chains invested in developing a procurement and delivery infrastructure, which required significant cooperation from suppliers, who had to be convinced to make frequent small lot deliveries to stores. Here it helped that CVS chains had been established by the then-dominant superstore chains, thus ensuring that CVSs did not need to build relationships from scratch. Striving to make CVSs profitable for franchisees as well as suppliers, CVS headquarters made significant investments and innovations in information systems to help shop owners predict demand, and to help suppliers plan their deliveries (Yahagi, 1994). In the initial period of their development, companies thus displayed a firm-centric orientation. Pursuing an untested business model that required major adjustments, companies paid close attention to the situation of their two main stakeholders, franchisees and suppliers.
In the following growth period, from the 1980s onwards, CVS chains increasingly began to compete with each other, and also recognized first limitations to future growth due to their focus on young and single consumers. To draw more customers and utilize their advanced IT infrastructure, companies gradually introduced new services in collaboration with other businesses, such as the payment of utilities charges, event ticket sales, or parcel collection. Later, companies began to differentiate store brands more clearly by developing products exclusive to their stores, often in close collaboration with manufacturers. The latter found such collaborations attractive not only due to the significant sales of convenience stores, but also because of the detailed customer data that CVS companies collected, as well as their young consumer base, both of which allowed for quick market testing. In the 1990s, the convenience store sector also increasingly developed into a competition among three leading companies, Seven Eleven, Lawson, and FamilyMart, especially once Japan’s large trading companies bought controlling stakes in FamilyMart and Lawson (Marutschke, 2012; Yahagi, 1994). Working with manufacturers and service providers, the number of involved stakeholders expanded. Having become an established retail format with a significant share of overall retail sales, companies could increase their demands on franchisees and suppliers. This is evidenced by a heightened interest in the potential misuse of their growing power by Japan’s Fair Trade Commission. In 1998, it investigated Lawson for the way the company treated suppliers; in 2001, it charged CVS companies with providing deceptive information when recruiting new franchisees; and, in 2009, it warned Seven Eleven about its methods of charging royalties from franchisees (NKS, 17/04/1998:7; NKS, 1/11/2001:38; NKS, 20/02/2009-e:17; Nogimura, 2015).
Apart from its treatment of franchisees and suppliers, the CVS faced criticism for contributing to uniform urban landscapes, selling unhealthy food, promoting eating away from families, offering hangouts for young people, providing easy access to tobacco, liquor, and pornographic magazines, and consuming vast amounts of electricity through continuous air-conditioning, intense refrigeration of products, and around-the-clock opening hours (Shigeru & Araki, 2008; Nogimura, 2015; Nishida & Yamamoto, 2015; Ishihara, 2019). Finally, while CVS chains generated significant sales and profits, the franchisee model ensured that this resulted in only low local tax contributions. The significant royalties paid to headquarters are deductible as costs, and the remaining income is accounted for separately, often by relatively lowly taxed individual franchisees (NKS Osaka, 12/3/2007-e:29).
Eventually, the industry decided to frame their store networks as a part of social infrastructure. In May 2009, the industry issued its “Convenience Stores as Social Infrastructure Declaration,” promising to engineer CVSs that are friendly to the environment and contribute to the safety and security of communities, as well as to the vitalization of local economies (JFA, 2011). Significantly, although the declaration promised to pursue various new initiatives, it also demanded more cooperation between companies so as to better publicize what was perceived as the existing positive contributions of CVSs.
The 2011 great eastern Japan earthquake
People became suddenly distressed when the retail functions that had supported people’s lives were abruptly disrupted. Retailers, just thinking of business efficiency, had prioritized frequent small lot deliveries, convenience stores had reduced stocks to its minimum, in times of emergency logistics stopped and this became a hurdle to sales. (Nishikawa, 2011, p. 74)
On March 11, 2011, a powerful earthquake struck Japan. The epicenter of the earthquake was off the northeastern coast, near Sendai, but it was so strong that it also brought all transport in Tokyo to a standstill. The earthquake triggered a tsunami that flooded large areas along the coast, which together killed about 16,000 people, with more than 2500 people remaining unaccounted for. A meltdown of reactors at the Fukushima nuclear power plant soon followed, eventually leading to the mass evacuation of people from the surrounding areas.
The earthquake caused significant damage and disruptions in a large area extending across eastern Japan. It destroyed or damaged people’s homes, transport infrastructure, and businesses. In the CVS sector, only 320 of the 918 stores that Seven Eleven operated across the most affected prefectures managed to remain open on March 11 itself, a number that rose to 524 by March 14, 575 by March 21, and reached 826 by March 28 (Seven Eleven: no year). Similarly, reports show that Lawson had about 310 of its 390 stores operating again by March 23, and FamilyMart about 190 of its 250 stores (NKS, 24/3/2011:10).
Yet stores had to reopen with limited product supply, since CVSs, due to limited storage space and a high proportion of fresh merchandise, relied on three to four deliveries a day (Etoh, 2013; Nishikawa, 2011). Freshly prepared food items like salads, lunch sets, or sushi are typically prepared and delivered with a lead time of only 10 h; for processed food items, the lead time is just 7 h (Namiki, 2011). To maintain an image of freshness, companies label products with very short best-before dates, a policy that proved highly problematic when products no longer reached stores as scheduled (Kamei, 2011). In supplying stores, companies experienced the breakdown of supply lines through damaged distribution centers and production facilities, but also through bottlenecks such as a severe shortage of gasoline for transport vehicles. The disaster led to immediate power outages at stores and distribution centers, and, later, regular scheduled outages to cope with energy shortages. This led to a breakdown of communication systems, leaving companies uncertain about supplies required at production facilities and stores (TRC, 2012; Seven Eleven: no year). There were even reports of supplies being shifted away from disaster areas, when the algorithms of automated order systems interpreted the lack of data from affected areas as a drop in demand. At the same time, systems were registering increased demand from other parts of Japan, where consumers were hoarding products (Hayashi, 2011). Consequently, the president of a leading food wholesaler, Kokubu, described Japan’s food logistics system as “fragile as glass” (Gekiryu Magazine, June 2011:69). This assessment of the Japanese distribution system as vulnerable largely mirrors conclusions in the general literature on supply chains and disasters, with many supply chains the world over having moved towards small lot, just-in-time fulfilment (Christopher & Peck, 2004; Lederman et al., 2009).
While it took companies several months to recover their original logistics infrastructure and supply levels (TRC 2012), companies managed to restore some product supply to stores much earlier by utilizing their nation-wide transport and distribution center infrastructure, as well as their strong relationships with major food manufacturers and importers. Companies restored coverage by shifting the boundaries of areas served by still-operating centers outwards into the disaster areas. Seven Eleven was thus able to restore its normal frequency of three deliveries per day to many of its stores as soon as two weeks after the disaster, and with 80% of its original product range. This fast recovery was attributed to the fact that Seven Eleven had, together with its supply partners, set up a network of production facilities that exclusively supplied to its stores, thus ensuring that the company did not have to compete with other retailers for supplies. It took Lawson and FamilyMart two weeks longer to increase delivery frequency from once to twice daily (NKS E-edition, 30/6/2011; NKS, 7/4/2011:3). Companies also profited from the individual initiative of franchisees, many of whom reopened stores with whatever merchandise was available. Some store owners managed to find alternative supply sources, and while normally franchise headquarters tightly control the merchandise handled by franchisees, franchisees were praised for their initiative after the disaster (Shokuhin Shōgyō May 2011; Seven & I Holdings, 2011).
In summary, the CVS operations of the leading companies displayed weaknesses in terms of disaster readiness, many of which were inherent to the CVS business model. However, when restoring operations, companies subsequently demonstrated considerable strengths and flexibility (Table 1). While just-in-time supply systems were inhibitors, nation-wide logistics and supply systems, as well as strong collaborative relationships with suppliers and manufacturers, served as facilitators. Reports on the Great Eastern Japan Earthquake also emphasize how the leadership, initiative, and sacrifice of individual franchise owners had been instrumental to overcoming difficulties. This led to proposals that store operation manuals be shortened, and employees and franchisees further empowered, so as to increase resilience to disaster situations (Konbini, May 2011; Sakurai, 2011). This can be interpreted as a call for increased dynamic capabilities in a context in which actors had become highly reliant on, and even somewhat proud of, the existence of automated and routinized procedures. In spite of this, companies began to look at how they could improve their capabilities to sense threats quickly and appropriately, to reconfigure systems accordingly—for example, by changing from pull- to push-based supply systems—and even, when possible, to recognize opportunities that might accompany such situations.
Since 2011, companies have made significant efforts to increase the disaster resilience of their operations. Focusing on bottlenecks first identified during the disaster, companies have tried to address them by, for example, equipping stores with emergency energy backup, ensuring the provision of sufficient gasoline for delivery vehicles, increasing supply sources for bottled drinking water, or preparing emergency plans with logistics partners for quickly shifting products to where they are most needed. Companies have also reviewed their production and distribution center networks to reduce dependence on single facilities, and to increase capacity for emergency situations (NKS sokuhō, 2/6/2012; NMJ, 23/1/2013:5; NMJ, 28/11/2012:5; MLIT 2015; Nikkan Kōgyō Shinbun, 31/5/2016). Yet, due to a business model that centers on freshness and just-in-time deliveries, CVSs' ability to regain quick access to stores after disasters remains crucial. In light of this, companies have strengthened their cooperation with public actors, here building on calls by both ministerial advisory committees and business associations for an increased integration of the relief efforts of public and private actors (KSKK, 2015; NKS, 26/4/2016:13; Keidanren, 2016). In June 2017, the Japanese government added Japan’s leading retailers (among them the three largest CVS chains) to the Disaster Countermeasures Basic Act as “designated public organizations,” alongside utility, communication, and transport providers (METI, 2017). The involvement of retailers and logistics companies followed an official decision by policy makers to change initial disaster response from a pull- to a push-based model, proactively “pushing” relief goods into disaster zones instead of waiting for “pull” signals. In July 2018, after large areas of western Japan had been hit by torrential rain, Japan’s Self-Defense Forces assisted in transporting CVS delivery vehicles across flooded areas, likely a first in disaster relief (The Sankei News, 22 July 2018).
The events of the 2011 disaster also helped companies gain acceptance as essential infrastructure providers in and by communities themselves. CVS companies assumed a highly visible role in the recovery process, and this role has come to occupy a much larger place in public memory than initial product supply issues. Companies conducted outreach to consumers through mobile or modular stores in newly erected temporary settlements, which also fulfilled communal functions (Asano, 2011). A store by FamilyMart, for example, was only one-third the size of a normal store, and carried fewer items, but offered a space for meetings. The store also rented out three small cars, had a small library of books and DVDs, and provided a space for town leadership to counsel citizens. To create links to the community, FamilyMart selected a store manager from a local family of shopowners (Asano, 2011). Seven Eleven activated plans for a mobile CVS. Once the stores were implemented, the company found that, although people in evacuation centers were generally well-cared for by governmental and volunteer organizations, their stores saw unexpected demand from people who had remained in their homes. The company also discovered high demand for liquor, confectionery, or cigarettes, items that were not included in public emergency supplies. A mobile store operator reported improved standing in the local community after the crisis, and claimed that customers who had not frequented his regular store began to do so after visiting the mobile store (Gekiryu Magazine, November 2011).
Assuming a role in solving long-term challenges of an aging and shrinking population
In light of the issues that our country is struggling with, such as the shrinking and aging population, vitalization of the economy, the support and enhancement of local communities, environmental issues, the expectations towards convenience stores are high. (Ministry of Economics, Trade and Industry [METI], 2014)
Graph 1 shows the dramatic change in the age composition of Japan’s population, and the growth of CVSs since their introduction in the 1970s. Since the mid-1990s, the number of people between 15 and 30 years of age—the core group of CVS consumers—has been decreasing, and the number of people above 65 has significantly increased, overtaking the number of consumers in the younger age groups in 2010. Companies hoping to grow further therefore had to find ways to develop new locations and widen their customer base. In terms of new locations, companies have significantly increased their engagement in non-metropolitan areas, which are often less densely inhabited areas with older populations (Table 2).
To appeal to elderly consumers, companies have begun to offer more fresh produce and ingredients for cooking meals at home, as well as products and meals preferred by elderly consumers—for example, by replacing meat with fish and vegetables (Kato, 2016). In addition, companies are experimenting with new services and new store formats:
Seven Eleven has been running a meal delivery service, “Seven Meal,” since 2000, and started offering home delivery of products in Hokkaido in 2017 (NKS, 11/5/2018:13).
To cater to the elderly, Lawson promised to reduce salt content in its meals by 20% between 2017 and 2021 (NMJ, 27/3/2019:11).
Seven Eleven agreed to cooperate with Fukuoka Prefecture in providing elderly inhabitants with employment opportunities, e.g., hiring elderly people to deliver food to other elderly people, and to report on their wellbeing while doing so (NKS Kyushu, 26/6/2014-e:13).
FamilyMart, in cooperation with Tokyo's government, pledged to properly label low-nutrient meals in its 2400 stores in Tokyo to fight frailty in the elderly population (NKS Tokyo, 1/11/2019:15).
CVS operators, in cooperation with Osaka Prefecture, agreed to train employees to spot and support people with dementia who seem to be in trouble (NKS Osaka, 18/9/2015e:19).
FamilyMart is opening stores with counseling counters for the elderly and their families, in collaboration with elderly care providers (NMJ, 8/3/2018:15).
Lawson, together with a housing developer, set up a store equipped with a community space in a suburban area in Kanagawa Prefecture, where volunteers organize events and help the elderly with shopping and using CVS services (NKS Kanagawa, 30/10/2019:26).
To serve elderly people with mobility difficulties, Seven Eleven has begun to deploy mobile stores in Hikarigaoka, a housing development for senior citizens in Tokyo (NKS Tokyo, 10/11/2018:15).
Seven Eleven is working with Keikyu Railway to provide delivery services to aging populations in residential areas along the railway line (NMJ, 24/1/2018:4).
Family Mart opened a store in Fukui Prefecture, in collaboration with a regional cooperative and the local municipality, to serve a depopulating community with just 1800 people (NKS Hokuriku, 1/2/2018:8).
Companies are thus striving to maintain and even expand their leading role in Japanese retailing. However, in doing so, the number of stakeholders involved in CVS operations has further increased, and now includes public actors. CVS companies have concluded service contracts and comprehensive memoranda of understanding with cities and prefectures, in which the intention that CVSs contribute widely is clearly voiced (Kodama, 2018; Tsukui, 2017). The Ministry of Economy, Trade and Industry (METI) set up a study committee in 2014 to investigate the potential economic and social role of CVSs. In 2018, the government relaxed zoning laws to ease the opening of stores selling daily necessities in residential areas (NMJ, 22/7/2018:15).
But while the CVS industry managed to improve its public standing considerably in the wake of the 2011 disaster, this status has come into question again. As another consequence of the aging population, the CVS industry is facing a labor shortage. This has put a severe strain on franchise owners, many of whom run more than one store, are advancing in age themselves, and oversee store operations that have become more complex both through the addition of services and increased demands from communities. In May 2019, a CVS owner in Osaka made headlines beyond Japan by closing his store for several hours at night, thereby putting himself in violation of his franchise contract (New York Times, 30 December 2019). The franchise operator initially reacted harshly, but, following a public outcry, CVS operators are now trialing shorter working hours in some stores. Soon after the incident, the Japanese government installed an advisory committee to review this issue. The proposal for its final report again emphasized the heightened importance of CVSs' roles in communities, but also acknowledged the challenges that store owners face in fulfilling significantly increased expectations. The report recommends recognizing the diversity that has developed within store networks, and demands that CVS companies allow for flexibility with regards to opening hours and services provided, as well as when deciding on royalties charged to franchisees (METI, 2020b). This position was further reinforced by the Fair Trade Commission issuing another report on convenience stores in September 2020, which again questioned the control of franchise headquarters over the operations of their franchisees in terms of opening hours and prices (NMJ 7/9/2020:1). Shorter opening hours, however, mean that “the lights are no longer always on” in the CVS. CVS headquarters are looking at potentially introducing increased automation to relieve storeowners. However, systematic automation and the reduction of store personnel would conflict with the positioning of stores as social infrastructure, as well as their potential as support centers in times of disaster.
The Covid-19 crisis of 2020 put further stress on the CVS industry, and again demonstrated the complexity of convenience store operations. Stores in central business and shopping districts saw significant drops in sales, with workers and shoppers largely staying at home. Stores in residential areas found themselves competing with supermarkets for everyday products and losing late night customers (NKS, 23/7/2020:13). At the same time, while facing demands to support consumers in their neighborhoods, franchisees still needed to ensure the safety of shoppers and staff. Decisions by franchisees to close facilities such as toilets or eating corners, or to remove trash bins, complicated the role of CVS as public infrastructure in times of crisis, and led to further conflicts between headquarters and franchisees (NSS, 7/7/2020:9). At the same time, part-time workers losing jobs elsewhere, especially in the restaurant sector, has somewhat eased the labor shortage in the industry and thus the pressure to find solutions in terms of opening hours, with some stores even returning to around-the-clock operations (NKS, 20/10/2020:12). However, there remain worries that, due to increased demands and shrinking margins, store owners will not renew their franchise contracts, 30% of which are up for renewal within the next five years (NMJ, 4/12/2020:1). The Covid-19 crisis has thus led to further calls for companies to review their business models, especially in terms of their treatment of franchisees, yet has also led to initiatives, such as 30-min home deliveries, that further complicate the running of stores (NMJ, 23/9/2020:11).