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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.
We review Seven & i's retail outlook over the next five years and the key markets to watch, as it continues to expand around the world.
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 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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7-Eleven is testing trial facial recognition payment at one of its stores in Tokyo this month.
7-Eleven will open a pilot store in collaboration with NEC. The store will be approx. 10-20 sq m and will only serve NEC Group employees. To access the store, staff will need to preregister themselves. They will then be able to enter the store by scanning their employee ID or be authenticated by a facial recognition system. To checkout, shoppers will need to scan the bar codes of products and identify themselves in the same way as before. Payment will then be deducted from the salary of the individual.
Last month, we outlined how retailers across Japan are facing increasing challenges to hiring staff at their stores. Retailers are therefore using automation and technology to drive in-store efficiencies as part of the solution. The retailer's latest initiative is small in scale and restrictive, but could be the first step towards introducing more unstaffed stores in the future. It could be rolled-out to new stores, for example, dedicated to shoppers from selected companies to service office and factory workers. While the pilot store will have no cashiers, staff members will be on hand to place orders and stock shelves
Unstaffed 7-Eleven stores in other markets, such as South Korea and Taiwan, operated by area franchise partners already exist. These unstaffed stores are more typical in size and product range relative to other 7-Eleven stores in the network.
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South Korea’s FTC (Fair Trade Commission) approved a set of voluntary rules agreed by convenience store operators to better protect struggling franchisees.
Five members of the Korea Association of Convenience Store Industry, CU, GS25, 7-ELEVEN, MINISTOP, C-SPACE and Emart24, came up with a voluntary agreement to curb excessive competition.
A key centerpieceof the agreement is that stores of rival brands should be at least 50 metres away from each other. This is the first time the convenience stores have set the minimum distance since 2000.
FTC’s approval will see the voluntary agreement to be applied to to 96% (38,000) of convenience stores nationwide.
The number of convenience stores has risen sharply to at least 40,000 last year, driven by an increase of single-member and two-people households.
Kim Sang-jo, chairman of the FTC, said the regulations could ease saturation and prevent reckless new openings in areas where there are already many existing stores.
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Quarterly revenue improved by 1% from previous year.
7-Eleven Malaysia reported third quarter earnings of MYR568.5m, driven by its increased store network, a higher average spend from shoppers and targeted promotion activities. The improvement in sales revenues also boosted net profits by 4.1% to MYR16.8m.
Moving into the end of the year, the retailer foresees a sustained momentum and expects trading as well as gross margins to improve further. This will be achieved through a focussed execution of key strategies.
It is targeting to boost sales of private label products by increasing the range and assortment. The other focus for 7-Eleven is developing its fresh food category as well as rationalising its existing product portfolio to maintain a profitable product mix.
Colin Harvey, CEO 7-Eleven Malaysia said, “We expect to see further improvements in the next quarter by pursuing our core strategy pillars of operations excellence, cost management and commercial innovation. I look forward to the challenges ahead in ensuring that 7-Eleven Malaysia remains the customers first choice convenience store.”
Find out more information Seven & i Holdings here.
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