Posts Tagged ‘7-11’

McDonald’s smells the coffee: Limited expectations are here to stay

Friday, December 27th, 2013

Fill 'er up: Customer using self-service coffee maker at 7-11.

Fill ‘er up: Customer using self-service coffee maker at 7-11.

If the central point of Abenomics is to boost prices and thus wages and consumption — the old “raise all boats” metaphor — then to a certain extent the plan has succeeded over the last year. Consumers don’t seem to be fixated on cheap goods and services any more, though, to be honest, it’s difficult to tell if this willingness to spend more is a function of anticipation for April’s consumption tax hike. But for the time being there seems to be that old desire for high quality stuff, regardless of how much it costs; which isn’t to say consumers aren’t looking for cheap things, only that they aren’t making it a priority any more.

This paradox seems to have had a bad effect on the fortunes of a company that some once thought was invincible: McDonald’s. Since August, the fast food behemoth’s Japanese operation has had to lower its sales projection for fiscal 2013 twice. Profits are expected to be around ¥5 billion, or a whopping ¥6.7 billion lower than originally thought. Sales have decreased five months in row, with the number of customers dropping for 7 consecutive months. The company is telling the media that the reason is “no hit product” this year, thus making it sound like a PR failure, but according to Asahi Shimbun, and almost every other Japanese media that has reported the story, McDonalds’ poor showing seems to be more systemic, an indication of a sea change in consumer sentiment.

The company’s response has been to bring in new blood. Sarah Casanova, a Canadian, was appointed president of McDonald’s Japan last summer, and, again, it seems to be more a matter of an image makeover. The announced new strategy is to target women as a demographic, since it is younger females who have tended to resist McD’s charms the most during its two straight years of falling revenues. The plan reinforces “healthy menu” items, which to a company like McDonald’s means offering more things with chicken in them.

Though it doesn’t sound like much, it’s actually quite a turnaround. When the previous president, Eiko Harada, was appointed in 2004 his big move was pushing the so-called ¥100 Mac, the cheap hamburger that was always going to be McDonald’s mainstay, and it worked. For the next six years profits grew.

The next big coup was ¥100 coffee, which effectively challenged coffee shops and coffee chains like Starbucks. Then the company made over their restaurants with more attractive decor. These various gambits were predicated on boosting the brand, but actually it was the price and the speed of service that mattered to customers. People buy McDonald’s hamburgers not because of the taste or the atmosphere, but because they’re cheap, and the same went for the coffee, which was pretty good considering but not as good as Starbucks, for what it’s worth.

To make matters worse, McDonald’s raised prices in the past year, thinking that the economy justified the change, and in a way it did, but people don’t think that way about McDonald’s. They aren’t willing to pay more for fast food, no matter how well it’s presented or how nice the decor is.

In the era of Abenomics, that means any competition can eat into McDonald’s sales more easily. Just as McD stole customers away from Starbucks when it launched its ¥100 coffee, now convenience stores are taking business away from McD with their own cheap coffee. About a year ago 7-11 put self-service coffee machines, which grind beans and brew coffee while you wait, in 16,000 stores, and by September they had sold 200 million cups. It only costs ¥100, and other CS have followed suit, though Lawson’s coffee is a bit more expensive at ¥150.

The market has grown so much that the consumer report magazine Nikkei Trendy named convenience store coffee the #1 hitto shohin (hit merchandise) of the year. It should be noted that Japan is a formidable coffee market, number 4 in the world in terms of consumption — 50 percent more than green tea, in fact. Even sushi restaurants are now serving fresh coffee. More significantly, 7-11 reports that its new coffee service does not subtract from other in-store coffee-related sales, such as canned coffee or chilled pack coffees. It’s simply gravy.

But someone has to lose in this equation, and it seems to be McDonald’s, which has a lot to lose. After all, ¥260 billion, which is McD’s projected revenue this year, is still a great deal of money. The problem is that McD is associated with hamburgers, whose traction on the Japanese imagination has always been tentative. Older people don’t really eat them as much, and Japan, as everyone knows, is the fastest aging society in the world.

Also, the tendency to eat out is becoming weaker in Japan as the population ages. Restaurant sales have decreased by 20 percent since they peaked in 1997. The weekly magazine Gendai, in typical hyperbolic fashion, has predicted the end of McDonald’s in Japan after reporting that the company will have closed 160 outlets by the end of this fiscal year.

Convenience store companies boost employee income, engage in one-upmanship

Thursday, March 14th, 2013

No raises here: Recently shuttered convenience store

No raises here: Recently shuttered convenience store

If Prime Minister Shinzo Abe’s plan to boost inflation and the economy along with it is to succeed, companies will have to raise employee salaries and wages, otherwise there will be no increase in consumer spending. Earlier this week, a number of automotive companies and electronics makers said they would go along with this plan and announced bigger bonuses, seemingly as a gesture of support for Abe’s scheme. However, one company got the jump on all of them, the #2 convenience store chain Lawson. The company’s president, Takeshi Ninami, who happens to also serve on the government’s Advisory Panel on Industrial Competitiveness, said earlier this month that employees “in their 20s to their 40s” would be eligible for a pay hike of 3 percent, or one percentage point higher than Abe’s inflation target.

Ninami told Nihon Keizai Shimbun that Lawson employees in this age group account for 70 percent of the company’s workforce. It should be noted that the vast majority of Lawson employees who interface with the public, meaning clerks at Lawson’s stores, are not eligible, since they are either hired by the franchise owners or, if the store is company-owned, employed as part-time help (arubaito). Ninami admitted this to Nikkei, but said that Lawson would try to “secure higher incomes” for these workers by implementing “activities to increase profits for our franchisees, starting in March.”

In response, Seven and i Holdings, which runs the No. 1 convenience store chain 7-11, and Family Mart, which operates the No. 3 chain, will also boost pay to stay competitive, since there’s a danger some of their regular employees might bolt to Lawson if they don’t. Ostensibly, however, or at least according to Tokyo Shimbun, the convenience store industry believes it needs to support the Abe plan because retail “is very close to the consumer” and thus must provide an example that could help open tightly closed wallets. Because convenience stores have continued to do well even during the recession, and retail workers tend to be paid less per hour than workers in other industries, CS companies need to take the lead in the hope that other distribution-related firms will also increase wages and, as a result, boost consumption in general.

Domestic consumption accounts for 60 percent of Japan’s GDP. That’s why Abe stood in front of the Japan Business Federation (Keidanren) and two other business associations in February and bowed deeply, asking them to increase salaries. They reacted “cautiously,” saying that the business situation is “still difficult,” but Abe probably expected that. He made sure cameras were there to record it so that the public would know that he was trying and other business leaders might be shamed into going along. Then Ninami, who is basically part of the Abe team, announced Lawson’s wage plan. In addition, Family Mart announced its wage hike right after economic reconstruction minister, Akira Amari, told reporters that he hoped the company would do exactly that.

Specifically, Lawson will increase bonuses for 3,300 of its 3,500 regular employees for an overall 3 percent boost in employee income. The 54 group companies of Seven & i Holdings comprise 53,500 regular employees, who will receive a “base up“ — meaning all affected receive a uniform raise — in addition to regularly scheduled individual salary increases (teikishoku) based on position, age and number of years at the company. Family Mart will give 2,700 of its 3,100 regular employees a 1.5 percent raise in teikishoku and a 0.7 percent bonus increase.

As Tokyo Shimbun points out these measures are mostly cosmetic. Since more and more workers are non-regular employees of the people they work for, there is no chance for a boost in inflation unless they get wage increases as well, and except for Ninami’s vague promise to “increase profits for franchises,” no one has said anything about non-regular and part-time workers, including major media. To give some idea of the scale involved, there are more than 13,000 7-11 franchises and 400 company-owned stores; the respective breakdown for Lawson is about 9,300 to 1,000; and for Family Mart its 7,500 to 450. Franchise employees are paid by the franchise owner, not the company whose name is on the store.

Convenience stores gear up for a brighter future

Thursday, December 29th, 2011

Ready when you are: 7-11 Premium prepared foods

The retail giant 7&i Holdings reported an 8 percent increase in sales for the first half of fiscal 2011 over the previous year. It was a new record and clearly driven by the company’s 7-11 convenience stores. They aren’t the only ones. The three other main CS chains — Family Mart, Lawson and Sunkus/Circle K — have also reported strong earnings, the result of what the Asahi Shimbun calls a “better opinion” of convenience stores in the wake of the March disaster.

Because there are so many convenience stores, they tend to be in closer proximity to people’s homes than larger retail operations, so during that anxious period when people did not want to stray too far from their homes and loved ones, CS became a sort of lifeline. As a result, demographics that previously didn’t patronize convenience stores, such as housewives and the elderly, came to rely on them more and more, and in the process also came to appreciate their distinctive merchandising schemes.

This success has given the industry a sense of purpose, and all four big CS chains have announced plans to open as many stores as possible over the next year or so. According to the Japan Franchise Association, as of March 2011 there were 45,769 convenience stores in Japan. The industry itself, according to the Asahi, believes that the “saturation point” for convenience stores in Japan is 50,000, though some analysts say that due to the rise in single-person households, which is exactly the sort of scenario that benefits CS, the market may be able to absorb even more.

7&i plans to open 1,350 stores in FY2012, while Family Mart, which over the past two years took over 800 former am/pm stores, plans to open another 800 brand new outlets. Lawson’s target for the same period is between 800 and 1,000, and the Sankus/Circle K juggernaut is aiming for 360.

Continue reading about the expansion of convenience store chains →

Lawson 100 and the evolution of the convenience store

Tuesday, April 13th, 2010

Lawson 100Japan has about 40,000 convenience stores, and sales at these stores have been declining for the past year. Given that sales everywhere have declined, that shouldn’t be surprising, but convenience stores in Japan had previously been resistant to recessions. That’s why there are 40,000 of them.

Apparently, it’s no longer the case. What tends to separate convenience stores from other retail operations in Japan is that people expect their prices to be higher. That, after all, is the cost of “convenience,” and the companies that run the stores took advantage of this prejudice by never reducing prices for any reason. Even when food approached its sell-by date/hour, store managers were not allowed to put it on sale. If they couldn’t sell it, then they would just have to throw it out (and absorb the loss). At least, that was 7-11′s policy until recently, when media coverage of this wasteful practice forced them to rethink it.

Continue reading about Lawson Store 100 →

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