---
title: "How Much Profit Do Convenience Stores Like 7-Eleven in Japan Really Make?"
description: "The calculation methods in Japanese convenience store franchise contracts are so complex that even operators may not fully understand them. This article explains how convenience store operators' income is calculated, including royalty fees, gross profit distribution, and various expenses, ultimately revealing that operators typically earn only 2-5% of sales as profit."
author: "联商百人荟 盖瑞"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2016-07-26"
language: "en"
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# How Much Profit Do Convenience Stores Like 7-Eleven in Japan Really Make?

> The calculation methods in Japanese convenience store franchise contracts are so complex that even operators may not fully understand them. This article explains how convenience store operators' income is calculated, including royalty fees, gross profit distribution, and various expenses, ultimately revealing that operators typically earn only 2-5% of sales as profit.

The calculation methods in Japanese convenience store franchise contracts are so complex that even operators may not fully understand them.

How is a convenience store operator's income calculated?

In a typical operator's franchise store, a product purchased for 80 yen is sold for 120 yen, with the 40 yen difference being the gross profit. After deducting expenses, the remainder is the profit. In the case of a convenience store franchise, royalty fees are incurred, and the profit between the headquarters and the operator is distributed according to a certain ratio.

Royalty fees refer to the equivalent compensation and franchise fees paid for the business license. Additionally, the distribution ratio varies according to the contract terms. Each convenience store headquarters recruits operators on its corporate website, and the contract types and royalty fee explanations are noted as "Charge" and "Fee."

The recruitment information on the website does not show the calculation logic in detail. The convenience store business model is mostly based on franchise contracts, where the headquarters calculates the monthly profit and deposits it into the operator's account. Many operators run their stores without fully understanding the complex calculation methods.

According to 7-Eleven's "A-type contract," the "gross profit margin on total sales is 43%." Conversely, 57% of the gross profit on total sales belongs to the operator. It should be noted here that the total sales profit cannot all go into the operator's pocket. (Reference: 7-Eleven franchise "A-type contract" points and overview / Japan Franchise Association)

▲ Franchise conditions and contract types (Source: 7-Eleven)

Total cost of sales = Beginning inventory at cost + Purchases during the month - Ending inventory at cost

Net cost of sales = Total cost of sales - Inventory adjustments (increase/decrease) - Cost of defective goods - Purchase discounts

First, the operator's profit requires calculating the "total cost of sales" and "net cost of sales."

Then, subtract the net cost of sales from sales, and each contract stipulates the gross profit distribution between the headquarters and the store, as well as the operator's profit.

Total cost of sales refers to the total cost of goods sold during the month. The beginning and ending inventory amounts include the value of goods in stock (inventory losses due to theft, etc., are not considered). Moreover, this total cost of sales includes the cost of daily discarded and spoiled goods. For example, it is impossible to achieve a 100% sell-through rate for products like boxed lunches.

Each convenience store headquarters claims that it wants to minimize the remaining loss of products as much as possible. However, the order quantity depends on the operator's business judgment, and the loss due to disposal is not counted as product cost. Most contract disputes in franchise stores arise from these calculation methods. Under certain conditions, some convenience stores allow a portion of disposal losses to be borne by the headquarters. In such cases, the net cost of sales is included in the royalty fee. In short, the headquarters' business structure does not incur losses.

Additionally, following general business practice, "purchase discounts due to bulk purchasing" are also included in the royalty fee. The negotiation for setting the cost of sales is handled solely by the headquarters, and the operator's negotiating power determines the discount on the cost of sales. Of course, the risk is borne by the store, so one cannot be too greedy.

How much profit does the operator actually make?

The calculation is not over yet; the operator's specific income needs further calculation. After distributing the gross profit with the headquarters, it is determined after subtracting various monthly expenses.

■ Labor costs

The largest expense is labor costs. Depending on sales, it accounts for about 4-6% of sales. For example, if daily sales are 600,000 yen, 30 days would be 18 million yen. If labor costs are 5%, that's 900,000 yen; if 4%, it's 720,000 yen.

In reality, there is an aspect that operators cannot control, and labor costs are one of them. If the store manager does not take days off, labor costs can be reduced and profits increased, but the physical and mental burden is also significant.

■ Disposal losses

The average daily disposal loss at a convenience store is about 20,000 yen (at selling price). Although the headquarters' share is increasing, most is borne by the operator. Monthly disposal losses range from 300,000 to 1 million yen, and these expenses are directly managed by the operator.

■ Utilities

In 24-hour convenience stores, air conditioning and lighting are always on. In addition, the most electricity-consuming items are refrigerators and freezers. In fact, even with energy-efficient equipment, monthly electricity bills are around 250,000 to 300,000 yen. Incidentally, convenience stores often require large-scale renovations every 10 to 15 years, and it may be necessary to replace cooling units. These matters are not decided by the operator; it might be better to communicate with the headquarters about replacing cooling units during renovations.

In addition to these three major expenses, there are telephone and water bills; plastic bags, chopsticks for boxed lunches, spoons for desserts, and many other expenses not listed here. After calculating all these expenses, one can see how much profit actually goes into the operator's pocket. To quietly reveal, it is about 2-5% of sales.

Calculating convenience store profits is by no means simple. The most difficult part is the uncontrollable factors, and the gross profit margin changes accordingly. For example, cigarettes have a very low gross profit margin. Compared to stores with lower cigarette sales, even if total sales are the same, there will be a huge difference in gross profit. At the same time, labor costs vary by store location. Hourly wages are higher in city centers and lower in suburban areas.

Even for operators who are well-versed in business and familiar with the calculation methods, if they cannot control all conditions, they naturally cannot predict the correct gross profit margin. Each convenience store headquarters periodically holds explanatory meetings for operators, but no matter how well they explain, problems that cannot be imagined in reality will occur.

Source: Lianshang.com

Analysis:

## 50,000 Retail Stores, 8,000 Employees, Per Capita Profit of 1.16 Million Yuan... Why Can 7-Eleven's Human Efficiency Match Alibaba?

## This article is from | Food Industry Expert

**[Editor's Note]** In fiscal year 2016, Alibaba, the world's most profitable e-commerce giant, had over 36,000 employees and generated a profit of 42.7 billion RMB, with a per capita profit of 1.17 million RMB. In contrast, 7-Eleven Japan, with over 8,000 employees, generated a per capita profit of about 1.16 million RMB, comparable to Alibaba. In an environment where retail profits are generally declining, why can 7-Eleven achieve such high human efficiency?

Founded in 1927, 7-Eleven has now spread to 16 countries and regions worldwide, with over 50,000 retail stores globally. It welcomes people of different experiences and moods at every moment, providing them with warm and thoughtful convenience services like a neighborhood store.

7-Eleven offers a rich variety of products covering all aspects of life, and is the inventor of the "24-hour, year-round" service. Making a better life close at hand is the charm of 7-Eleven.

During Japan's most severe economic recession, why has 7-Eleven Japan maintained growth for 41 consecutive years? Why can its human efficiency match that of Alibaba, which is known for its strong cash-generating ability?

**For the core of 7-Eleven's high human efficiency, the following points are summarized:**

High area efficiency: small area, good location

High human efficiency: few personnel, low costs

Strong support: powerful supply chain, dense sales network

**Especially in recent years, the so-called advantages of the Internet are fully reflected in 7-Eleven's convenience store model:**

**1. Ultimate Experience Model**

**▲** **7-Eleven Convenience Store**

Products: I sell whatever products customers need.

Location: I arrange the layout however it is convenient for customers to shop.

In the retail industry, there is a saying: "There are only two convenience stores in the world: 7-Eleven and other convenience stores." This is because it insists on meeting customer needs.

The predecessor of 7-Eleven was the Southland Ice Company in the United States, founded in 1927. It was open 16 hours a day, from 7 a.m. to 11 p.m., selling not only ice but also milk, eggs, bread, and other daily necessities popular with local residents. This was the beginning of the world's convenience stores.

**Comment:**

**7-Eleven founder Suzuki's business philosophy is to "thoroughly stand from the customer's perspective to think and practice." "You think for me" is not as good as "stand in my shoes."**

**2. Professional Sharing Model**

When it comes to the sharing economy, we all know emerging companies like Uber and Airbnb. In fact, the best sharing economy is the sharing between professionals doing professional things. This model's efficiency and benefits are far higher than sharing idle resources for amateur tasks, and the experience is better and more guaranteed.

**▲** **The value of sharing is not co-owning resources but using resources**

7-Eleven Japan employs only over 8,000 full-time employees; the rest are employees of franchise stores, manufacturers, and suppliers.

7-Eleven basically has no directly operated stores. None of its 171 dedicated factories are its own, and none of its over 150 logistics centers and delivery vehicles are its own, yet it has become a retail enterprise with nearly 10 billion RMB in profit.

The total number of employees in the entire sharing economy exceeds 400,000, of which over 300,000 work in franchise stores, and over 100,000 serve in factories and logistics distribution.

The joint distribution system breaks down the walls between manufacturers and enterprises, and crosses the framework of product categories, forming a joint distribution system.

Online orders from Uniqlo, Asia's largest apparel retailer, can be picked up at most 7-Eleven stores in Japan.

**Comment:**

**Sharing is the most original thing about the Internet spirit. The value of resources lies not in ownership but in use; only use can reflect the value of resources.**

**3. The Highest Purpose of Chain: Community of Shared Destiny**

The headquarters and franchise stores come together because of aligned interests, and because of shared destiny, they can be wholehearted.

7-Eleven provides franchise stores with five empowerments: **product development empowerment, operation empowerment, IT empowerment, logistics empowerment, and financial empowerment.**

In 7-Eleven, there is a group of staff members, each responsible for 7-8 stores, providing frontline store operation guidance as consultants. They are OFCs (Operation Field Consultants), focusing on improving the operational empowerment of these small store owners.

▲ **A community of shared destiny makes franchisees and brand owners hand in hand and heart to heart**

In the contract signed between 7-Eleven and franchise stores, there is a commitment clause of "minimum guarantee to franchise stores" that most other franchise chains in the world do not adopt.

80% of the electricity costs incurred in the daily operation of 7-Eleven franchise stores are borne by the headquarters; 15% of the disposal losses of fresh foods such as boxed lunches in 7-Eleven franchise stores are borne by the headquarters.

**Why?**

Take nighttime lighting as an example. Since there are fewer customers at night, reducing lighting during late-night business hours to save electricity seems feasible. But how can such a store make customers feel safe to enter?

Similarly, for air conditioning. Convenience stores, including 7-Eleven, have many products that need refrigeration. If the temperature management level of such products is lowered to save a little electricity, how can food safety be guaranteed?

7-Eleven's model does not stick to immediate interests but takes a long-term view, and does not distinguish between your interests and mine, but rather common interests.

**Comment:**

**In contrast, some domestic brands are "chained but not locked, locked but not firm," and most are just "connected by name."**

**4. Productism: Clean and Delicious is the King**

7-Eleven's food products have the largest sales volume, and their biggest characteristics are freshness, deliciousness, and cleanliness. Production, distribution, and storage are strictly managed according to "time" + "temperature."

**Each 7-Eleven distribution center has a frozen food distribution center and an ambient temperature food distribution center.**

In the joint distribution centers established in various regions, 7-Eleven classifies products into four temperature zones for intensive management based on product characteristics: frozen type (minus 20 degrees Celsius), such as ice cream; micro-cold type (5 degrees Celsius), such as milk and lettuce; constant temperature type, such as canned goods and beverages; and warm type (20 degrees Celsius), such as rice dishes and bread.

**Comment:**

**Most of the food sold at 7-Eleven: bread, boxed lunches, ice cream, beverages, and even freshly ground coffee at 100 yen a cup, are delicious while food safety is fully guaranteed.**

**5. Rapid Iteration, Low-Cost Trial and Error**

The total number of SKUs recommended by 7-Eleven headquarters is about 4,800, with about 2,900 sold in a single store. 100 new products are introduced each week, and the annual product turnover rate is about 70%.

In fiscal year 2016, 7-Eleven Japan's inventory turnover days were only 10.1 days, with 36 turnovers a year, faster than Amazon, the best in the United States.

▲ **Only by daring to try and error can you go fast and far**

"Hypothesis, practice, verification" is the foundation of 7-Eleven's rapid iteration experience. In winter, 7-Eleven stores in Hokkaido prepared a large space to sell ice cream. Local businesspeople ridiculed, saying, "Who would eat ice cream in the middle of winter?"

But Suzuki said, "If the heating is on well at home, customers should be happy to eat ice cream!"

**Comment:**

**The rapid product iteration and turnover are supported by a set of low-cost continuous optimization concepts and systems. Many enterprises either stick to old ways or make drastic changes; how can their risk resistance be high?**

**6. Use Newcomers for New Things**

In 2013, 7-Eleven celebrated its 40th anniversary. Suzuki proposed moving to the second stage with the new proposition of "close and convenient," and used this as the main concept to begin a thorough offensive transformation, striving to create new customers.

To this end, 7-Eleven established the Second Product Department, composed of newcomers without business experience, including the manager, with a total of 5 members.

Among these 5, two were newcomers who joined the company in the spring of 2011, and there was not a single expert with business experience in product or sales departments.

**Comment:**

Suzuki said, **"To do new things, it is best to have newcomers without experience do them." Only newcomers have no ceiling; the ignorant are fearless, daring to charge, think, and act.**

**7. Informatized Big Data**

Those who master market information will control the entire industry. 7-Eleven is a store, but it is also a big data company. 7-Eleven continuously upgrades and updates its information systems.

▲ **Mastering market data and information can see the future**

Now, the latest sixth version has an investment of up to 3 billion RMB. To further improve the daily operation level of each store, in addition to the original **product inventory data, POS data, out-of-stock data, and disposal data,** in the sixth version system, 7-Eleven began to provide three types of data for each franchise store's ordering, as a reference to assist in forming hypotheses: location data, facility data, and long-term data.

**Location data:** refers to investigating the number of households around each store (within a radius of 350 meters, within a 5-minute walk); if there are businesses, investigate their number of employees.

**Facility data:** mainly to understand whether there are facilities such as schools or hospitals around the store, which can provide some help for the hypothesis setting in daily ordering operations.

**Long-term data:** data showing trends and movements based on past data. This information is particularly effective when OFCs provide recommendations to each franchise store.

**Comment:**

**Information will determine the survival of an enterprise.** If you do not master information, many resources become useless.

Many big data processing companies can only be called multi-data. **The two keys to big data are: precision in data collection and science in data processing. Our big data path must rely on actual needs.**

-END-

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