Carbon labeling for Japanese retailers

Nikkei reports that Japanese retailers are working with the Ministry of Economy, Trade and Industry (METI) on a new system to display the carbon footprint of on product packaging. At the moment, the plan appears to be to set up a voluntary system for retailers and manufacturers to adopt, with standardised labeling to show the amount of carbon created in the production, shipping and even the marketing of each item. A panel of advisors will convene from June and will include key retailers like Aeon, Seven & I, Seiyu, and Uny to discuss implementation as well as a way for 3rd parties to verify the veracity of the numbers. Testing of the labeling is planned for later this year with the full launch in 2009. Carbon labeling of supermarket products is currently already being tested in other markets in Europe and the US by retailers such as Tesco.

iPod tax threat replay

The Agency of Cultural Affairs is gunning for Apple again this year, with a new proposal to tax iPod - and other hard drive music player - sales in Japan. The Agency argues that iPod sales should include a royalty fee which can then be distributed to music companies, songwriters and artists. The Agency already imposes a tax on DVD recorders and mini disk players and has already tried once to convince the government of the merits of a tax in 2005 but failed to win consensus. The tax is expected to be around ¥100, which should bring in around ¥1 billion in revenue based on current sales. The move is the result of persistent lobbying by all those hard pressed record companies, and seems to be based on the assumption that most purchasers of iPods and other music players upload music which they have not paid for. Presumably this is the assumption, otherwise it looks like record companies believe consumers should pay twice for the music they buy - once when they buy the CD or downloadable file from a store like iTunes, and again when they buy a new music player.

Uny denies tie to Izumiya

In researching the Uny ties with Auchan, a check on the Uny website revealed an interesting press release. As JapanConsuming went to press at the beginning of May, we dutifully recorded another Nikkei story outlining a new procurement tie-up between Uny and fellow regional major chain, Izumiya. Such a tie-up, as we noted in JC, makes a lot of sense given that both companies are ripe acquisition targets for the increasingly preditory larger firms, both domestic and foreign but especially domestic. Other signs, such as the formal and confirmed tie between Uny and Itochu on the buying side, point to similar concerns.

But the Uny press office issued a short statement on 1 May stating that claims in the press were false and that there were no tie-ups, neither capital ties nor more informal buying ties between itself and Izumiya. Clearly Nikkei, and consequently JC, got it wrong.

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Uny expands tie with Auchan

Japan’s number four GMS chain, Uny, has announced a tie-up with French supermarket giant Auchan to sell European goods in Japan according to Nikkei (Nikkei article). Auchan, which so far has not opened stores in Japan despite operating elsewhere in Asia, has run a wine wholesale business here for some years. Uny will apparently begin buying in a range of wines and chocolates from Auchan, procuring such European merchandise as wines and chocolates in a move that expands an existing relationship.

Uny currently sells 31 Auchan own-branded products on a trial basis at 10 stores in its home market around Aichi. Consumer response has been good and Uny now wants to expand the programme to other stores, moving to full-scale sales of Auchan own brands by the end of the year. According to the report, Auchan is considering a reciprocal agreement as Japanese foods are now popular in France. It is considering selling Japanese condiments, processed foods and other items supplied by Uny.

This type of agreement is not unusual in Japan, but the examples of success are rare and the advantages for the non-Japanese side are limited to a small increase in sales. Very often, imported items like this end up competing directly with local products and even the Japanese produced own brands. In the 1980s, Sainsbury own brands were finding their way into a variety of stores in Japan through various wholesale channels. Marks & Spencer tried several times, lastly with a tie-up with Daiei only to find that their brands only found their way onto Daiei shelves the day that M&S representatives were due to visit, and, despite signing the agreement in the first place, Daiei executives complaining that M&S products were unsuitable for Japan.

More recently, Waitrose products have been prominent in special sales corners of Daimaru Peacock. While not overly promoted, at least they were sold in a format suited to upscale food items. Again, though, it was common to see Waitrose products on discount in Peacock as many neared their sell-by date without purchase. Also today, Aeon is maintaining a good number of Carrefour brands at the eight stores it tookover when Carrefour pulled out of Japan. They compete alongside Aeon’s large range of Top Valu own brands.

With the correct displays and positioning, there’s no reason that the tie-up with Uny shouldn’t be a nice little added sales bonus for Auchan, and with Uny now increasingly desperate to position and improve itself before it becomes the subject to takeover, there’s every reason to suppose that Uny could make the full use of Auchan own brands.

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Mitsukoshi Isetan’s new Osaka store to have Isetan name

As predicted in our April newsletter, there will be some major rebranding in the Mitsukoshi and Isetan portfolio of stores. The newly merged group of Isetan Mitsukoshi Holdings Ltd is to open its department store in Osaka in 2011 under the double branded Mitsukoshi Isetan name, rather than the initially planned Mitsukoshi brand. More significant is the fact that the new store will be managed by JR West Isetan, the joint venture company run by JR and Isetan that currently manages the JR Isetan store in Kyoto. In effect, it will mean current Isetan managers will be in charge of the new 50,000 sqm Osaka store which is forecast to have sales of ¥55 billion. This is perhaps not surprising; JR West Isetan has performed strongly, with sales growth for the last 10 consecutive years.
The use of the Isetan name will likely give a more competitive edge to the new Osaka store, and lure fashionable customers more easily, a necessity given the new competition from the recently opened Hankyu Mens Kan. In addition Hankyu will reopen its Umeda flagship store in Osaka in 2011 after a complete rebuild making for an intensely competitive local market for department stores. However the use of the double name is a compromise; Isetan executives were pushing for the store to be an Isetan store but were forced to concede the double name to help save face for Mitsukoshi. The saving of face could however end in a greater embarrassment if they fail to make the positioning clear and just end up confusing both Isetan’s more fashionable target and Mitsukoshi’s older customers.
The new double name is significant and may provide a compromise elsewhere; as reported in our monthly report, there was speculation that the new company would change the name of the Mistukoshi Ginza store to Isetan Ginza following a complete rebuild in 2010 but that there was still resistance from Mitsukoshi. A change to Mitsukoshi Isetan Ginza may provide the answer if an inelegant one.
On April 1, Mitsukoshi and Isetan integrated their managements under Isetan Mitsukoshi Holdings, creating Japan’s largest department store group in terms of annual sales.

Technorati Tags: Department Stores, Japan, JapanConsuming, Mitsukoshi Isetan

Starbucks going strong in Japan

Starbucks is reporting a parent only pretax profit up 33% to ¥6.85 billion for FY2007. Sales of the chain’s new ranges of breakfasts and healthier food options have, apparently, been the main drivers for the increase. This is also the fourth straight year of profit growth and beast the original forecast of a 28% increase. Better than expected prices on materials and lower shipping costs due to increased local sourcing of some supplies all helped with the increase in profit.

Sales were up by around 14% to ¥90 billion, again higher than expected by some ¥400 million according to one report. Same store sales also outperformed the sector as a whole, up 2% on last year. At the same time, customer traffic was actually down, with competing chains taking away some custom and with the beginnings of brand-saturation even in Japan. Basket prices, or at least ‘tray prices’ were up, however. Starbucks also opened 97 new stores in FY2007 after planning for 90 new outlets. New locations include Starbucks inside hospitals, road side service areas, and a return to a previously less successful rollout of suburban stores.

Nikkei reports that operating profit is up 35% to ¥6.8 billion, beating the company’s forecast by ¥350 million. The newspaper also suggested that Starbucks’ forecasts had been a little conservative as the chain was factoring in rising coffee bean prices.

Starbucks Japan’s gross profit margin is estimated at 71%, almost unchanged from the previous year.

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Aeon Bank coming to JR Stations

Following on from its tie-up JR East, Aeon has now done a deal with JR West to replace the railway company’s network of ATM cash dispenser machines to Aeon Bank’s own. The machines located inside rail terminals across the Kansai area will bring some excellent locations for new Aeon ATMs as well as provide a further boost to the numbers on its network.

The new in-station ATMs will be rolled out in 27 locations across 19 major stations in the Kansai region, with both Kyoto (including four machines) and Shin-Osaka stations already open.

Last month, in addition to new ATMs in much of its GMS and supermarket chains, Aeon began introducing Aeon Bank ATMs in its Ministop convenience stores. In most cases, this too represents a switch from the E-net system used by most convenience stores other than Seven Eleven and Lawson. Aeon says it is on target for 20,000 ATMs in operation by Spring 2009, which will make it one of the biggest ATM operators in the country.

As of the end of March, Aeon Bank already had 1,175 ATMs installed along with 27 in-store bank branches. These spread over 827 different locations in total, and covered every prefecture in the country with the exception of Okinawa

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Aeon to make CFS demands

As predicted in JC February, and as vehermently denied by Aeon at the time, Japan’s largest retailer is to make and approach to affiliated drugstore chain CFS to raise its stake from the current 15% to a controlling 33%. This would formalise the affiliation and give Aeon practical control over all CFS operations.

CFS has spent the past two years fighting to get the original 15% stake returned following its overdue realisation that being part of Welcia’s Drugstore Alliance was not such a good idea if it wanted to maintain its independence. It found that other members of the same alliance frequently competed for locations and that as merchandise was also largely similar across alliance members, sales cannibalisation between alliance members was a major problem. Equally, while legally independent, Aeon’s expectations for the company were far from hands-off.

This was all confirmed in January when a plan to merge CFS with Ain Pharmaciez was overwhelming overturned by proxy vote of CFS shareholders organised and forced through by Aeon. Following the vote, Aeon not only hinted that CFS management should resign, it also recommended sweeping changes in strategy. At the time, fearing even more loss of face, however, Aeon denied that it would move to take over CFS entirely.

That position, if it ever were true, has now changed. Kenji Ishida, the company president who set up the merger with Ain and who has led the company throughout its fight with Aeon, has been removed by the CFS board, opening the way to Aeon to initiate the take over. All that needs to be decided is whether Aeon will increase its share from the 20% stake held by founding family members, but, again, this seems the inevitable conclusion.

CFS posted a net loss for the year through February 2007 and certainly needs to do something, so acquisition by Aeon seems a foregone conclusion, but it is a result that tarnishes Aeon’s long protected image as Japan’s white knight haven for companies under the threat of acquisition from elsewhere. It may still be the government’s first choice to bailout any larger supermarket that may end up in bankruptcy, and foreign acquisition threats could still force smaller companies into Aeon’s hands, but it is sure that, at least in the drugstore sector, regional chains will think twice before handing over small stakes in return for an Aeon alliance.

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