Top convenience chains expect strong 2014, 4,800 new stores

Feb 15

Despite worries in many parts of the retail sector, convenience stores still expect a strong year. All of the top three chains will expand store numbers at home and improve attractiveness through better ranges and marketing initiatives. They will open a record 4,800 stores this year alone.

Leaders in the retail industry have been setting out their plans for 2014. In the convenience store sector, there is a strong sense of ‘business as usual’ following two particularly good years.

All three leading chains, which together account for more than 75% of the market, are planning to continue their breakneck pace of store expansion. Seven Eleven will continue to lead the way in terms of physical store openings, with plans to again outdo the record number of new stores achieved last year. Some 1,500 new stores were opened in 2013, but the coming year will see Seven Eleven move ever nearer to 20,000 stores nationwide with another 1,600 stores, at a cost of some ¥90 billion. In tandem, Seven Eleven will continue to drive the group’s private brand strategy, expanding its hit range of premium products under the Seven Gold label as well as its mass market generic range called Seven Premium (sic).

Given this kind of investment, Lawson and Familymart are looking to keep pace. For the number two and three chains it’s much more about consolidation and chain diversification. Lawson will open more than 1,000 new stores this year, beating last year’s figure of 950, but it also plans to close several hundred, with a total net increase of around 500 stores, roughly the same as last year. It will finally begin a nationwide rollout of its premium sub-format, Natural Lawson, currently limited to around 200 stores, almost all around Tokyo and Osaka.

Meanwhile, Familymart is also planning 1,500 new stores in the next 12 months. All three chains have agreements with drugstore operators to open hybrid formats, but Familymart aims to take a lead in this area. Its strategy is to tie with different drugstore operators depending on region, giving it greater flexibility – although less control over branding. It plans to have as many as 200 hybrid stores in operation before February 2014 if plans go well.

All three chains are also trying to get more out of existing stores. In Seven Eleven’s case, this means new services built on its existing infrastructure. One of these may well be the now anticipated launch of new ‘omnichannel’ integration, allowing online orders to be picked up at Seven Eleven stores or even using the stores as a hub and spoke delivery network. It already has a fleet of electric vehicles to deliver ready-meals to customers living near its stores – 60% of meal service customers are over 60 – and the same infrastructure could easily be adapted for other deliveries too.

For Familymart and Lawson, brand and range differentiation are also increasingly important. Familymart will expand its range of own brands, maintaining a position that is arguably slightly above both main rivals in terms of quality perception. It now plans to introduce a wider variety of unique products in the coming months to further enhance this offer. Lawson, already the leading convenience retailer in fresh food, will expand the number of stores offering fresh produce, and work on issues of shelf-life and product turnaround. Along with the fresh food expansion, Lawson changed its strap line from ‘hot station’ to ‘health station’ last year, and given that convenience store chains are generally the less healthy, fast food retailers of choice, this is a marketing strategy that is likely to do well.

As for the topic of the moment, the consumption tax increase, the leading convenience stores all expect a relatively pain free finish to the year. Although few will escape an initial spending downturn, convenience store chains are now ubiquitous, not only in terms of their numbers across the country, but also as the suppliers of a large proportion of people’s daily food and essentials. They’re easier to access than supermarkets and have ranges that appeal to younger, busier customers. While restaurants will suffer as people tighten their budgets, convenience store chains hope to pick up some of that food market through their prepared foods.

All of which leaves overseas markets. This is the one area where Familymart is in the lead, backed by its very much hands-on parent, Itochu Shoji. It already operates more stores outside Japan than at home, and is forecasting breakeven for its China operations for the first time in 2014. In the past 12 months it has moved the majority of its stores in China to a franchise system, reducing costs and, it says, improving customer service levels. It is now targeting 5,000 stores in the republic by 2020, meaning it is expanding its geographical base with new supply and logistics facilities and new regional partnerships. Lawson too is about to shift from consolidation to an expansion strategy in China, having also taken more direct control of operations there, while Seven Eleven will expand in Beijing with more than 100 stores planned in the next 12 months.