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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.
We round up the latest trading updates and news for Japan's four largest retailers, Seven & i Holdings, FamilyMart UNY, Lawson and AEON.
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."
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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