[Bloomberg Column] The Golden Age Fades for the 'Convenience Store Kingdom Japan'

Store Count Tripled in 30 Years, Saturation Reached
Train Stations, Hospitals, Even Convenience Stores in Front of Convenience Stores

Japanese convenience stores are beloved by locals to the extent that they are called "conbini" (the Japanese term for convenience stores). They are also popular among foreign tourists, featured in tens of thousands of TikTok and YouTube contents. These creators are busy introducing the unique products of Japanese convenience stores. In particular, conbini served as a place that provided high-quality meals to reporters who, during the Tokyo Olympics three years ago, could not dine at restaurants due to COVID-19 and had to resort to eating hot dogs sold at gas stations.

Anyone can easily find convenience stores in office buildings, hospitals, and even on trains. It is even possible to see two convenience stores of the same brand located directly opposite each other.

However, recently, there are dark clouds over the growth prospects of Japanese convenience stores. This is evident in the move by Japan’s major telecommunications company KDDI to partner with Mitsubishi and take the convenience store franchise Lawson private. Over the past decade, competitor FamilyMart has acquired small chains, and Seven & I Holdings has doubled its market-leading position, leaving Lawson in a stagnant state. Lawson ranks third among the three major convenience store chains, and its stores are increasingly feeling that this structure is becoming more entrenched.

Industry mergers have pushed minor players out of the market. This was led by FamilyMart, which acquired the Circle K and Sunkus chains in 2015. Earlier, FamilyMart had acquired the Japanese operations of ampm, successfully rising to second place. Small players like Three F and Poplar, which offered freshly cooked rice in lunch boxes, have quickly disappeared, both being partially absorbed by Lawson.

This reflects the fact that the convenience store business heavily relies on economies of scale amid fierce competition. Simply offering tobacco and a shelf of stale bread is no longer enough. Consumers now expect everything from convenience stores. Through continuous improvement, Japanese convenience stores have surpassed ordinary corner markets to become objects of obsession for visitors.

I myself am a kind of conbini connoisseur. When I first came to Japan over 20 years ago, many convenience stores did not even sell alcohol due to liquor license restrictions. Now, in Shibuya, there is a FamilyMart with a bar where you can enjoy famous fried chicken and cocktails together. This product was launched in 2006 as major chains improved their offerings of warm foods.

I still remember the day FamilyMart opened in a rural town in Hiroshima where only Seven-Eleven existed. A few years later, I woke up early to visit the local Seven-Eleven when they started selling donuts. (I don’t even like donuts. It turned out others didn’t either, and the experiment came at a costly price.)

However, other launches were successful. In recent years, chains caught up in customer acquisition battles have added everything from affordable and pleasant 100-yen fresh coffee to high-quality desserts overseen by famous patisserie chefs. In winter, you can enjoy a variety of steamed pork buns filled with cheese or gyoza. In summer, frozen fruit smoothies and frappe drinks quench thirst.

These are not just high-calorie snacks. Convenience stores have become an indispensable part of Japanese life. In rural areas where small shops have disappeared, they are lifelines. During the day, they offer (relatively) healthy food; late at night, they serve as pharmacies, supporting all parts of everyday life unseen by tourists. They are even places to pay taxes and electricity bills easily and send parcels. Instead of struggling to visit city halls, you can quickly print government documents for job applications. When disasters like the recent Noto earthquake occur, they become hubs for supplying food and water. When stores in affected areas reopened recently, local residents cheered.

However, M&A plans like KDDI’s bid to acquire Lawson are no coincidence following Itochu’s bid for FamilyMart in 2020. Both chains say they face similar difficulties: promoting digitalization, investing in improving electronic payments, and above all, seeking growth in a saturated market where the number of stores has tripled over the past 30 years.

Moreover, all three chains are struggling with Japan’s increasingly tight labor pool. They have reasons to reduce opening hours. With growth slowing, the golden age of convenience stores may already be over. One option is to reduce services, but local customers, who obsess over perfection, are notoriously suspicious of such moves.

It may be that the only way forward is to take the Japanese convenience store experience overseas, as targeted by Seven & I’s CEO Ryuichi Isaka. It is right that Isaka, like TikTokers, confirms that the fresh food experience of these conbini is crucial to successfully doing so. But this is a challenge abroad and not an easy path, as it requires recreating the local food producers, supply chains, and infrastructure built up over decades in Japan.

Even market leaders will struggle to replicate this. That is why it makes sense for Lawson, which started as a U.S. franchise like Seven-Eleven, to go private and regroup. Competition and willingness to invest are vital for convenience stores to survive in their current form or continue improving.

Geroid Reidy, Bloomberg Columnist

This article is a translation by Asia Economy of Bloomberg’s column "There Are Clouds on the Horizon in Japan’s Conbini-Land."