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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.
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.
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.
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.
We have already seen some of the leading convenience operators, e.g. Lawson launch new style checkouts in recent years. This latest announcement should help accelerate the roll-out process announced back in 2017. The technology will help drive in-store effencencies, automate the check-out/payment process and support dynamic product pricing and advertising.
We round up the latest trading updates and news for Japan's four largest retailers.
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.
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 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.
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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