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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.
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.
Japan's four largest retailers, Seven & i Holdings, FamilyMart UNY, AEON and Lawson, have posted their results for the first half.
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 increase in demand for take-home meals, it continued to focus 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 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 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 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 [...]”
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 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."
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.
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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Japan's four largest retailers, Seven & i Holdings, FamilyMart UNY, AEON and Lawson, have posted their results for the first quarter.
Seven & i recorded a 6.6% increase in total group sales to JPY2,851bn (US$25.6bn), with operating profit rising 2.7% to JPY86.3bn (US$774.7m) year-on-year for the three months ending 31 May.
Domestic convenience store operations recorded a modest increase in revenue, up 2.5% yoy to JPY233,890m (US$2.1bn). 7-Eleven Japan's key growth measure, existing store sales, increased 1.3% in the first quarter. The expansion of the frozen food sales area has led to a 28.2% yoy increase in sales for the category. The retailer added 125 stores to its in convenience network in Japan, reaching 20,385 outlets.
Revenue from operations at 7-Eleven Inc (U.S and Canada) increased 32.5% to JPY609,269m (US$5.5bn), driven by strong fast food, processed food and gasoline, sales even when the effect of the Sunoco acquisition is excluded.
Consolidated revenue for Seven & i's superstore operations were flat as it continues to reform this part of the business.
FamilyMart UNY posted a 2.0% rise in operating revenue to JPY316.5bn (US$2.8bn), with operating profit up 7.8% to JPY20.3bn (US$182.2m) yoy. This was mainly driven by improved daily sales at converted convenience stores and cost reductions that have followed the closure of unprofitable stores. The retailer ended the first quarter with a total network of 24,002 stores, down 522, as it continues to consolidate its operations in Japan.
FamilyMart UNY has continued to focus on brand conversion and integration. As of 31 May, FamilyMart had rebranded 3,973 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, expanding the number of items from approx. 3,000 to 5,000 and establishing Don Quijote-style product displays.
In the general merchandise store business, the retailer adopted 'New Uny' as its slogan. This aims to provide shoppers new value, with the retailer promoting new store formats and new merchandising displays. The retailer converted six UNY stores to Mega Don Quijote UNY stores. Early signs of these stores have been encouraging.
FamilyMart's largest overseas market, Taiwan, continued to perform strongly with operating revenue up 6.6% to JPY15.8bn (US$140.6m) in the first quarter.
AEON has posted a 1.8% increase in operating revenue to JPY2,104bn (US$18,9bn), with operating profit rising 8.2% to JPY39.6bn (US$352.2m) for the first quarter yoy. Operating revenue at both its General Merchandise Store and Supermarket operations were largely flat.
Operating revenue from operations in Japan increased 1.0% to JPY1,910bn (US$16.9bn). Growth was much stronger overseas, however, with revenue rising 11.7% to JPY92.1bn (US$819.3m) and 11.0% to JPY72.8bn (US$647.6m) for ASEAN business and China respectively.
AEON's Health & Wellness Business, which operates under Welcia Holdings Co., Ltd. continues to perform strongly. Operating revenue increased 13.4% to JPY193.8bn (US$1.7bn), supported by the addition of 60 new stores during the first quarter (total network 1,753), as well as 5.4% LFL sales growth in existing stores.
Lawson recorded a 22.0% decline in operating profit to JPY12.6bn (US$112.1m), but a 7.1% increase in operating revenue to JPY170.5bn (US$1.5bn) for the three months ending May 2018. FY2018 marks the third and final year of the retailer's '1000-Day Action Plan', which aims to ensure future sustainable growth.
In the first quarter, existing-store-sales fell 2.6% yoy, driven by a reduction in customer number, ticket and gift-card sales. The Lawson Group increased its network by 386 stores in the first quarter, with expansion mainly in Japan (net increase of 222) and China (net 157 stores), reaching a total network of 14,214 and 1,580 stores respectively.
Consolidated operating profit is expected to decline through the fiscal year, with the retailer committed to investing in its next-generation convenience-store model. It is improving productivity by building next-generation systems, launching smart phone payments and preparing to enter financial services. To appeal to both working men and women, it launched Lawson Fresh Pick in around 200 Lawson stores in March. This service allows customers to order meal kits via smart phone in the morning and pick up their order from a Lawson store in the evening.
The Big Four face similar challenges in their home market, a shrinking population, falling household spending and lower customer numbers visiting stores. While overseas performance may show stronger growth, maintaining steady performance in Japan is vital, as the proportion in value terms still accounts for a significant proportion of total sales.
Japan's third largest convenience chain, Lawson, has announced that it will end home delivery service on 31st August.
Japanese conglomerate AEON has opened a second mall in Cambodia.
Costco Japan has announced plans to launch an online store next year.
Lawson Fresh, a members-only online portal will end home delivery amidst rising costs for Lawson to maintain the service. Launched in 2013, the service carries over 13,000 products, including fresh food, grocery items and heavy and bulky products. Delivery was free on purchases over JPY5,000 (US$45) in greater Tokyo. Regional shipping charges ranged from JPY540 to JPY1,620.
Lawson will continue to offer in-store pick up for fresh food. However, it will expand the number of locations from 200 to 2,000 this year for greater coverage. Customers will be able to order products online and pick up late afternoon of the day of ordering.
With falling customer numbers visiting stores, encouraging customers to use in-store pick up is a cost-effective solution to trade online and make the most of its strong store network. Furthermore, it should help draw more customers to physical stores, and sales from store pick-ups will be credited to franchisees.
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