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Seven & i’s logo is seen at a 7-Eleven convenience store in Tokyo. Image: REUTERS/Kim Kyung-Hoon
business

Some 7-Eleven owners in Japan fed up with strategy, welcome foreign bid

24 Comments
By Maki Shiraki

As much as Jun Nagao doesn't like the idea of foreigners scooping up Japanese companies, the former 7-Eleven franchise owner thinks a takeover would bring welcome change to the retail giant where he spent decades.

Nagao, who until last year owned a 7-Eleven convenience store in Gunma Prefecture, says years of strategic missteps left parent Seven & i Holdings ripe for a $38.5 billion bid from Canada's Alimentation Couche-Tard.

He is not alone in his criticism. Reuters also spoke to nine current 7-Eleven franchisees in Japan, almost all of whom voiced disapproval of Seven & i's strategy and welcomed the proposed buyout by Circle-K owner Couche-Tard.

While Seven & i has rejected the bid, Couche-Tard has said it remains interested. The deal would be the biggest-ever foreign acquisition of a Japanese company and would boost the Canadian retailer's economies of scale.

The franchisees were almost unanimous in some of their complaints, including about the high-profile failure of a cashless payment system, 7pay. Many voiced concern about competition from rivals and said they struggled with rising costs as Japan exits deflation for the first time in decades.

"As a Japanese, I don't think having companies bought out by foreign firms is good in principle," said Nagao, who battled with headquarters for years until he agreed to part ways with the company. He was among a group of owners who lost a 2013 court fight to shorten mandatory 24-hour business hours because of tight staffing.

"The current management failed to create value... otherwise, this sort of thing wouldn't have happened."

Seven & i has been a market laggard. In the five years to mid-August, just before the bid was unveiled, its shares rose 60% including dividends while the benchmark Nikkei index more than doubled.

Japan and the U.S. account for around two-fifths of the 85,000 7-Eleven stores worldwide. The Japan business is smaller by sales, but highly profitable, with operating margins of 27% versus an average of 3.5% outside the country.

In Japan, 7-Eleven's average daily sales per store exceed those of main competitors Lawson and FamilyMart, although sales at both rivals are growing.

Owners are key to Seven & i's lucrative domestic convenience store business and some are also shareholders. Some of the owners' comments to Reuters show issues previously raised by U.S. activist fund ValueAct Capital and other investors about 7pay and the need for a governance overhaul are shared by other stakeholders.

To be sure, the owners Reuters interviewed are not a comprehensive sample of the more than 21,000 franchised stores in Japan. Seven & i does not disclose the number of owners, and almost all of those who spoke to Reuters declined to be identified in order to speak openly.

In response to questions from Reuters, Seven & i said through support measures for 7-Eleven stores and communication with owners it was "constantly striving" towards sustainable growth of its stores and creating a "safe and secure management environment".

It would continue to work closely with franchisees to grow together, it added.

'WAKE-UP CALL'

By rejecting Couche-Tard's bid as too low, Seven & i now has to think about "how they themselves can create value," Tak Niinami, CEO of drinks company Suntory Holdings and the former head of 7-Eleven rival Lawson, said in an interview this month.

"The Couche-Tard proposal could be a wake-up call for Seven & i," he said.

In the majority of franchise agreements in Japan, Seven & i arranges the real estate and the store construction and owners return between 56% and 76% of their profits to it as royalties.

Some owners say their royalties are not being put to good use.

The 7pay cashless payments service was shut down just three months after its July 2019 launch. It was hacked days after it went live and at least 38 million yen was later confirmed missing from some 800 user accounts.

Last year, Seven & i shut down its eight-year-old online shopping site omni7 after it failed to gain traction.

"I think they could make another big mistake again," one owner in the greater Tokyo area said.

According to an internal Seven & i annual survey of franchisees obtained by Reuters, for the last three years around 80% said they were either "somewhat satisfied", "satisfied" or "extremely satisfied" with management overall.

Details from the anonymous survey have not been previously made public.

'NO COMPLAINTS'

Shigeo Kasai, the only owner who agreed to be named, said he had no complaints about management or the three stores he operates in Tokushima Prefecture, where he said sales were growing.

But he saw a potential benefit from foreign ownership, saying it could be a catalyst to fresh ideas and ways of doing things.

Japan's declining population made it more difficult for convenience store operators to grow as they can in other markets like the U.S. That has likely weighed on owners, said Shun Tanaka, a senior analyst at SBI Securities.

Same-store sales at 7-Eleven in Japan were flat in the three months to May. In the last financial year they rose 3%.

One owner in the western Kansai region said the company ran a promotion focused on regional specialties for so long that customers tired of it. When the deal finally ended, there was nothing to replace it and generate consumer buzz.

An owner in the greater Tokyo area said no matter what happens with Couche-Tard, ownership will eventually change. Before the Canadian company made its approach, the owner had assumed some other retailing heavyweight could swoop in.

"Even if Couche-Tard's takeover bid fails, I think another company will come along to buy it," the owner said.

© Thomson Reuters 2024.

©2024 GPlusMedia Inc.

24 Comments
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The previous owner of 7-11 was the Southland Corporation from Texas, USA.

It filed for bankruptcy several decades ago and was bought by Japanese interests. Therefore, it is a Japanese company with franchises in Japan, as well as many other countries, including in the United States of America.

14 ( +16 / -2 )

I would actually encourage foreign investment. They will give you better working conditions, possibly higher wages to help retain skilled workers, etc. There is a huge gap in working conditions between J-companies and Foreign, my wife who works at a gaishi has 30 days paid leave (also 10 Sick Leave days) every year while my J-company gives you the usual 10 with 1 added every year. Foreign companies know that in order to hire the best workers to come work for you, you need to improve working conditions, benefits, and provide competitive salaries. Japanese companies still have the philosophy that workers will stay with them till the end which is no longer true yet they still don't improve on anything.

13 ( +18 / -5 )

7 Eleven is from America originally.

12 ( +31 / -19 )

"Even if Couche-Tard's takeover bid fails, I think another company will come along to buy it," the owner said.

This 'Seven & i' franchise owner is probably correct...

6 ( +15 / -9 )

Japan saved 7/11 from the abyss. This place is hilarious. The Douche-Tard locusts can stay home. Ironically the last few years of Asian persecution (covid etc), Canada reigned supreme.

5 ( +16 / -11 )

The royalties that franchises have to pay are equivalent to extortion.

If I were a 7-11 owner, I would welcome the takeover bid too.

5 ( +8 / -3 )

Operating margins of 27% and still crying or complaining? Unbelievable, such behavior.

4 ( +6 / -2 )

I don't get how is possible (not valid only for 7i) for businesses to always grow!

Especially wen population shrinks and inflation is rising. Can't they just live their life and provide good service?

I personally never chose which conbini to enter. But knowing they are franchisers I may choose certain shops...

2 ( +3 / -1 )

A guy who fought a court case against 7&i is a not going to be a typical or representative "7 Eleven franchisee".

The Japan business is smaller by sales, but highly profitable, with operating margins of 27% versus an average of 3.5% outside the country.

and

In Japan, 7-Eleven's average daily sales per store exceed those of main competitors Lawson and FamilyMart

Those are not signs of a failing business. 99% of the Japanese public (30% are over 65) won't know what 7pay is or have been burned by it. They won't care if 7 Eleven corporate did a failed online store. They simply care about how much an onigiri is at their local. In my inaka town, the main issue over the years has been how big the car park is, with half the conbinis moving to another site with more spaces.

2 ( +3 / -1 )

Pray tell, what Japanese company is "galivanting" around the world today, gobbling up anything?

Both Asahi and Kirin are doing very well acquiring foreign food and beverage companies.

Japanese building giant Sekisui House is also doing very well acquiring foreign building firms.

You'll see Japanese corporations doing very well globally, acquiring and expanding their businesses.

2 ( +3 / -1 )

Yet it's ok for the Japanese to galavant around the world gobbling up whatever they want. Hypocrite.

Pray tell, what Japanese company is "galivanting" around the world today, gobbling up anything?

Go ahead, dont think too hard.... after the US Steel attempted take over, which has been decided yet, name on company. Bet ya can't without "googling" it!

0 ( +4 / -4 )

Interesting that Japan has long resisted non-Japanese from owning or controlling businesses in Japan, and yet here they are trying to buy an American steel company. It can't continue to be so one-sided.

-1 ( +12 / -13 )

The Japan 7 11 owners should consider an important thing. A new foreign owner will rationalise the 7/11,Japanese outlet network and that means closing 1000’s of them down.

-2 ( +1 / -3 )

The combined number of convenience store outlets in Japan is untenable in a country that looses over 1 million people a year.

there must come and soon, a rationalisation of the numbers. Meaning strong decreases. Or none of them will remain profitable as they can not make the necessary volume.

very simple basic marketing

-2 ( +3 / -5 )

As of the end of September, 2024, there were 21,615 7-11 outlets in Japan, and you spoke to 9 franchisees. Shiraki Maki and TR, you know what you're talking about.

-3 ( +0 / -3 )

As much as Jun Nagao doesn't like the idea of foreigners scooping up Japanese companies

Ha! He'll be in shock when he discovers the history of 7-11, Lawson and Mr. Donuts.

-5 ( +7 / -12 )

The irony is that 7-11, is or was originally an American brand. Not sure what that Tencho is bubbling about.

No word about working conditions, where the workers are always paid with the minimum possible salary, while keeping the prices 20-30% more expensive than supermarkets.

-7 ( +7 / -14 )

I told my local 7-11 to stop selling me beer. Now I don't go there anymore.

-8 ( +1 / -9 )

"As a Japanese, I don't think having companies bought out by foreign firms is good in principle,"

heheh oh the irony

-9 ( +25 / -34 )

"As a Japanese, I don't think having companies bought out by foreign firms is good in principle," said Nagao, who battled with headquarters for years until he agreed to part ways with the company. He was among a group of owners who lost a 2013 court fight to shorten mandatory 24-hour business hours because of tight staffing.

Ironies upon ironies.

7-11; American, serving Slurpees and nachos. Open from 7AM to 11PM.

And It should focus on paying its staff, now many foreign.

https://www.japan-press.co.jp/s/news/?id=10037

https://www.theguardian.com/australia-news/2020/oct/30/7-eleven-repays-173m-to-workers-after-some-franchisees-falsified-records-in-underpayments-scandal

-10 ( +11 / -21 )

Yup, it’s NOT ok for other countries to buy out Japanese, but wasn’t 7-11 an AMERICAN company originally?

Yeah THAT’s ok; huh ?

-12 ( +21 / -33 )

Don't be a fool by owning a 7 11 store bcz. all you will be is a SLAVE.

You have NO SAY in anything, the company controls every little and large single move in the store all you can do is work long hours 12 to 14 hrs. / day and deal with employees headaches, customers claims and complaints, and if your employees quit you are stock in there al shift hours, You can quit as they did bcz. you invested your life savings in there so you are SCREWED.

Butter off starting your own online or little store and see how it goes were you will be free, no pressure, you decide your hours, prices, conditions, and everything else.

BE FREE and explore your world, and if you fail start all over again at least you learned.

-12 ( +10 / -22 )

"As a Japanese, I don't think having companies bought out by foreign firms is good in principle,"

Yet it's ok for the Japanese to galavant around the world gobbling up whatever they want. Hypocrite.

-14 ( +30 / -44 )

Last I checked, 7-11 is an American Company. Oh, the irony.

-20 ( +3 / -23 )

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