Over the past few Newsletters we have focused on the importance of “place” to older people. For the frail, especially, a neighbourhood is important. Would you be prepared to bet on that importance? KDDI offered $3.3BN for control of the Lawson Group, and its 14600 stores. Makato Takahashi, the CEO of KDDI. provided the reason for the bid. He believes the ageing population will increase the relevance of the convenience store concept. He also plans to introduce e-commerce, remote primary medical care and dispensing into the stores.

The Japanese Convenience Store (KONBINI)

The convenience store has a unique place in Japanese life. The stores are in local communities, and many operate 24/7. They offer multiple prepackaged foods, meals, and essentials such as milk. You can pay your utility bills and use an ATM machine. You can buy emergency supplies such as batteries or adapters. They also provide a source of hot food and alcoholic drinks. Lawson is particularly famous for its fried chicken. Some even have tables and chairs for customers to eat their food.

There are three major chains competing for the market. The largest is 7-11 with over 21,700 stores. Number two is Family Mart. They were all founded in the 1970’s as imports from the United States. The top three control over 90% of the market. Over the years there has been intense competition. They have fought through product innovations and the quality of their coffee and hot food. For example, 7-11 is currently rolling out a laundry service. The three brands are often located together making brand switching easy.

The Rationale for the Acquisition

Ageing populations come with declining populations. KDDI argue that the combination will “hollow out” the regional retail sector in Japan. As the population ages the local neighborhoods will be more important. The ability of the frail to travel is reduced and convenience becomes important. Local towns and cities will not be able to sustain post offices, libraries, banks and stores. This is not just a Japanese phenomenon. I live in a village of 9000 people in the commuter belt of London. We recently lost our last ATM. The only bank branch closed long ago. The food store closed its ATM 4 years ago. This year the post office has removed theirs.

KDDI argue that the bricks and mortar of the convenience stores will provide a regional infrastructure. They hope to be able to add e-commerce and services targeted directly at the older population. Many old people live alone. The stores will be convenient and potentially provide a meeting place.

The Catch 22

The ageing of the population my provide a new market. It does not provide people to serve them. The stores are famous for you being greeted with a respectful bow, even at 3am. Finding staff has become an increasing problem. The working age population is shrinking. They have been recruiting from much older workers. They may value the opportunity to earn money and leave home. Some groups have recruited foreign students. There has been a mixed success. Many students have not been able to deliver the high level of service required in Japan.

Certainly the stores have been automated. Many are franchised and have benefitted from significant back-office automation. Stock management and ordering are increasingly being handled by AI. Customers have been roped-in and will often microwave their own rice balls.

Lawson have launched a sub-chain of “Green Stores”. These use sustainable packaging and utensils. The have replaced plastic bags with paper. Their most famous feature has been the avatars. Lawson have worked with a startup company founded by an engineering professor. They have introduced Aoi and Sorato. These are two young avatars that have replaced the staff. They provide the required level of courteous service. They are not “dumb” or driven by AI. Instead, they are operated by remote workers. These are often older people with mobility issues. Some are simply wheelchair bound. In the trials they are brought to service centres. The company hopes that they will be able to work from home. This has a double benefit. It increases their participation in society and offers Lawson a new source of staff.

Like all new technological innovations there are teething troubles. A recent article in Japan describes the trials of a customer buying cigarettes. He was happy with the automatic dispensing machine but had trouble paying. You cannot buy cigarettes in Japan unless you are over 18. The system asked him to insert his driving license into a slot on the till. Unfortunately, it could not be read. The avatar operator asked him to wipe the license and try again. It failed. After a third attempt the operator asked him to push the orange button on the till. He could not find it. The reality was that the till was touch sensitive and the “button” a tile on a screen. He was forced to call for help from a “real person”. Strangely there are almost identical stories from when ATMs were first introduced fifty years ago.

Remaking the High Street

Across the world “the high street” seems to be in decline. Customers are travelling out of town for their big purchases. Amazon is taking an ever-larger share. Local convenience stores seem to be growing in numbers in many parts of the world. What happens when the population continues to shrink and age? Clearly KDDI believe that in Japan the answer will be small multi-purpose outlets. There are alternatives. The final solution will be partly driven by the mobility of consumers. Can they still drive? Is public transport available? But $3.3bn is a big bet and not all shareholders are happy.