Makoto Usui on Why 7-Eleven Japan Is Built Around Only Two Functions

This is an English adaptation of a FoodBud historical article originally published on August 5, 2024.

Japan’s post-bubble economy has been shaped by weak GDP and income growth, population decline, and rapid aging. In that setting, 7-Eleven Japan, founded in 1973, has remained the leader among Japan’s three major convenience-store chains because it has kept adapting its operating model.

Makoto Usui, former CIO of 7-Eleven Japan and an early leader in Japanese digital retail, framed the company’s strategy around two themes: understanding environmental change, and building defensible advantages in product development and supply-chain innovation.

1. The Operating Environment

Japan’s population structure is changing in two major ways: fewer children and more elderly consumers. In 2022, Japan’s total population was about 120 million, declining for 12 consecutive years, while people aged 65 and above accounted for about 30% of the population, a record high.

China is moving in the same direction. The article cites China’s 65-plus share as 14.2% and then 14.9% in 2022, above the 14% threshold often used to define an aging society.

The business implication is direct: the working-age population, defined here as ages 15 to 65, is shrinking. That creates pressure from both labor shortages and weaker consumption demand.

Japan’s elderly population, however, controls substantial wealth. The article estimates Japanese household personal deposits at JPY 2,000 trillion, or about RMB 100 trillion, with people over 60 holding 70% of national wealth. But that wealth is relatively inactive: 54.2% of Japanese household assets are held as cash deposits, compared with 13.7% in the United States. Among people over 70 in Japan, home ownership is cited at 94.8%.

Japanese companies also hold large cash reserves. Their retained earnings are described as rising to record highs, reflecting a management culture that prioritizes resilience, risk avoidance, and longevity over rapid expansion. That conservatism can look inefficient, but it gave many Japanese companies enough liquidity to avoid extreme measures such as large layoffs during the pandemic.

2. Retail Is Being Reshaped by Smaller Households

Japan has about 50 million households. Over the past decade, more than half have had no more than two members, including single-person households and couples without children. That shift has changed food consumption.

From 2000 to 2018, Japanese household spending on fresh food declined across age groups. Smaller households are less likely to buy ingredients and cook at home. That hurts supermarkets, whose core category is fresh food.

The category that has grown is ready-to-eat or ready-to-heat food for home consumption. The article divides Japan’s food market into three formats:

• Naishoku: food cooked and eaten at home.
• Gaishoku: food eaten outside, such as in restaurants.
• Nakashoku: prepared food bought from places such as convenience stores and consumed at home.

Nakashoku has grown because it balances affordability, convenience, and taste for one- and two-person households. 7-Eleven captured this shift by developing a large prepared-food offer.

Retail formats are also getting smaller. After the pandemic, consumers became more likely to shop close to home, reducing the effective trade-area radius. Convenience stores benefit from this because a typical Japanese convenience-store trade area is within 500 meters. If about 3,000 people live within that radius, a convenience store can be profitable. The 500-meter distance is also described as the upper end of what many consumers over 65 are comfortable walking.

Japan’s major growth formats are convenience stores, drugstores, and e-commerce. Convenience stores solve daily meal needs, drugstores support health and daily necessities, and e-commerce supplies household essentials. Drugstores have expanded from medicine and cosmetics into daily goods and food, in some cases even selling rice.

3. The Limits of Convenience-Store Growth

Japan’s convenience-store industry continues to grow in traffic, basket size, and revenue, helped by product development. The customer base has broadened from young men to consumers across gender and age groups.

But the industry faces three major constraints:

• Store count is saturated. Japan has nearly 60,000 convenience stores across 7-Eleven and other brands.
• Customer penetration is saturated. Women and older consumers, once less frequent users, now widely rely on convenience stores.
• Labor costs are rising, and hiring is becoming harder.

Japanese convenience stores are responding in two ways. First, they are deepening local integration. Second, they are building regional circular economies. In Hokkaido, for example, 7-Eleven buys local wheat, processes it locally into bread, sells it through local stores, and hires local employees.

Usui emphasized that this is not only possible for a large company such as 7-Eleven. Many smaller Japanese companies also use regional operating models to compete against national players.

4. 7-Eleven as Social Infrastructure

7-Eleven’s transformation goal is to evolve from a retailer into a provider of everyday infrastructure: a service as embedded in daily life as water, electricity, gas, or heating.

The article cites about 21,000 7-Eleven stores in Japan. Each store receives about 1,000 customers per day, meaning roughly 21 million people visit 7-Eleven daily, equal to about one-sixth of Japan’s population. On that basis, nearly the entire population would visit at least once in a week.

The article gives 7-Eleven Japan’s average product gross margin as about 32%. Average daily sales per store are cited at JPY 700,000, or about RMB 35,000, producing sales per square meter said to exceed Uniqlo.

Although 7-Eleven has a national network, it manages the country in regional operating units of about 400 stores. Each unit has dedicated supply-chain, logistics, and operating-management systems. The aim is to behave less like an external national chain and more like a local enterprise that supports local suppliers, employment, and economic activity.

The article also compares convenience-store density. Japan’s branded convenience chains, including 7-Eleven, Lawson, and FamilyMart, have 55,620 stores, close to 60,000. That equals one convenience store for every 2,253 people. Applying that density to China would imply as many as 630,000 convenience stores. The article argues that China’s true convenience-store base is still far below that, citing about 10,000 stores that qualify as convenience stores and about 3,000 people served per store.

5. Three Stages of 7-Eleven’s Development

Usui describes 7-Eleven Japan’s 50-year development through three market stages:

• Seller society: supply was limited, sellers had power, and consumers had similar needs.
• Buyer society: consumers gained power, needs diversified, and personalization became important.
• Value co-creation society: the same consumer may have different needs in different contexts, requiring companies and customers to create value together.

In the seller stage, marketing was promotional. In the buyer stage, it became relationship-based. In the value co-creation stage, it moves toward one-to-one personalization.

This history produced four competitive priorities for 7-Eleven:

• Pursue quality from the customer’s point of view, not relative to Lawson or FamilyMart but relative to changing customer needs.
• Stay near and convenient, solving daily-life anxieties and inconveniences.
• Build retail infrastructure and use IT to coordinate partner companies.
• Integrate with digital platforms, an area Usui says 7-Eleven still needs to strengthen.

7-Eleven’s positioning also changed. It began with the appeal of long opening hours, then emphasized being near and convenient, and now positions itself around everyday reliability.

6. Only Two Core Departments

Usui’s most important operating point is that 7-Eleven effectively manages only two core functions:

• Product: managing the upstream supply chain.
• Operations: managing stores and franchisees downstream.

Everything else is handled through partners, including more than 20,000 stores, logistics, and factories. A large IT platform connects the chain.

Because headquarters does not directly sell goods, it does not think primarily in terms of product gross margin. The article says headquarters focuses on ordinary profit margin, cited at 25%, compared with about 3% for typical retailers and described as comparable to Alibaba.

7-Eleven is a platform company, but unlike open platforms such as Alibaba, it is more closed because it directly manages product and operations. That closed structure lets it control product quality, service standards, and customer experience more tightly.

The headquarters has about 9,000 employees, including 3,000 in operations. These operations staff manage around 20,000 stores. Store ownership sits with franchisees, while 7-Eleven sends OFCs, or store operation field counselors, to support them. Each OFC manages seven to eight stores and visits each at least twice per week.

This creates a closed information loop: market dynamics flow to headquarters, then to stores, then to customers, and then back to headquarters for more accurate product decisions.

The company also relies heavily on meetings. About 3,000 OFCs return to headquarters every two weeks for a full-day meeting, where they receive updates on operating strategy, new product launches, and other key information. That information is then carried back to franchise stores. Even with advanced ERP, email, video meetings, and store systems, 7-Eleven still emphasizes face-to-face communication to improve execution.

Franchisees receive store information systems covering sales, traffic, item-level performance, time-of-day sales, category analysis, product evaluation, slow sellers, product mix, and product trend assessment. OFCs help franchisees interpret the data and improve ordering and sales.

7. Product Development: Start From Daily Life

7-Eleven’s changes in positioning were delivered mainly through product change.

In the seller market, private-label penetration was low. In the buyer market, 7-Eleven expanded private-label categories, including instant noodles and beverages, to meet more individualized needs.

Usui explains demand through two circles: customer need and product offer. Sales happen only where they overlap. 7-Eleven believes customer need cannot simply be created by the company; it comes from real customer life. The company’s job is to adjust products so the overlap expands.

7-Eleven studies customer lifestyles across 12 months and 52 weeks: New Year, Girls’ Day, the spring equinox, the new school year, Golden Week, summer holidays, the rainy season, Christmas, and other recurring moments. Weekly product launches are designed around these changing life patterns.

For private-label development, 7-Eleven uses TMD, or team merchandising. For a new instant-noodle product, for example, the team may include 7-Eleven’s product leader, manufacturers, well-known restaurant operators, ingredient suppliers, soup-base suppliers, packaging companies, operations staff, wholesalers, logistics firms, and consumer representatives. The point is to turn a linear supply chain into a roundtable supply chain.

The article cites functional drinks as an example. In 1995, Japan relaxed sales permits so certain functional drinks previously sold through pharmacies could enter ordinary retail channels, including convenience stores. 7-Eleven used the TMD model to develop the category and also designed refrigerated small shelves so the products could be sold in the right condition. After deregulation, the article estimates the new market at about JPY 200 billion, with 7-Eleven taking JPY 50 billion.

7-Eleven coffee is also described as a major TMD success, selling more than one billion cups per year with gross margin above 70%.

The company does not automatically favor private label in merchandising. Shelf placement is based on actual sales performance and customer need.

8. Fresh Food and the NDF System

The most important convenience-store category is nakashoku: prepared meals and fresh food.

7-Eleven develops rice-based and prepared-food products with dedicated factories. Many sign exclusive agreements to supply only 7-Eleven. This led to the NDF, or New Development Factory, alliance: 65 companies and 177 factories developing exclusive prepared-food products for 7-Eleven.

Of those 177 factories, 165 are dedicated to 7-Eleven, a dedication rate of 93.2%, far higher than competitors such as Lawson and FamilyMart. For regional adaptation, 7-Eleven divides Japan into 11 regions. Each region has a joint development team of 50 7-Eleven employees and 300 NDF-dispatched personnel, focused on local product development and improvement.

7-Eleven tends to maintain long-term supplier relationships, often lasting decades. When launching new products, it prefers to help existing suppliers develop new capabilities rather than immediately switching suppliers.

One cited factory began by producing sandwiches. As the relationship deepened, 7-Eleven guided it to invest in equipment and learn techniques for toast production, and later to produce smoothies. The supplier expanded from sandwiches into bread and smoothies, while 7-Eleven gained a more capable partner.

7-Eleven also sets detailed standards for rice products, from rice selection, blending ratios, water, soaking time, cooking equipment, heat control, cooling, packaging, distribution-center temperature, truck temperature, and in-store display temperature. The article even cites requirements that broken rice, defined as grains under two-thirds normal shape, must not exceed 1%, and that 1,000 grains must weigh at least 18 grams.

The broader convenience-store lesson is that higher fresh-food share is associated with higher store sales. But fresh food depends on supply-chain strength, which is one reason local convenience-store profitability can be difficult in China. The article says 7-Eleven has begun taking its core Japanese fresh-food supply-chain company, Nichiyo Foods, overseas, with production bases in China and in Texas in the United States to support local 7-Eleven stores.

9. Why Private Label Can Be Better and Still Affordable

7-Eleven does not develop every possible category. It focuses on daily necessities and required daily-life scenarios. Customers are unlikely to find nonessential items such as playing cards. That narrow focus lets the company go deep into product and supply-chain control.

The article summarizes the logic as being “one meter wide and one kilometer deep.”

Private-label products can be affordable while carrying higher margins because the cost structure is different. National brands carry large costs for market research, product planning, advertising, and promotion. 7-Eleven can reduce those costs because its daily sales data provides direct market feedback, and its daily traffic of about 20 million customer visits turns stores into a powerful in-store media channel.

Money saved on research, planning, and advertising can be reinvested in ingredients and product design, improving quality while protecting margin.

10. Selling Discipline: ABC, Matrix Analysis, and Product Roles

7-Eleven stores use ABC analysis to rank items by sales or volume: A items are top sellers, B items are average sellers, and C items are slow sellers.

They also use matrix analysis to assess balance in ordering. In beer, for example, the method checks whether the store has a balanced mix across price points and brands, rather than over-indexing on cheap items and losing higher-end customers.

This matters because retailers often order only fast-moving products. That may look efficient short term, but it can damage the product mix, reduce the ability to satisfy diverse demand, and weaken store competitiveness. Expensive products may need lower stock depth, but they should not disappear entirely if customers need them.

7-Eleven’s assortment is built as a daily-life proposal around five eating occasions: breakfast, lunch, afternoon tea, dinner, and late-night meals.

The company organizes categories by role:

• Destination categories: rice meals, bread, prepared food, coffee, and other products strong enough to pull customers into the store.
• Advantage categories: products with specific competitive strengths.
• Routine categories: everyday basics.
• Seasonal categories: products adjusted to seasonal demand.
• Convenience categories: products solving immediate needs quickly.

A small store can work in a trade area of only 2,000 to 3,000 people because repeat purchase is high. The article says 60% of 7-Eleven customers visit more than 100 times per year.

That repeat behavior is supported by high product turnover. Headquarters has a product library of about 4,800 SKUs. Each franchise store sells about 2,900 SKUs, selected according to location and customer needs. Each week, headquarters refreshes about 100 of the 4,800 SKUs, meaning stores see about 100 new products and 100 removals weekly. Over a year, about 70% of store products are renewed.

For private label, 7-Eleven operates both value and premium tiers. 7-Premium competes with national brands on price, while 7-Gold is higher priced, higher quality, and better tasting. After the pandemic, the company also added lower-priced products for a weaker consumer market, while keeping premium products. The article describes this as a three-tier “pine, bamboo, plum” structure: premium, standard, and low price.

Customer mix has changed as a result. Women now account for nearly 50% of customers, while customers over 50 have increased from 25.8% to more than 40%.

The operational lesson is that a 7-Eleven store may be only a little over 100 square meters, but its assortment, ordering, product refresh, supplier management, and franchise execution systems are highly engineered. That is what supports high basket size, high repeat rate, and high sales per square meter.

Note: market-density comparisons, expansion-potential comments, and operating figures above reflect the article’s 2024 context and should be treated as historical.