It’s 50 years since Kenji Yamamoto opened the doors at what would become part of the fabric of Japan: the country’s first modern-day convenience store. But 50 years from now, Japan’s population is projected to shrink by close to a third, and the fate of a multibillion-dollar industry will hang on how its big players negotiate essential growth overseas.

From the first 7-Eleven opened by Yamamoto in the then-industrial Tokyo neighborhood of Toyosu, convenience stores — known as konbini — have been expanded into a network of some 55,000 outlets across the country, mostly open 24 hours a day and often barely 100 meters apart in urban centers.

Selling everything from socks to airline and sumo tickets, but primarily food, drinks and toiletries, they also provide services used by millions of Japanese residents every day, like ATMs, utility bill payments and parcel shipping and pickups.

Yamamoto was 24 years old when his store began offering basics like canned food and instant noodles, but had no certainty in knowing what might sell, nor how customers would react. He originally ran a family-owned liquor store, but saw the potential of the konbini business — unlike most people around him.

“Almost everyone was against it,” Yamamoto told reporters last month. “They said, ‘Your father would cry [to see you switching business].’ “We had a hard time making sure the stores were thoroughly cleaned, we needed specific advice [from 7-Eleven],” he said.

Yamamoto’s faith in the rise of the konbini was proved right. But the rapid growth in store numbers, and revenue, that characterized earlier decades certainly slowed to a crawl in recent years and is now all but gone: The number of konbini in Japan dropped for the first time in the 2021 fiscal year, according to media reports.

Experts say the Japanese market is saturated, and warn the forthcoming decline of the nation’s population means the trio of big companies that dominate the sector — 7-Eleven operator Seven & i Holdings, Lawson Inc. and FamilyMart Co. — need to perfect strategies for overseas growth. Both the 7-Eleven and Lawson brands were originally imported from the U.S. before their Japanese divisions bought out their American parents.

That drive for business outside Japan began decades ago but has very much proved hit or miss so far: Amid stiff competition among themselves and also fast-growing local rivals, FamilyMart has entered and left Thailand, 7-Eleven did the same in Indonesia, and despite its grand ambitions for China, Lawson’s presence there remains dwarfed by homegrown chain Meiyijia.

“Japan faces a declining and aging population ahead of the world,” said UBS analyst Takahiro Kazahaya. “The solutions [for overseas expansion] developed by Japanese convenience stores will be watched closely not only by convenience stores abroad but also by the whole retail industry.”

With a combined market value of more than $50 billion, the big three convenience store operators all count another mainstay of Japan Inc., the country’s Warren Buffett-backed trading houses, among their investors and seek to leverage that support in overseas development. Itochu has a stake of about 95% in FamilyMart, while Mitsubishi Corp. owns 50% of Lawson. Mitsui & Co. has a small stake in Seven & i, working with the retailer in the U.S. and China, as well as in Japan.

Markets like Indonesia, a country with a growing middle-class in its population of more than 270 million, have become a prime target for the konbini operators. Street food culture is still strong in many Southeast Asian countries, but as people become more concerned with hygiene and have more money to spend, warm fried foods from convenience stores are becoming popular.

At a busy FamilyMart this week in a business district in downtown Jakarta, Priska, who like many Indonesians goes by only one name, joined a line of customers stocking up on oden, coffee and FamilyMart’s own-label fried chicken.

Lawson, operating in Indonesia since 2011, has claimed success in selling cooked foods such as oden, a Japanese stew, adjusting the recipe to suit local tastes. FamilyMart also claimed a hit in selling coffee in Indonesia, making its original taste sweeter to appeal to local customers.

“I know FamilyMart comes from Japan,” the 33-year-old office worker said. “Because when I travel to Japan, first thing I do is to go to FamilyMart. Their coffee is very nice. Also I go there for oden and Korean food.”

“I always go to Lawson or FamilyMart because compared to a local minimart, they have more foreign food options. I come here every time I need coffee, usually three times in a week,” Priska told Nikkei Asia.

Lawson now has about 700 stores in Indonesia, about a tenth of all its outlets outside Japan, partnering with local company PT Lancar Wiguna Sejahtera, which holds the operating rights. FamilyMart operates in Indonesia in the same way — Indonesian law imposes restrictions on foreign ownership of companies.

Taiwan, meanwhile, was the site of FamilyMart’s first overseas konbini, opened in 1988, and is currently home to 4,200 of its outlets. Taro Kosaki, FamilyMart’s manager of Area Franchising Business Department said that “local management, who understand Japanese convenience stores’ style well, translated our ideas into Taiwanese and implemented it locally.”

But as in Japan, labor is in short supply in Taiwan, which already has more than 10,000 convenience stores for a population of 23 million. “Improving management efficiency is also a key” to business success in Taiwan, Kosaki said.

The choice of a partner in each country, and whether to opt for a franchise system or potentially more lucrative directly operated subsidiaries, plays a key part in determining how well the overseas business does. The retailers don’t provide a breakdown of revenue from overseas konbini.

7-Eleven, which operates in Southeast Asia mainly by licensing to local companies, is struggling to develop Japan-quality convenience stores in each country, according to some observers.

Its experience in Indonesia highlights some of the difficulties in exporting stores of that style. It entered the market amid fanfare in 2009, in partnership with a company called Modern Internasional, and by the end of 2016 had 161 stores there. But after years of sliding revenue, curbed by restrictions on alcohol sales and stiff local competition, Modern shuttered the entire network in 2017.

In Thailand, meanwhile, as of the end of March, 7-Eleven, which responded to questions for this article via email, operates about 14,000 stores, but its franchise partner, local retail giant CP Foods, controls management of the outlets. Similarly, in South Korea, the Seoul-based regional retail empire Lotte holds the management rights to 7-Eleven stores, and Seven & i hasn’t received the license fees it has expected, according to industry experts.

Following those experiences, 7-Eleven has begun to review its contracts with local companies in Asia. One key example: Earlier this year, Seven & i closed a 170 billion yen ($1.1 billion) deal to acquire the company that operates 7-Eleven in Australia. That followed a major deal to expand in the U.S., laying out $21 billion to buy a chain of 3,800 Speedway stores from Marathon Petroleum.

Eigo Ogiwara, managing director and partner at Boston Consulting Group in Japan, described many local operators as using “the skin of Japanese convenience stores,” saying partnerships of this nature leave Japan’s convenience stores unable to control management and profitability.

For Ogiwara, if Japanese retailers are to differentiate from local convenience stores, it is important to “introduce Japanese-style private-label products and services” — now a mainstay of the goods selection in konbini in Japan.

Southeast Asia is vital for the konbini operators because, Ogiwara said, most customers in the region have positive views of Japan and Japanese products. “It is important to have two different strategies on expanding stores: one is to increase the number of stores and contribute to brand recognition and the other is to increase profitability,” he said.

“Overseas markets for Japanese convenience stores will continue to grow, especially in Indonesia, Malaysia and Vietnam,” said Ogiwara.

Seven & i aims to enter two new markets overseas per year, and to reach 100,000 stores in 30 countries and regions by 2030, compared with more than 80,000 stores in 20 nations as of September 2023.

Lawson is expanding its business in China through both subsidiaries and area licenses and now operates more than 6,000 stores in the country, compared with just under 15,000 in Japan. It entered China’s market in 1996 and has achieved about 26% market share in Shanghai and Wuhan and 10% in Beijing and Chongqing, according to Motonobu Miyake, representative CEO of Lawson (China) Holdings. The strategy is to “increase the number of stores first to make their name known, even if there is a loss, and profits will follow,” Miyake said.

The company has divided China into a number of areas and has developed products and services that can meet demands in each region. Miyake said it was essential to “constantly respond to change and create our own know-how.”

Cold chain logistics provided a good example, he said: The importance of supplying food products safely in a temperature-controlled environment was not well understood, he said, requiring Lawson staff members to give repeated lessons on temperature and quality control without cutting corners at factories in China.

Yuko Hanamuro, team leader of Lawson backer Mitsubishi’s convenience store management team, said, “The [Japanese convenience stores’] business model, that continuously sells fresh products 365 days a year, would be valuable” outside Japan.

Earlier this year, Mitsubishi and Japanese telecoms group KDDI announced a deal under which the latter will buy into Lawson leaving the trading house and KDDI each owning half of the retailer, raising the prospect of new tech services being available at the konbini.

The two companies are in discussions on how to create new value in Japan and abroad, said Hanamuro. “The convenience store is a business of adapting to changes. It can change its shape through collaborations with different types of operations and selling various products,” said Hanamuro, such as by collaborating with pharmacies in areas that lack one.

The quest for innovation goes on at home. Trading house Itochu’s president, Keita Ishii, talked up potential collaboration between its used car business and FamilyMart in a recent earnings briefing. “It could be possible,” he said, “to create one-stop stores that provide various services such as car maintenance, used car sales and insurance.”

For the man who launched Japan’s first konbini, convenience stores must continue to evolve to survive, in Japan and elsewhere.

“The target area for each convenience store is becoming smaller. … It is very important for a store to build a loyal customer base,” said Kenji Yamamoto. “It is a time when only stores that can continue to study and practice [new strategies] will be chosen by customers.”