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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.

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American manufacturer and distributor Avery Dennison has announced that it will work with the Japanese government to drive RFID technology roll-out in convenience stores across Japan.

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We round up the latest trading updates and news for Japan's four largest retailers.

Seven & i posts 13.2% increase in revenue

Seven & i Holdings has released a strong set of Q3 results, posting a 13.2% increase in operating revenue to JPY5,072.3bn, with operating income up 2.9% to JPY304.2bn. Revenue from its domestic CVS operations grew modestly at 2.9%, with existing stores rising for the eigth consecutive year at 1.5%. Growth categories were in sandwiches and noodles sales, delicatessen items and health-oriented products.

The retailer's main supermarket banner, Ito Yokado, was flat at -0.3% YoY. It ended the reported period with 164 stores across Japan, two fewer than the corresponding period last year. Further closures are expected, with the retailer forecasting to end the fiscal year with 158 stores. While total convenience store sales in the U.S increased 28.3% to JPY3,002.6bn for the nine months ending 30th September 2018. Gasoline sales was up 50.8%, with existing store sales up 1.4%.

Seven & i is on track to deliver another excellent year of growth and income. It continues to bring new initiatives to its stores, including store entry and payment through facial recognition. To drive in-store efficiencies and support labour shortages in Japan, it is installing an AI ordering system to suggest volume orders, as well as equipment to collect information to support operational management.

FamilyMart UNY completes brand conversion

In the nine-month period ended 30th November 2018, FamilyMart UNY posted a 1.7% YoY decline in gross operating revenue to JPY470.8bn (excludes the performance of discounted businesses). Core operating income increased 31.4% to JPY48.2bn.

FamilyMart UNY completed brand conversion of all Circle K and Sunkus brand stores to FamilyMart across Japan on November 30, 2018. This has resulted in a total of 5,003 stores being converted since the merger in September 2016. Converted stores have seen YoY increases in both daily sales and customer numbers. More profitable operations is a focus rather than opening new stores. The retailer is committed to enhancing product competitiveness, improving store operating procedures and reinforcing store foundations.

In the general merchandise store business, the six MEGA Don Quijote UNY stores (collaboration with Don Quijote) have sustained positive sales trends. UNY hypermarket operations in Japan will be classified as discontinued businesses (for FamilyMart UNY), after Don Quijote completed the acquisition of UNY on 4th January.

Lawson posts 6.5% increase in sales

Lawson has announced its financial results for the third quarter, posting a 6.5% increase in net sales of convenience stores to JPY1,833.9bn, and 6.8% rise in operating revenue to JPY527.6bn. This was mainly driven by new store openings across network, with a net increase of 532 stores. It reached 14,524 convenience stores in Japan for the reported period. Store numbers overseas increased by a net 452 to 2,048 stores, with expansion mainly coming from China. 

FY2018 marks the third and final year of Lawson's 1000-Day Action Plan project, which aims to develop next-generation convenience stores, stronger support for everyday living and reform of in-store operations. This has been reflected in the retailer's operating profit in the nine months, which declined 11.9% YoY to JPY47.8bn, with investment in systems and expenses for launching Lawson Bank.

The retailer continues to expand its Lawson Fresh Pick (Loppick) service to approximately 1,600 Lawson stores in Tokyo and Kanagawa prefecture. To appeal to a more diverse set of shoppers, the service allows users to order fresh produce and meal kits via smart phone in the morning and pick up their order from a Lawson store in the evening. It remains committed to upgrading its evening range and food options so that they are as attractive as those in the mornings and at lunchtimes.

Health & Wellness Business key growth area for AEON

AEON has continued to cut prices across its formats to attract shoppers and this has led to stronger customer traffic during Q3. For the nine months ending in November, AEON posted a 2.1% increase in operating revenue of JPY6339.3bn, with operating income rising 6% to JPY109bn. The performance of the retailer's GMS Business was flat, with operating revenue growing 0.3% to JPY2,272.9bn. Operating revenue from its Supermarket Business, which includes Maxvalu and Ministop convenience chain, grew 0.5% to JPY2,429.8bn YoY. The retailer's International Business, which includes operations in Malaysia and Hong Kong, recorded revenue growth of 7.6% to JPY330.1bn.

AEON's Health & Wellness Business, which operates under Welcia Holdings Co., Ltd continued to perform strongly, highlighting growing demand in this segment. YoY of all store sales for the nine months increased 12.5%, while same-store sales increased 5.2%. The retailer ended Q3 with 1,800 stores, and continues to be the leader in a highly fragmented Japanese drugstore market.

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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.

Discounts and benefits for 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.

Automation part of the solution

At an recent exhibition, Lawson launched an unstaffed store concept, featuring a robot that can prepare food as per customer preferences, e.g. cook gyoza dumplings. About a year and half 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.

Japan's four largest retailers, Seven & i Holdings, FamilyMart UNY, AEON and Lawson, have posted their results for the first half.

Seven & i Holdings: 8.2% total Group sales growth

Seven & i has recorded a 8.2% increase in total Group sales to JPY5,950bn, with operating profit rising 2.6% to JPY199,610bn year-on-year for the six months ending 31 August. 

Domestic convenience store operations recorded a 2.9% increase in revenue to JPY486,243m year-on-year (yoy). 7-Eleven Japan's key growth measure, existing store sales, increased 1.4% in the first half. In response to increasing shopper demand for take-home meals, it continued to focus its attention on expanding sales space for frozen foods and launched, for example, Seven Premium snack series dedicated to easy meals. The retailer added 336 stores to its convenience network in Japan to reach 20,596 outlets.

Consolidated revenue for Seven & i's superstore operations was flat. The retailer ended the first half with 164 Ito-Yokado stores in Japan, the same number as the first quarter. However, it forecasts to operate six fewer stores by the end of FY2019, continuing to reform this part of the business.

Revenue from operations at 7-Eleven Inc (U.S and Canada) increased 41.8% to JPY1,357bn. This was largely driven by the effect of the Sunoco acquisition, but nonetheless existing store sales increased 1%. 7-Eleven continues to position itself for the future, partnering with Foodora in Canada for example, to launch a food delivery app that allows customers to order a range of snacks and everyday essentials from 48 7-Eleven locations in Toronto, Vancouver, Calgary and Edmonton.

The retailer's footprint across Asia continues to grow quickly. Through area licenses, for example, 7-Eleven is expanding into new cities in China. Last year, it entered Zhejiang, and during the first half the first 7-Eleven store opened in Jiangsu Province.

FamilyMart UNY: closer alliance with Don Quijote expected

FamilyMart UNY posted a 1.3% rise in operating revenue to JPY641.8bn, with operating profit up 18.9% to JPY49.9bn yoy. This was mainly driven by improved daily sales at converted c-stores and cost reductions following closure of unprofitable stores. The retailer ended the first half with a total network of 23,896 stores, down 106 from the reported number in the first quarter, as it continues to consolidate its operations in Japan.

FamilyMart UNY has continued to focus on brand conversion and integration. As of 31 August, FamilyMart had rebranded 4,746 stores, with both daily sales and customers numbers increasing in converted stores. It aims to complete the brand conversion by November 2018. In collaboration with Don Quijote, it also remodelled three convenience stores in June. Daily sales have increased by 30% in these stores, while customer numbers have increased 10%.

To sustain growth, the retailer has outlined three focus area; enhancing product competitiveness, improving store operating procedures and reinforcing store foundations.

FamilyMart's largest overseas market, Taiwan, continued to perform strongly with operating revenue up 8.5% to JPY32,550m in the first half. In the general merchandise store business, the retailer continued to adopt its 'New Uny' slogan. Sales at the six converted UNY stores (Mega Don Quijote UNY) have doubled since remodelling, and the retailer is set to deepen its partnership with Don Quijote.

AEON: robust profit and revenue

AEON has posted a 2.3% increase in operating revenue to JPY4,266bn, with operating profit rising 5.7% to JPY89.8bn for the first half yoy. Operating revenue at both its General Merchandise Store and Supermarket operations were largely flat at 0.7% and 0.4% respectively.

Operating revenue from operations in Japan increased 1.7% to JPY3,884bn. Growth was much stronger overseas, however, with revenue rising 11.7% to JPY182,252m and 11.9% to JPY139,718m for ASEAN business and China respectively.

AEON's Health & Wellness Business, which operates under Welcia Holdings Co., Ltd continued to perform strongly. Operating revenue increased 13.7% to JPY387,386m, supported by the addition of 80 new stores during the first half (total network 1,773). As the drugstore market leader in Japan, Welcia's strong half-yearly results highlights the growing demand and strength of this segment.

Lawson: revenue up 6.9%

Lawson recorded a 6.9% increase in operating revenue to JPY351.9bn, but a 11.5% yoy decline in operating profit to JPY34.4bn for the six months ending August 2018. The retailer is moving towards the end of its third and final year '1000-Day Action Plan' - investment to ensure sustainable growth in the future.

In the first half, existing-store-sales fell 0.8% yoy, partially driven by unprecedented rainfall in Western Japan in July. Store network expansion was mainly in Japan (348 stores net yoy including Save On and Three F brand changes) and China (493 net stores yoy), reaching a total network of 14,340 and 1,709 stores respectively.

To appeal to a more diverse set of shoppers in Japan, the retailer expanded its Lawson Fresh Pick service to approximately 700 metropolitan Lawson stores in August. The service allows customers to order fresh produce and meal kits via smart phone in the morning and pick up their order from a Lawson store in the evening. Lawson plans to extend coverage to approximately 2,000 urban stores by the end of the fiscal year. It also remains committed to upgrading its offer during the evening, ensuring range and food options are attractive as in the mornings and at lunchtimes.

Lawson was granted a licence from Japan's financial services in August to operate banking services. Lawson Bank launched today - Masashi Yamashita, President of Lawson Bank, said, "We want to be a bank closest to customers [...]” 

Our view

Bringing customers into store remains a challenge in Japan for the Big Four, with the average number of customers visiting falling. We expect all four retailers to search for new and more innovative ways to encourage higher value basket sizes to sustain future growth.


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Lawson, the third largest convenience store chain in Japan, has launched 17 in-store healthcare corners to allow customers to consult with health experts and specialists.

In-store consultation services

In 17 stores in Japan, Lawson has installed a consultation desk (partnering Medical Corporation Tatsuoka) to provide free advice on nursing care, nutrition, health and wellbeing. Tailored on-site and diet menu planning and counselling services are available for a fee. The retailer plans to expand the number of healthcare corners to around 100 locations.

Sadanobu Takemasu, President of Lawson, said, "I would like to meet the growing demands of nursing and healthcare as people are living into their 100s."

...healthy living and wellbeing led by Lawson

While the number of convenience stores across the country are still rising, customers visiting existing stores have been falling. Lawson's new service will look to attract a wider demographic, e.g. families and older population. Lawson has been actively promoting healthier options to meet the changing needs of the country’s ageing population. It previously setup a pop-up store, for example, offering healthier meals and nutritional advice. On an increasingly number of products, the retailer is using calorie-count labels on the packaging.

Several existing Lawson stores sell over-the-counter drugs without prescriptions via partnership with Qol Co. Similarly, some FamilyMart and 7-Eleven stores sell medicines and offer pharmacy-style advice. With drugstores increasing their food offer, competition between drugstores and convenience stores will continue to intensify.

Other recent developments...

Lawson (in Japan) is preparing to enter financial services, using its existing network of more than 13,000 ATMs nationwide. Having recently submitted an application to the Financial Services Agency, Lawson Bank has now been granted a license to start the business in October. The announcement follows similar moves by Seven & i Holdings and AEON. These retailers can use their vast store networks to provide financial services to support shoppers living in more rural areas, where conventional banks may find difficult to sustain operations.

In China, Lawson has partnered Xianfeng Fruit, a Chinese fruit brand, to open a new concept store in Hangzhou. The store operates 200 sq m, with the fruit section taking up a quarter of this space. The joint venture maximises the strengths of two companies: Xianfeng Fruit takes responsibility for the supply chain of fresh fruit and Lawson with store operations.

In Thailand, Saha Lawson, operator of Lawson 108, has introduced QR code payments via the K Plus app its stores across the country. The retailer revised its 2020 target earlier this year.


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