Analysis: Labour shortage a stress test for Japan's 24/7 convenience stores
25/04/2017 24:00
* Convenience store earnings outlook is weakest for years
* Financial aid, automation to support store franchisees
* Companies still expanding, fear losing key mkt share
By Sam Nussey and Ritsuko Shimizu
TOKYO, April 25 (Reuters) - Japan's growing labour shortage
threatens the nation's ubiquitous convenience stores, whose
business model relies on an army of part-timers packing bento
lunch boxes, manning cash registers and delivering goods 24/7.
The big three "combini" operators 7-Eleven, FamilyMart and
Lawson, which have expanded through Japan's long slump, are
scrambling to ease the pressure on franchisees by offering a mix
of financial aid and labour-saving automation.
But their earnings outlook is the bleakest in years.
Lawson Inc 2651.T projects its first drop in profit in 15
years this fiscal year, and 7-Eleven Japan, part of Seven & i
Holdings 3382.T , forecasts a meager 0.2 percent increase.
Japan has around 55,000 convenience stores nationwide -
roughly one for every 2,300 people - and each store needs around
20 part-timers to run it.
Some shop owners struggling to fill shifts find themselves
working some nights as well as during the day.
"The labour situation is starting to get health-hazardous,"
said one store owner who asked not to be identified.
Restaurant chain Royal Host 8179.T and McDonald's Japan
2702.T have begun moving away from 24-hour operations, but so
far convenience chains aren't reducing hours or cutting store
numbers.
Indeed, all three of the major chains plan to expand. They
fear that if they cut back they will lose market share and dent
a reputation for catering to customers' needs at any time.
"We are part of the social infrastructure," said Koji
Takayanagi, president of FamilyMart UNY Holdings, 8028.T . "We
have a mission we must fulfill."
DWINDLING POOL
As Japan's population shrinks, its workforce has declined to
77.2 million in 2015 from a peak of 87.2 million in 1995. By
2065, it's expected to drop to just 45.2 million.
The decline has hit labour-intensive sectors such as
delivery services, restaurant chains and retailers especially
hard.
The worker crunch started last year, said a Lawson
franchisee in Tokyo. Foreigners, many of them university
students, are taking up some of the slack, but he predicts the
shortages will continue "indefinitely."
Part-time wages, meanwhile, have increased, and some
convenience stores have to pay more overtime to fill shifts.
"Labour costs are rising precipitously," Ryuichi Isaka,
president of Seven & i Holdings, told a recent earnings
briefing.
To ease the burden on store owners, who bear payroll costs,
7-Eleven said it would, for the first time, cut royalty fees it
charges franchisees - a measure that will cost the company
around 160 billion yen ($1.47 billion) a year.
"We want to turn this into an opportunity to boost store
owners' management drive, and attract new owners," Isaka said.
SAVING THE DAY?
The industry hopes technology can overcome the shortfall.
7-Eleven, with 19,423 stores and 390,000 part-timers in
Japan, is bringing labour-saving dishwashers to all stores this
year, while Lawson is issuing tablet computers to help store
management, and installing automatic change counting machines.
The industry also plans to introduce RFID (radio-frequency
identification) tags that can track individual items from
warehouse to store - hoping this may usher in an era of low-cost
distribution networks and unmanned cash registers.
With the government pledging to help roll out the technology
by 2025, 7-Eleven estimates RFID tags, which it will trial
around August, could save 8 billion yen ($73 million) annually
in labour costs.
The increased investment in technology is partly to blame
for Lawson's forecast profit decline.
"Rather than simply focusing on increasing profits, we are
critically looking at what shape Lawson should take," said
company president Sadanobu Takemasu. "By making the necessary
investments we will reap the rewards."
The labour-intensive business model is not just in the
stores. It extends to a vast network of third-party suppliers
and truck crews making deliveries around the clock.
The convenience store industry was built when there were
plentiful workers, says Takayuki Suzuki, analyst at Primo
Research Japan. But now it "must rationally look again at its
excessive and unnecessary services."
($1 = 109.0500 yen)
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Japan's ageing population http://tmsnrt.rs/29VjmUo
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(Reporting by Sam Nussey and Ritsuko Shimizu; Editing by
Malcolm Foster and Ian Geoghegan)
((sam.nussey@thomsonreuters.com; +81364411596; Reuters
Messaging: sam.nussey.thomsonreuters.com@reuters.net))
Keywords: JAPAN ECONOMY/LABOUR CONVENIENCE (ANALYSIS, PIX, G