Japan's convenience store industry is entering a contraction phase. According to data from Japan's Ministry of Economy, Trade and Industry, the number of convenience stores in Japan has seen its first net decrease in 36 years, with about 1,600 stores closing nationwide in a year. The decline is not limited to small and medium brands; major chains like 7-Eleven and Lawson are also adjusting their store portfolios. In the first half of 2025, 7-Eleven strategically closed approximately 700 stores in the Japanese market. What truly deserves attention is not the number of closures, but the fact that even 7-Eleven is closing stores. 7-Eleven's uniqueness lies not only in its vast store count but also in its long-standing representation of Japan's most mature convenience store operating model: high-density store placement, fresh food supply chain, standardized operations, and franchise replication. To some extent, its contraction is itself a signal that the once highly mature single-store model is loosening. At its core, 7-Eleven's store closures reflect the increasing difficulty of making individual stores profitable. Behind this are both cost and price pressures, as well as a shift in the industry's growth logic. 7-Eleven Japan Store Closures For many Japanese consumers, the core appeal of convenience stores is their affordability and value for money. They sell not only packaged foods but also a wide range of short-shelf-life fresh items like bento boxes, rice balls, and prepared foods. For office workers, these products occupy a delicate niche: more convenient than cooking at home and cheaper than eating at a restaurant. Combined with long operating hours and dense store networks, convenience stores have become one of Japan's most stable high-frequency consumption venues. However, this sense of "convenient and not too expensive" is gradually fading. The most direct change is price increases. Over the past decade, prices of convenience store items have been steadily rising. For example, the classic tuna mayonnaise rice ball has increased from 108 yen to 198 yen, nearly doubling. Japanese internet users have even coined the term "200-yen wall," suggesting that if rice balls exceed this price range, consumer purchasing habits may begin to shift. Moreover, price hikes are not over. According to a 7-Eleven announcement, starting from February this year, 29 rice-based products, including rice balls, will see another price increase. While higher prices naturally boost sales revenue, the problem is that customer traffic has not returned. Financial data shows that Japan's 7-Eleven has seen both average transaction value and same-store sales rise, but customer traffic has been declining, and crucially, this trend remains unchanged. This indicates that the improvement in convenience store sales is primarily driven by price increases rather than a recovery in customer flow. Therefore, 7-Eleven's store closures cannot be understood merely as routine store adjustments. The broader context is that the "convenience plus value" logic that underpinned Japanese convenience stores is being squeezed by rising costs. First, there is the cost of goods. Products like rice balls, bento boxes, and prepared foods are inherently high-frequency, short-shelf-life, and high-turnover items, requiring stricter management of procurement, processing, distribution, and waste control. They are also more susceptible to increases in raw material, logistics, and processing costs. Take rice balls, for instance. The price of rice in Japan has entered the "5,000 yen era," with a 5-kilogram bag rising from about 2,168 yen in early 2024 to roughly 4,500 yen, more than doubling. When upstream costs rise, terminal prices inevitably follow. The problem is that once prices rise, the convenience store's value proposition becomes awkward. A filled rice ball typically does not constitute a full meal; consumers often need to add a salad, side dish, or drink, easily pushing a lunch over 400 yen. In comparison, a McDonald's lunch set costs around 650 yen and includes a main dish, a drink, and a side, with larger portions. For budget-conscious consumers, convenience stores are no longer the default cheaper option. Second, there is labor costs. Japan's aging population and labor shortages have affected multiple industries, but convenience stores are hit particularly hard. They have long operating hours, stable night shift demands, and tedious work, making them more labor-dependent than many other retail formats. However, these jobs are physically demanding and offer limited income appeal, so young people are reluctant to take them, and older workers struggle to handle late-night shifts. As a result, convenience stores not only find it harder to recruit staff but also must spend more on labor to maintain operations. Reiji Kamakura, secretary-general of the convenience store union, noted that store owners are under increasing pressure because they struggle to hire enough staff; and if headquarters is unwilling to share more profits, stores have almost no room to raise wages. The issue is not just that costs have risen, but that after costs rise, convenience stores find it increasingly difficult to profit as they once did. This creates their most awkward situation: if they don't raise prices, profits suffer; if they do, they lose value. For a business model reliant on high-frequency consumption, this is almost the greatest pressure. So, the problem for Japanese convenience stores is not that consumers suddenly no longer need them, but that the old logic of "convenient and not too expensive" is being eroded by costs. 7-Eleven's store closures are happening against this backdrop. Intensifying External Competition In an inflationary environment, consumers are increasingly price-sensitive. For convenience stores, external competitors are all vying for traffic with lower prices. First, there are drugstores. For Japanese convenience stores, drugstores have become an increasingly formidable competitor. In the past, drugstores and convenience stores sold quite different products. The former focused on medicine, cosmetics, and health products, while the latter leaned toward daily food and immediate consumption. But in recent years, drugstores have clearly expanded into convenience store territory, with beverages, snacks, bread, eggs, frozen foods, and even some ready-to-eat items becoming regular categories. Data already illustrates this shift. According to Japan's Ministry of Economy, Trade and Industry, in 2024, convenience store food sales grew only 2%, while drugstore food sales saw nearly double-digit growth. Additionally, according to the "Commercial Dynamics Statistics," in fiscal 2023, the top ten drugstore companies in Japan recorded food sales of 2.1073 trillion yen, a 23.1% increase year-on-year. These figures show not just that drugstores are selling more food, but that they are increasingly diverting traffic from convenience stores. The logic behind this is simple. For consumers, products like beverages, snacks, bread, and frozen foods have low brand loyalty, and there is no compelling reason to buy them specifically at convenience stores. Previously, people chose convenience stores because they were close, fast, and reasonably priced. Now, as drugstores offer increasingly similar products at lower prices, the convenience store's advantage naturally diminishes. More importantly, drugstores do not rely on low-priced food for profit. Their strategy is to attract customers with cheap food and then profit from high-margin items like medicine, health products, and daily necessities. In other words, food serves as a traffic driver rather than a profit center. This is why drugstores can be more aggressive on food pricing than convenience stores. Of course, drugstores have their limits. They generally lack the cold chain equipment and expertise to handle fresh produce, fish, and meat, so they focus more on frozen foods and standardized products. However, these missing categories were never the core strengths of convenience stores either. Second, there are discount stores and community supermarkets. If drugstores are siphoning off convenience store traffic in food and daily goods, discount stores and community supermarkets are taking away high-frequency fresh food demand. A typical example is Aeon's community supermarket My Basket. As of February 2024, it had 1,316 stores and continues to expand in Tokyo and surrounding urban areas. For convenience stores, the pressure from this format is not just more stores, but that it is capturing a portion of high-frequency consumption that once belonged to convenience stores in a lighter, closer, and cheaper way. My Basket's characteristics are straightforward: small stores, limited SKUs, focused on daily meals and basic supplies, covering immediate procurement needs within a "500-meter living circle." It does not offer as many additional services as convenience stores, but for many consumers, daily shopping does not require such services; they just want proximity, availability, and reasonable prices. This is the most direct competitiveness of community supermarkets. They are closer than large supermarkets and cheaper than convenience stores. According to the Nikkei, a similar bowl of instant noodles costs about 230 yen at a convenience store, while My Basket sells it for 130 to 140 yen. In an inflationary environment, this price difference does not need to be large enough to drastically change habits; as long as it persists, it is sufficient to divert a portion of high-frequency purchases away from convenience stores. So, from this perspective, convenience stores are not losing demand itself, but the entry point for purchases. Consumers still buy these foods and daily goods, but they no longer default to walking into a convenience store. In comments on many Japanese websites about convenience stores, an increasing number of consumers mention that the value for money at convenience stores is declining, and drugstores, food supermarkets, and community supermarkets are becoming more common alternatives. Changing the Franchise Model Another unavoidable issue is that franchisees are also facing increasing difficulties. Japan's convenience store industry has always been highly dependent on franchisees. For example, 7-Eleven has over 21,000 stores in Japan, but fewer than 200 are company-owned; the rest are almost all franchised. In other words, the vast store network is supported by franchisees across the country. The advantage of the franchise model is that headquarters can expand quickly with lower store-opening costs and share some operational risks with franchisees. In the past, when the industry was growing and individual stores were profitable, this model ran smoothly, and both parties benefited. But the problem lies precisely here: once the industry enters a low-growth phase and individual stores become less profitable, franchisees are the first to feel the pressure. Because the hardest costs—rent, utilities, labor—ultimately fall on the stores. As a result, the reduction in convenience store numbers is not just due to market saturation, but also because many franchisees find it increasingly difficult to sustain their businesses. In recent years, 7-Eleven has relied on high-density store openings to maintain its network advantage, but when stores in the same area increase while consumer growth lags, stores end up cannibalizing each other's traffic. Headquarters sees store scale, while franchisees feel shrinking profits. What's more, Japanese convenience stores have long operated on a gross profit sharing model. Unlike many convenience stores in other countries, 7-Eleven Japan's franchisees typically have their product costs advanced by headquarters to suppliers, so stores do not bear the full burden of inventory capital; but correspondingly, store sales revenue also goes back to headquarters first, and gross profit is distributed according to the contract. This model worked well when business was good. Headquarters handled supply chain and capital coordination, allowing franchisees to enter the business more lightly without worrying too much about inventory and cash flow. But today, problems emerge. If individual stores are not profitable and headquarters takes a high share, the margin left for franchisees to cover rent, utilities, and labor shrinks. Under 7-Eleven's current franchise contract, new stores must pay a higher operating guidance fee to headquarters for the first five years. In the past, when traffic was stable and stores were profitable, this mechanism could function. But now, once stores enter low growth or even declining traffic, the pressure on franchisees amplifies. This is why 7-Eleven has had to start adjusting its franchise contracts. Last year, 7-Eleven announced its first comprehensive revision of franchise contracts in 50 years, waiving operating guidance fees for up to five years for new franchisees. On the surface, this is a concession to franchisees. But ultimately, it is because the original distribution model has become increasingly difficult to sustain. From this perspective, 7-Eleven's adjustment of franchise contracts is not just a minor institutional tweak; it signals that the growth model that once ran smoothly for Japanese convenience stores is truly beginning to loosen.