Seiyu is again taking a lead in the FMCG sector. Two years after shocking the industry with price cuts on basic goods, causing rivals to complain bitterly about excessive competition, the US owned chain announced more price reductions in April. In addition, it is now preparing to better leverage Walmart’s global supply system, bypassing Japanese trading houses and other routes to reduce costs and so offer even lower prices, even on some vegetables and fruits.
Walmart has been operating in Japan for more than 10 years, but it is only just beginning to leverage its global reach – perhaps the one factor that really sets the company apart from domestic rivals. From later this year it plans to expand use of its global supply chain, a daunting prospect for rivals in the sector.
The company has been importing apparel items since soon after it began working with Seiyu back in 2002, including the popular George apparel brand from Asda in the UK. Recently it expanded direct imports to include Walmart own brands in household items, mostly brought in from China, and in 2012 caused more worries in the supermarket sector when it began direct imports of US beef, selling at 30% below average prices at the time.
Now, from the end of the year, Seiyu plans to begin direct imports of fruits and vegetables sourced from all over the world. In the first instance it will concentrate on fruit and veg from China and South America, and wines, sweets and seasoning from Europe. It will also increase the number of Asda own food brands sold in Japan, and introduce frozen bread lines. Initial plans include importing potatoes, onions, oranges and pineapples, all staples in Japan and all items local consumers are used to buying as imports. A lot of imported fresh produce is currently supplied to the supermarket sector by trading houses, so by sourcing direct Seiyu says it will reduce costs ‘significantly’. The business will also exploit Walmart’s preferential rates with shipping and container companies, reducing transport costs to around 20% below those charged by trading houses.
A large chunk of these savings will be passed on to the consumer. Seiyu’s stated aim is to expand awareness of its Every Day Low Price (EDLP) policies among consumers, reducing prices on basic, popular lines. Even in Japan it aims to be the price leader in the market.
The news comes just a month after Seiyu introduced the most comprehensive customer satisfaction guaranteed policy ever seen in Japan, pledging to reimburse customers for any complaint, even after a food item has been eaten. The idea is to encourage both its own and suppliers’ employees to improve levels of quality and service.
Seiyu also continues to announce aggressive price cuts. Since 2012, it has implemented five rounds of price reductions across hundreds of SKUs in its range. Given customers’ current worries over prices, rivals Aeon and Ito-Yokado announced static prices and some reductions across own brand ranges even after the consumption tax increase. In April Seiyu went one better, cutting prices compared to March by an average of 7.2% on 400 SKUs across the 373 store chain. Unlike rivals’ own brand price reductions, however, Seiyu’s include leading brands like Itoham, Calbee and Kao. Aeon, Ito-Yokado and others will be loath to start another round of intense price competition, but Seiyu may actually be doing the big domestic players a favour. Right now, nothing will attract customers more than reduced prices, so, even though margins may suffer, aggressive pricing is one way the larger companies can really make progress in the coming 12 months.
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