Sunkus loses another 100 stores

Circle K Sunkus is looking increasingly shaky. Owned by Uny Group, the chain used area franchises to expand rapidly in the 1990s, giving branding rights to companies with geographical exclusivity. Many of these contracts are now coming to an end and a growing number of franchisees are switching allegiance to one of the larger players. The latest defection by Sunkus Keihanna in Kansai is the biggest so far, but more are expected.

Circle K Sunkus, the number four convenience store chain, is floundering. Over the past 18 months, several area franchise operators have defected to other banners, and in March a large operator of more than 100 stores switched contract to Lawson. While previous defections have been in the regions, the latest change over is in the important market around Kyoto and Nara. With the contract period coming to an end and competition in the sector increasingly fierce, local operators are choosing to move their businesses over to the larger banners, particularly Lawson’s multi-format stores.

Sunkus Keihanna was contracted to Circle K Sunkus until October 2014, but the company has elected to end the agreement early and a few stores in central Kyoto have already closed temporarily to be refitted to the Lawson model. Lawson is already dominant in the Kansai region, operating around 2,600 stores in the main prefectures there. The companies are now in discussions over the 19% stake that Circle K Sunkus holds in the Sunkus Keihanna operating company.

Today, Circle K Sunkus operates around 6,300 stores nationwide, but it has the most dispersed management structure with more area franchise partner companies than any other chain. The larger chains operate just a small number of area franchises, although it is increasingly common for franchisees to be companies operating groups of stores rather than individual stores operated by a single owner-manager. In those cases, however, the company is not given geographical exclusivity.

The Circle K banner remains strong around Aichi, where its parent company Uny is dominant, and directly run Sunkus stores are popular in Kanto, but nationwide the larger three chains have close to 75% of the entire market. As number four, the Circle K Sunkus is under increasing pressure. Its current daily sales per store, the main measure of convenience store performance, stand at around ¥467,000, compared to ¥670,000 at Seven Eleven and ¥540,000 at Lawson, with the gap continuing to widen. Suppliers are less and less confident about dealing with the smaller chain, further undermining franchisee loyalty.

The Sunkus Keihanna switch is the biggest so far. In 2011 Sunkus lost a Toyama company, followed by further defections by area franchises in Chiba in 2012 and in Kagoshima last August, all three switching to Lawson and taking with them 110 stores in total. Two more franchisees have switched to Seven Eleven in the same period, and other area operators are rumoured to be in negotiations to get better terms. More defections are expected this year as a result.