Clouds on the horizon in Japan’s conbini-land

Stiff competition: A shopper at an unmanned cash register at a Lawson store in Tokyo. Lawson has slipped to third place among Japan’s convenience store chains. — Reuters

EVERYONE loves Japan’s ubiquitous convenience stores, known locally as conbini.

They’re the subject of tens of thousands of tourist TikToks and YouTube videos, with visitors gushing over their most quirky offerings.

The stores were the bright spot during the Tokyo Olympics three years ago when reporters, unable to eat in restaurants due to Covid-19 and perhaps expecting a stale gas station hot-dog, instead revelled in the fine dining options available at the conbini 24 hours a day.

The late Anthony Bourdain famously obsessed over the “unnatural, inexplicable deliciousness” of one chain’s egg sandwiches.

You’ll find conbini anywhere: Train platforms, hidden inside office buildings or serving patients in hospitals, sometimes even right beside another store from the very same chain.

Now telecoms giant KDDI Corp wants in on the action, teaming up with Mitsubishi Corp to take Lawson Inc private.

The store could use the help: In the past decade, as rivals FamilyMart bought out smaller chains and Seven & I Holdings Co doubled-down on its market leader status, Lawson has stalled.

It’s in third place in a three-horse race, and its stores increasingly feel like it.

Industry consolidation has pushed minor players out of the game. That’s been driven largely by FamilyMart, which purchased the Circle K and Sunkus chains in 2015, leapfrogging into second place following an earlier acquisition of AM-PM’s Japan operations.

Smaller players such as Three F Co and Poplar Co, a Hiroshima-based chain with a quaint gimmick of serving freshly-cooked rice to scoop into your bento box, are quickly disappearing, with both having made partial sales to Lawson.

Lawson has slipped to third place among Japan’s convenience store chains.

That reflects a sector with cutthroat competition and a dependency on economies of scale. It’s no longer enough to offer cigarettes and a shelf of stale bread; customers now expect almost everything from their local conbini.

The continuous improvement has elevated the Japanese convenience store beyond the ordinary corner market, and made it such an object of obsession for visitors.

I’m something of a conbini connoisseur myself. When I first came to Japan more than two decades ago, many convenience stores didn’t even serve alcohol due to restrictive liquor licensing laws at the time.

Now there’s a FamilyMart in Shibuya with a bar that will pair cocktails with its famous fried chicken – a product introduced in 2006 as the main chains improved their hot food offerings.

I still remember the day my rural town in Hiroshima, which hitherto only had a 7-Eleven, got a FamilyMart.

Many years later, I got up early in the morning to visit my local 7-Eleven the moment it started selling donuts. (I don’t even like donuts; it turns out no one else did either, and the experiment was an expensive flop.)

Other launches have been more successful. In recent years, locked in competition for footfall, the chains have added everything from cheap-but-cheerful 100 yen fresh coffee to high quality desserts overseen by famous patisserie chefs.

In winter, you can treat yourself to an expanding selection of steamed pork buns stuffed with cheese or gyoza; in summer, try thirst-quenching frozen fruit smoothies or frappé drinks.

And it’s not just calorie-dense treats; the conbini has become an indispensable part of Japanese life, a vital lifeline in rural areas where mom-and-pop stores have disappeared.

They provide (relatively) healthy meals during the day, a pharmacy late at night, and prop up a whole section of day-to-day life that tourists don’t see.

It’s a place to pay your taxes or an electricity bill; easily send a parcel; or quickly print out government documentation for a job application, in lieu of a laborious trip to city hall.

In times of disaster, like the recent Noto earthquake, they become centres to dispense food and water; local residents cheered when stores in afflicted areas recently reopened.

After years of growth, Japan’s conbini market has become saturated.

But as KDDI’s bid for Lawson shows, there are clouds on the horizon in conbini-land.

It’s no coincidence the planned take-private follows that of FamilyMart by Itochu Corp in 2020, with both chains citing similar struggles: A need to boost digitalisation, invest in improving electronic payments and, above all, the search for growth in a saturated domestic market, where the number of stores has tripled in the past 30 years.

In addition, all three chains are struggling with Japan’s increasingly tight labour pool, forcing them to reduce opening hours.

With growth stalling, it’s possible that the golden age of the conbini is already behind us. One alternative would be to start cutting back on services, but perfection-obsessed local customers are notoriously suspicious of such moves.

Taking the Japanese convenience store experience overseas, as Seven & I chief executive officer Ryuichi Isaka aims to do, might be the only path left.

Isaka is right to identify, just like those TikTokers, that the conbini’s fresh food experience is crucial to doing that successfully.

But that’s a challenge overseas, requiring the firm to recreate the local food producers, supply chains and infrastructure that took decades to build up in Japan.

Even the market leader will struggle to replicate that. That’s why it makes sense for Lawson, which, like 7-Eleven, originated as a US franchise, to re-gather its strength away from the public markets.

Competition, and a willingness to invest, are vital if the conbini is to survive in its current form – or continue to improve. — Bloomberg

Gearoid Reidy is a Bloomberg Opinion columnist covering Japan and the Koreas. The views expressed here are the writer’s own.

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