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This in-depth guide to Japan explores the key trends in grocery retail and the growth strategies of the leading retailers in the country.
The four largest grocery retailers in Asia are 7&i Holdings, FamilyMart UNY, Aeon and Lawson, we reviewed their five year growth forecasts, strategic priorities and latest developments.
Phoenix Petroleum, owned by Dennis Uy, is acquiring Circle K in the Philippines.
FamilyMart is reportedly suing to end its partnership with Taiwanese conglomerate Ting Hsin Group in China.
FamilyMart has accused Ting Hsin of failing to arrange a fair share for profits it earned from its business in China, and not providing adequate information on the venture’s profitability.
FamilyMart first established the joint venture back in 2004, and now operates over 2,560 stores in China. Ting Hsin Group currently owns 59.65% stake in the business.
The three leading convenience store chains in Japan are facing increasing challenges to hiring staff for their stores. Labour shortages driven by the country's ageing population is deepening and retailers opening new stores require new workers.
The current approach for many convenience store operators is to incentivise workers with benefits and discounts. The average wage for convenience staff is around JPY1,000 an hour, but varies based on location in the country.
Seven & i Holdings, which operates over 20,600 7-Eleven stores in Japan, opened a day care centre for employees on the second floor of a store in the northern city of Sendai in July. In April 2017, it began offering workers discounts on hotels and travel services.
The second largest CVS chain in the country, FamilyMart, is partnering with Iris Ohyama to offer part-time workers nationwide discounts of up to 60% on rice cookers and other appliances. While Lawson, which operates more than 14,300 stores, offers its employees discounts on DVDs and books, serviced by the retailer's subsidiary companies.
At an exhibition in October last year, Lawson launched an unstaffed store concept, featuring a robot that can prepare food as per customer preferences, e.g. cook gyoza dumplings. About two years ago, we covered how Japan's Ministry of Economy, Trade and Industry is backing the introduction of RFID technology in retail. Since then, we have seen Japanese retailers in different industries trial this technology. Retailers are now working harder to retain and attract new employees, but also promote automation to drive efficiencies in-store.
To reduce the burden on store employees and compensate for labour shortagess, Lawson has announced that it will test unstaffed operations at two outlets for several months from this summer. The concept was first announced back in December 2017.
Unstaffed service hours will be between midnight to 5 a.m each day. While a staff member will be available to support during the trial, Lawson hopes the outlets will be fully operational without personnel in the future. Certain categories, including cigarettes, alcohol, and postage stamps will be unavailable for purchase during unstaffed hours.
Smartphone-based self-payment is already available at Lawson stores in Shanghai. If self-checkout is rolled-out to other times of the day in Japan, customers will be able to avoid long lines at cash registers during busy hours. It will also help drive in-store efficiencies and boost productivity.
FamilyMart UNY has partnered Panasonic Corp to introduce technology in its stores to drive in-store efficiencies. The first FamilyMart store using Panasonic technology has opened in Kanagawa, southwest of Tokyo. The retailer will test advanced sensors and artificial intelligence to help stores restock more efficiently, as well as self-checkout, digital displays and price tags.
A shrinking workforce has seen retailers reduce and test shorter operating hours. FamilyMart in Japan plans to test reduced hours at up to 270 of its stores in Tokyo, Akita and Nagasaki prefectures beginning in June.
FamilyMart’s UNY’s Representative Director and Executive Vice President, Takashi Sawada, said, “We are faced with a labour shortage, and the issue of 24-hour operations. There is no time to waste."
The retailer plans to invest JPY25bn (US$223m) on labour-saving technologies and continues to work on simplifying operational procedures to support its franchisees.
We round up the latest trading updates and news for Japan's four largest retailers, Seven & i Holdings, FamilyMart UNY, Lawson and AEON.
Seven & i Holdings has released a strong set of annual results (ending 28 February 2019), posting a 12.5% increase in operating revenue to JPY6,791.2bn (US$60.7bn), with operating income up 5.1% to JPY411.5bn (US$3.7bn).
Revenue from its domestic CVS operations grew modestly at 2.9%, with existing store sales rising for the eighth consecutive year at 1.3%. Strong growth categories were frozen food, rice products and sandwiches. Seven-Eleven Japan continues to focus on expanding counter, refrigerators and frozen food sales area. Network expansion slowed compared to recent years, adding net 616 stores to reach 20,876 nationwide. It is also set to enter Okinawa on 11th July, the only Japanese prefecture where the retailer's presence is missing. The retailer plans to open 50 new stores next fiscal year and reach 250 by 2024.
Sales at the retailer's main supermarket banner, Ito Yokado, was flat at 0.1% YoY. It ended the fiscal year with 159 stores across Japan, five fewer than the previous year. Further closures are expected, with the retailer forecasting to end FY2020 with 157 stores as it continues to reform and restructure the business. While total convenience store sales in the U.S. for the fiscal year ending 31 December 2018 increased 27.4% to JPY3,993.2bn (US$35.7bn), thanks to the acquisition of Sunoco stores. Gasoline sales was up 47%, and existing store sales increased 1.9%.
Seven & i continues to bring new initiatives to its stores to offer shoppers greater convenience. In July, it plans to add a payment function to SEJ APP. A 7pay app is set to launch in October for external participating stores. As part of the retailer's digital strategy, it plans to develop the function further by integrating the payment app among Group companies' applications by Spring next year.
FamilyMart UNY posted a 3.1% fall in gross operating revenue to JPY617.7bn (US$5.5bn), but core operating income increased 23.7% to JPY51.5bn (US$460.2m) (mainly attributed to the sale of UNY hypermarket business). More profitable operations and post-merger activities in Japan have been key focus areas rather than opening new stores. Newly converted FamilyMart stores recorded higher daily sales, as well as stronger customer footfall than pre-conversion. FamilyMart UNY ended the fiscal year with 16,430 stores in Japan, 802 fewer stores than last year. The retailer's overseas network grew steadily, with 189 new stores to reach 3,357 in Taiwan and 372 new stores in China to reach 2,569.
Hypermarket operations in Japan are classified as a discontinued business, after Pan Pacific International Holdings Corporation (PPHI) (Don Quijote) completed full acquisition of UNY on 4th January. The retailer has also released a statement outlining the merger of FamilyMart UNY Holdings Co., Ltd. and FamilyMart Co., Ltd. This will change the retailer's trade name to FamilyMart Co., Ltd effective from September 1, 2019.
FamilyMart UNY has outlined four key areas of focus: enhancing support for franchised stores, strengthening store profitability, moving forward with the shift to digital and promoting business collaboration with Pan Pacific International Holdings Corporation (PPHI) (Don Quijote).
Under the enhancing support for franchised stores strategy, it will focus on store investment to drive efficiencies in-store. There are approx. 1,000 FamilyMart stores in Japan equipped with self-checkout registers in response to increasing labour shortages. It is also beginning to test different business operating hours for its stores. For its moving forward with the shift to digital strategy, the retailer will launch a FamiPay smartphone app in July. The FamiPay app will allow customers to make transactions using the retailer's "FamiPay" digital currency. The app will look to improve customer convenience by offering discounts and coupons exclusively to app users.
Lawson continues to be the fastest growing retailer amongst the big four in Japan. It recorded a 6.2% increase in net convenience stores sales to JPY2,424.5bn (US$21.7bn), and 6.6% rise in operating revenue to JPY700.6bn (US$6.3bn). This was mainly driven by new store openings, with a net increase of 667 stores to reach 14,659 convenience outlets across Japan. Existing-store sales in Japan (excluding ticket and gift-card sales etc.) declined by 0.5% YoY as customer numbers declined. However, average customer spend increased, with strong sales of rice balls and boxed meals, and growth in night-time food options where the retailer has been upgrading.
Operating profit fell 7.7% YoY to JPY60.8bn (US$543.4m) following investment in new POS cash registers into all stores to drive efficiencies to in-store cash management, plus costs relating to the launch of Lawson Bank. Store numbers overseas increased by a net 614 to 2,171 stores, with expansion mainly coming from China, where it operates in Shanghai, Chongqing, Dalian, Beijing, Wuhan and Hefei.
Lawson is looking to establish a more profitably model across its international operations, targeting 5,000 stores by FY2021. In China, it plans to build scale through regional and franchise agreements, while in Southeast Asia, it hope to develop win-win partner relationships to expand its store network.
Transforming its products is a key priority for Lawson. It is changing nutritional and information labelling, e.g. low salt and low-carb logos, and is also reducing food waste and the use of plastics. Furthermore, it will have a stricter new store opening criteria ongoing to drive stronger profitability. The retailer plans to open 700 new stores next fiscal year but close the same number in Japan. This will be a significant change to the last five years, having averaged a net 668 new stores YoY.
Lawson plans to use digital technologies to boost store efficiency, particularly with rising costs and labour shortages. In July, Lawson will test unstaffed stores during the early hours. In FY2019, Lawson will use its new POS registers to enable customers to self-checkout by reading product barcodes. This system is expected be rolled-out to all stores by the end of 2019. Lawson plans to introduce its own mobile payment service, “Lawson smartphone cash register” to allow customers to pay by mobile app.
AEON has posted a 1.5% increase in operating revenue to JPY8,518.2bn (US$76.1bn), with operating income rising 0.9% to JPY212.3bn (US$1.9bn). The performance of the retailer's GMS Business was flat, posting operating revenue of JPY3,080.6bn (US$27.5bn). Operating revenue from its Supermarket Business, which includes Maxvalu and Ministop convenience chain, fell 0.2% to YoY. The retailer's International Business, which includes operations in Malaysia and Hong Kong, recorded robust revenue growth of 4.5% to JPY437.5bn (US$3.9bn).
AEON's Health & Wellness Business, which operates under Welcia Holdings Co., Ltd continued to perform strongly, highlighting growing demand in this segment. Operating revenue increased 11.7% to JPY793.9bn (US$6.6bn) YoY, with a net 426 new stores to reach 4,964 across the business. The retailer ended the fiscal year with 1,878 and 2,050 Welcia and Tsuruha stores respectively.
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AEONs Maxvalu in Hiroshima and a handful of 7-Eleven stores are reducing their operating hours in Japan.
Maxvalu Nishinihon, a Hiroshima-based subsidiary of AEON, is ending 24-hour operations for 25 stores later this month. The company plans to refocus its staff members' attention on improving customer service. The move should also help the business cope with labour shortages in western Japan prefectures, including Hyogo and Hiroshima, where its stores are mainly located.
Seven-Eleven Japan has announced that it will reduce operating hours at some of its stores later this month. This will be tested on 10 company-run 7-Eleven stores across the country, operating only between 7am and 11pm rather than 24 hours.
Around 96% of 7-Eleven stores in Japan operate 24 hours a day, excluding any located inside external office buildings and train stations. Labour shortages for the night shift remains a challenge for convenience operators across the market.
Both Lawson and FamilyMart have experimented with reduced opening hours at their convenience stores. The former for example, has also launched self-checkout counters to support staff members. With increasing pressures, many franchise owners are trying to negotiate shorter operating hours and other subsidies.
Retailers are introducing a number of different initiatives to combat labour shortages in the market. Japan's Ministry of Economy, Trade and Industry is also helping drive automation in retail. Furthermore, 50 Japanese banks have recently joined Tokyo bank J-Coin to set up a cashless payment system developed by Mizuho Financial Group. J-Coin payments are processed via a mobile app using a QR code, a phone number or a LINE Messenger ID number. We expect Japanese retailers to further integrate cashless payments in-store to drive efficiencies and offer shoppers greater convenience.
Keep up-to-date with the latest retail developments from Asia.
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