Energy crisis hits Konbini
After the Russian invasion of Ukraine, Japanese households have been hit by the energy crisis. A rush of price hikes is hitting household budgets. This wave also affects convenience store food, a familiar part of daily life.
Lawson, one of the big3 Konbini chains in Japan, has been raising the prices of some of its products since March. On its official website, the company explains that the price increase is due to the difficulty in providing products at the current prices. This is because of the recent soaring cost of raw materials such as wheat and cooking oil, packaging materials, and transportation. The products affected are rice balls, sushi, cooked noodles, cooked bread, and some salads, with price increases between 2-14%.
One of my friends, A, says: “The price increase will be a few tens of yen. Even though the price increase is only a few tens of yen [=a few dozen pence], many people buy these products daily, such as onigiri (rice balls) and sandwiches. It’s undoubtedly tough for those people. For example, if I had to pay 20 yen [= about 12 pence] more each day, I would have to spend an extra 7,300 yen” [= 44 pounds) a year. Thus, I have recently started bringing homemade rice balls instead of stopping at a Konbini.”
Price-cutting? No, because of the franchise contract.
Larger supermarkets sell a wide range of products at discounted prices every day. Convenience stores, on the other hand, basically sell their products at fixed prices, which gives the impression of being “relatively expensive” to begin with. It would be a significant blow to convenience stores if they were to be affected by a rush of price increases. However, simple price-cutting will not help Konbini to make a profit strategy.
Convenience stores in Japan are predominantly franchise businesses.
Gross profits from selling goods and services are shared between franchisees and the head office. In a typical retail business, sales profit is calculated by subtracting the cost of purchases from sales. There are further deductions for necessary expenses such as labour and utilities are deducted, and this is the income. In the case of a franchise contract, the owner’s income is the sales profit minus royalties paid to the head office minus necessary expenses.
The percentage of royalties varies from franchisee to franchisee. Generally, it ranges from 30% to 70%. Therefore, the amount of money that ultimately remains in the owner’s hands is only around 20% to 30% of sales!
This is another reason why simply cutting costs will not help Konbini stores to make a profit.
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