7-11

FTC's 7-11 order rattles store chains
Wed. June 24, 2009; Posted: 01:41 PM

Jun 23, 2009 (The Yomiuri Shimbun - McClatchy-Tribune Information Services via COMTEX) -- SVELY | Quote | Chart | News | PowerRating -- TOKYO, June 23--The Fair Trade Commission's ordering Seven-Eleven Japan Co. to end its refusal to allow franchise stores to discount bento boxed meals and other food items will force all convenience store chains to review their policy of fixed prices for such products.

Seven-Eleven sets recommended retail prices for goods at its franchise stores, though in principal franchisees have the right to decide the actual retail prices in contracts with the company's headquarters.

But the headquarters had pressured owners of franchise stores who had discounted food items near their expiration date not to continue the practice of cutting prices.

Seven-Eleven Japan President Ryuichi Isaka voiced his opposition to discount sales by franchise stores at a press conference Monday evening.

"If there are two prices [for the same products], customers may feel a sense of distrust. It's also feared we'll get involved in price-cutting competition with discount stores," he said.

But if Seven-Eleven's franchise stores start offering discounts in the future, under the FTC's order, the headquarters will have to go along.

Owners of convenience stores which have already started to discount food items close to their expiration dates said they expected other stores would soon do likewise.

But many owners whose stores are struggling to compete with rivals are still reluctant to do the same, making it difficult to predict how widely the discount strategy will spread.

Convenience store chains are anxious about the possibility that escalating price competition will reduce gross profits of franchise stores, resulting in smaller royalty payments to headquarters.

In the case of convenience stores, chain headquarters collect royalties from franchise stores for the use of trademarks, management guidance and other business assistance.

Because the royalties are calculated as a portion of stores' gross profits, the amounts do not change even if losses from disposed-of food items increase.

The U.S. 7-Eleven Inc. chain also fell into a business slump because of price-cutting competition with rival chains, and the Ito-Yokado group--now Seven & i Holdings Co.--rescued the former U.S. parent firm in 1991.

Other major convenience store chains were also anxious about the FTC's decision.

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