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

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

Nagao, who up until in 2015 owned a 7-Eleven convenience. store in Gunma, north of Tokyo, states years of strategic mistakes. left parent Seven & & i Holdings ripe for a $38.5 billion. bid from Canada's Alimentation Couche-Tard last month.

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

While Seven & & i has actually turned down the quote, Couche-Tard has stated. it remains interested. The deal would be the biggest-ever. foreign acquisition of a Japanese company and would boost the. Canadian seller's economies of scale.

The franchisees were almost consentaneous in some of their. problems, including about the prominent failure of a. cashless payment system, 7pay. Numerous voiced issue about. competitors from competitors and said they battled with rising. costs as Japan exits deflation for the very first time in years.

As a Japanese, I don't think having business purchased out by. foreign firms is good in principle, stated Nagao, who battled. with head office for many years up until he accepted part ways with. the business. He was amongst a group of owners who lost a 2013. court fight to shorten mandatory 24-hour organization hours because. of tight staffing.

The existing management failed to produce worth ... otherwise,. this sort of thing would not have happened.

Seven & & i has been a market laggard. In the 5 years to. mid-August, prior to the quote was revealed, 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 organization is smaller. by sales, but highly profitable, with operating margins of 27%. versus approximately 3.5% outside the nation.

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

Owners are crucial to Seven & & i's lucrative domestic benefit. shop business and some are likewise investors. A few of the. owners' comments to Reuters program issues formerly raised by. U.S. activist fund ValueAct Capital and other financiers about. 7pay and the requirement for a governance overhaul are shared by other. stakeholders.

To be sure, the owners Reuters talked to are not a. thorough sample of the more than 21,000 franchised shops. in Japan. Seven & & i does not disclose the number of owners, and. nearly all of those who talked to Reuters decreased to be. recognized in order to speak freely.

In action to concerns from Reuters, 7 & & i said. through assistance steps for 7-Eleven stores and interaction. with owners it was constantly striving towards sustainable. growth of its shops and developing a safe and safe and secure management. environment.

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

' WAKE-UP CALL'

By declining Couche-Tard's quote as too low, Seven & & i now has. to think about how they themselves can produce worth, Tak. Niinami, CEO of beverages business Suntory Holdings and the former. head of 7-Eleven competing Lawson, said in an interview this month.

The Couche-Tard proposition could be a wake-up call for 7. & & i,

he said. In the bulk of franchise arrangements in Japan, 7 & & i. sets up the real estate and the shop building and owners. return in between 56% and 76% of their earnings to it as royalties.

Some owners state their royalties are not being put to great. use.

The 7pay cashless payments service was shut down simply three. months after its July 2019 launch. It was hacked days after it. went live and a minimum of 38 million yen ($ 270,000) was later. confirmed missing from some 800 user accounts.

In 2015, Seven & & i closed down its eight-year-old online. going shopping website omni7 after it failed to gain traction.

I believe they could make another huge mistake once again, one. owner in the higher Tokyo location said.

According to an internal 7 & & i annual study of. franchisees gotten , for the last 3 years around. 80% stated they were either somewhat pleased, pleased or. exceptionally satisfied with management in general.

Information from the confidential survey have not been previously. revealed.

' NO COMPLAINTS'

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

However he saw a prospective benefit from foreign ownership,. saying it might be a driver to fresh ideas and methods 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 most likely weighed on owners, stated Shun. Tanaka, a senior expert at SBI Securities.

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

One owner in the western Kansai region said the company ran. a promotion focused on local specialties for so long that. clients tired of it. When the deal finally ended, there was. absolutely nothing to change it and create consumer buzz.

An owner in the higher Tokyo area said no matter what. happens with Couche-Tard, ownership will ultimately change. Before the Canadian business made its method, the owner had. presumed some other selling heavyweight could swoop in.

Even if Couche-Tard's takeover quote stops working, I think another. company will occur to buy it, the owner stated.

(source: Reuters)