Aeon to consolidate supermarket interests, create new Kanto chain

Having announced a consolidation of drugstore interests back in March, in May Aeon said it plans to establish a new operating company for three of its main supermarket interests in Tokyo, with other Kanto companies joining in later phases. While long expected, the news brought a flurry of speculation as to future moves. An openly consolidated structure not only challenges Seven & I in the capital, it also signals a new push by Aeon to grab market share. There’s even talk of Uny becoming a takeover target.

Aeon is set to consolidate its manifold supermarket interests in Kanto. Aeon grew through merger and acquisition over the past 50 years, entering new regional territories by creating ties to existing businesses. Since the 1980s, it has also used M&A to diversify out of its core GMS chain. Today, in addition to being Japan’s largest retail group with more than ¥6 trillion in sales, parts of Aeon’s operations collectively account for the highest share in drugstores (see Focus, Page 12), shopping centre development, private brands, and supermarkets. In each case, this share is masked by a variety of banners, brands and subsidiaries, and until now the only brand unification has been through its Topvalu private brand merchandise range.

That is all set to change. In March, Aeon announced the beginnings of a consolidation across its drugstore interests. In May it followed this with the long awaited announcement that it would combine operations of three of its main supermarket operations in Kanto into a new supermarket subsidiary, working under a yet to be established holding subsidiary jointly set up in partnership with Marubeni.

Aeon’s main supermarket banner, Maxvalu, is used by seven regional subsidiaries, each operating independently. In Tokyo, in addition to Maxvalu Kanto, Aeon’s interests include Maruetsu, Mai Basuketo and A Colle, as well as multiple affiliates such as Kasumi, Inageya and Belc. It recently acquired the Peacock Stores chain from J Front, as well as Daiei, which adds both the Big A and Gourmet City supermarket banners. In the past six months large, purple ‘Aeon’ signs have suddenly been added to many of these various store fronts, the first indication of the shift to uniform branding.

From next year, Maxvalu Kanto, Maruetsu and Kasumi will merge into a new operating company designed to remove duplicate logistics and back-room services. The new business will be established in conjunction with Marubeni, the joint owner of Maruetsu – possibly in order to placate Marubeni and give access to its supply chain and other retail interests. Marubeni will own just under half of the combined company, with Aeon the majority stake. In later phases of the project, Aeon is expected to add other major supermarket interests in Kanto, including both Inageya and Belc, and Marubeni is likely to add Tobu Stores and possibly Sotetsu Rozen too.

By the end of FY2013, Maxvalu Kanto, Maruetsu and Kasumi together operated 470 stores and had total sales of ¥587 billion. By combining with other chains and new acquisitions, Aeon expects to expand to more than 1,000 stores and sales of ¥1 trillion or more by 2020.

Some analysts see the move as part of greater efforts to compete with Seven & I Holdings, the only real rival left for Aeon. Aeon is dominant in food and FMCG in several regions, with a market share approaching 20% in both Hokkaido and Kyushu already, but in Kanto Seven Eleven and Ito-Yokado give Seven & I a lead. The acquisition of Daiei, Peacock and greater control over Maruetsu all give Aeon a chance to catch up in the capital.

Aeon has been increasing investment in Ministop, its own convenience store, but it is unlikely to match Seven Eleven in scale given the format’s saturation. The growth of small format, fresh food retailing is, however, a major opportunity (see Page 5),now that populations are ageing, shrinking in number, and younger people are choosing to forego marriage and live alone. Aeon has already expanded Mai Basuketo, a small footprint, inner city supermarket chain that CEO Motoya Okada recently suggested began merely as a project to indulge a favoured senior manager. Mai Basuketo opened its 500th store in Tokyo this year, but it is only just beginning to break even. It too plans to have 1,000 stores by 2018.

As of FY2013, Aeon’s entire supermarket interests, including affiliates, accounted for 20 companies with sales of ¥1.5 trillion. The group as a whole will look to double this figure in the next 10 years, including yet more consolidation and amalgamation of operations.