Conflict Between Headquarter and Franchise; Desired Shift to a More Sustainable Business Model in the FC Industry
The confrontation between the owner of the member store and Seven Eleven Japan Headquarters is seeing no end. Due to the overworking caused by shortage in staff, and difficulty in management, the owner of the Seven Eleven member store decided to shorten its business hours. Upon this, Seven Eleven Headquarters kept a firm stance in stating that should the owner not resume the store’s original business hours of 24 hours a day, they will end the contract and also demand that the owner pay a fine of 17 million yen for the breach of contract. This has caused controversy among the public.
The Headquarter has suggested measures for improvement such as hiring “temporary workers” or “test period of shortened business hours” to better this current situation, but at the same time, has refused any negotiations with the CVS Kameiten Union (convenience store union in Japan) as “it has nothing to do with labour-management relations,” keeping its stance that “rules are rules”.
For the fiscal year ending in February 2018, Seven Eleven Japan made a profit of 244.11 billion yen on a revenue of 849.862 billion yen. The main reason behind this success is their business model: an intricate chain operation system with 24-hour operations as the basis, the Headquarter and stores split the gross profit made from the store sales excluding purchase costs. Under this gross profit splitting method, the labour costs of the store staff is recorded as the selling, general and administrative expenses of the store, which means that even if their late-night business hours usually result in a deficit, for the Headquarter where there are no additional (i.e. labour) costs involved, it still results in a profit for them.
However, what supports this profit for the Seven Eleven Headquarter are none other than the owners of the stores, who make 4.575931 trillion yen, 98% of the total store sales of convenience stores in Japan. Therefore, the Headquarter cannot just turn their head and overlook these owners’ exhaustion from being overworked.
With the “Work Style Reform” being put into place from April 1st 2019, the Ministry of Economy, Trade and Industry (METI) calls for the rectification of “business practices that obstruct Work Style Reform” by small and mid-sized enterprises. On contract, FC member stores are not a “subcontractor”, nor are its owners “employees”.
However, even if the contract brings equality between the Headquarter and the member stores under the law, if in reality the former is forcing unequal burden of cost and extreme labour on the latter, it could potentially become business risk for the Headquarter. Furthermore, this is not an issue just within the convenience stores industry, but a challenge for all FC industries (from cram schools to restaurants) to overcome. There first needs to be an thorough understanding of the business conditions at the all the member stores, then with sustainability and the elimination of unfair deals for owners on the forefront, there needs to be a review of the current business model.
Takashi Mizukoshi, the President