TOKYO — Kana Sekiya, 43, once picked up groceries near a Tokyo train station on her way home from work. These days she drives more than 30 minutes on weekends to a discount supermarket to stock up in bulk — part of a growing wave of Japanese consumers rethinking where and how they shop as prices climb.

"I've totally stopped going to convenience stores because of the rising cost of living," she said.

Her changing habits matter not only for Japan's once unassailable convenience stores, known as "conbini," but also for an economy that has only recently exited decades of deflation. Underlying inflation rose in September at its fastest annual pace in three years, according to Bank of Japan data, exceeding the central bank's 2% target. The BOJ is likely on Friday to signal that a rate hike could come as soon as December, taking the economy into territory not trodden for more than 30 years. The central bank exited its negative interest rate policy only in March 2024, its first rate increase in 17 years, and has since lifted borrowing costs in gradual steps.

"Consumers have become extremely demanding when it comes to prices," said Seiji Kitamura, head of group merchandising strategy at Seven & i, the owner of 7-Eleven, the country's largest convenience store chain, which operates around 23,000 outlets across the country. "Their desire to save has grown more than we anticipated."

Customer Traffic Slides for 15 Months

Customer numbers at convenience stores have fallen for 15 consecutive months, according to data from the Japan Franchise Association. In September, numbers fell 3.8% from a year earlier, the steepest decline since September 2021, during the COVID-19 pandemic. The slide is striking because convenience stores are woven into daily Japanese routines, offering round-the-clock access to prepared meals, ATMs, bill payment and parcel pickup.

The increasing thriftiness of Japanese consumers — many of whom have never experienced widespread price gains in their lifetime — is likely to cause wider economic issues.

"With private consumption accounting for about half of Japan's GDP, there are concerns that increased household belt-tightening could weigh on the broader economy," said Ryohei Ikeda, an analyst at Mizuho Research Institute.

Japanese companies were famously reticent to raise prices, with ice pop maker Akagi Nyugyo apologizing in 2016 for a 10 yen ($0.06) hike. But food and drink makers hit by the weak yen and higher oil prices raised prices on more than 20,000 items in 2026, a second consecutive year of sweeping increases.

Amid the increases, Japanese convenience store operators are facing squeezed consumers seeking cheaper alternatives. "Competitors such as drugstores and mini-supermarkets are putting value for money front and center," Takeshi Inoue, a corporate manager at Itochu's FamilyMart, said at an earnings briefing. "We haven't been able to fully meet customers' needs."

Sekiya said she is feeling the pinch when buying goods such as meat, vegetables and alcohol, and now shops at two discount supermarkets — Lopia and OK — to maximize savings.

To attract customers back to its conbinis, Seven & i is introducing its lower-priced own-brand range, "Seven The Price," which includes precooked chicken and bacon rashers and is priced around 20% below branded alternatives. Last month, FamilyMart said it would offer morning discounts when customers bought bread or rice balls together with drinks such as coffee.

Discounters Gain Ground

In contrast to convenience stores, some supermarkets that compete aggressively on price are seeing robust customer traffic growth. Seiyu, which was acquired last year by discount chain Trial Holdings, recorded a 6.9% year-on-year increase in customer numbers at existing stores in September.

"Wage growth has not kept pace with inflation, creating favorable conditions for discount retailers," said Seiyu President Hitoshi Narakino.

Walmart previously struggled to make a success of Seiyu, with private equity firm KKR acquiring the business before selling it to Trial. Kyushu-based Trial has brought its popular 299 yen pork cutlet rice bowls and 199 yen egg sandwiches to Seiyu stores, where it is also bolstering supplies of fresh meat and fish.

Conbini are also under threat from mini-supermarkets, with Trial opening small-format Trial GO stores in Tokyo and Aeon, Japan's biggest retailing group, expanding its My Basket chain.

Inflation Outlook Darkens

Taro Saito, a research fellow at the NLI Research Institute, said higher oil prices due to the Iran war are feeding through to electricity and gas bills, and that inflation is likely to top 3% in early 2027. Real wages are also likely to turn negative next year, potentially further squeezing households, he said.

With rising labor and utility costs squeezing franchisees, conbini operators are looking outside of food to grow revenue. FamilyMart is installing crane games and capsule-toy machines in about 5,000 stores by reducing space allocated for magazines and eating in. Lawson, which is owned by Mitsubishi Corp and KDDI, has also installed toy machines at about 1,500 stores.

There are also signs of price sensitivity across the broader retail sector. Uniqlo parent Fast Retailing said this week it was scrapping a planned price hike for a color socks line that was set to take effect from November 10.

"As socks are an essential everyday item, in Japan we reconsidered our planned price revision," Fast Retailing said.

($1 = 157.8100 yen)

Source: Reuters via BusinessWorld