Small city supermarkets: the latest food format begins to take-off

Jun 15

Convenience store expansion has passed its peak and retailers are looking for new solutions for small footprint food retailing. The number of c-stores exceeded 50,000 in November, reaching 50,890 stores in February and then dropping in March. With the exception of sector leader Seven Eleven, all the major chains, along with various supermarkets (see Page 5), have begun to shift away from the standard and ubiquitous 100 sqm, snack food filled store. 

Convenience stores: store numbers and sales performance, 2010-14

Major retailers are looking to expand small footprint food stores. The chain-operated small supermarket format is still relatively new in Japan, operating as a cross between a convenience store and supermarket, and is more suited to densely populated urban environments made up of single households and less mobile, often ageing customers. Lawson has an established business in the format that it is now expanding and diversifying, while other convenience store chains are also interested, partly as a means to avoid competing with Seven Eleven – the one major chain so far showing no interest in the new store type. Aeon and Uny are both active, although neither has the advantage of existing small store logistics that are standard for convenience store chains.

Lawson is by far and away the sector leader. It owns the Lawson 100 discount supermarket chain and today sells fresh fruit and vegetables in 80% of its 6,000 store Lawson chain. While it is the largest operator at present, in many stores the range and display of fresh items leaves a lot to be desired. Finding enough products to make a dinner isn’t always possible. There haven’t been reports of fights over Lawson’s “single banana” as yet, but too often displays look sparse and the stock old.

To improve on this, Lawson has been expanding its interests in directly sourced fruit and veg. In early May it opened Lawson Farm Hyogo on Awaji Island, its first directly operated farming operation in Kansai, aiming for 135 tons of produce a year for supply both to stores and for use in prepared products like salads and okonomiyaki products. The farm is expected to generate sales of around ¥357.5 billion a year.

In March, Lawson opened the first Lawson Mart format in Kanagawa, an entirely new small footprint supermarket. Lawson Mart already has 12 stores open and plans to have 100 operating this year alone – in contrast, Natural Lawson, which opened way back in 2000 as the alternative ‘healthy’ convenience store, still has just 150 stores. Lawson Mart stores are around 200 sqm and stock a full range of supermarket foods, catering to customers living within a 300-500m radius. The early stores are located in areas where there are many senior consumers and are reportedly proving very popular with this segment, as well as with working singles and housewives.

In addition to standard c-store services such as an ATM, Lawson Mart also offers items such as adult nappies and crockery not usually found in convenience stores.

Now other c-store chains are following Lawson’s example. Familymart is aiming to quadruple its currently tiny range of fresh produce. It will introduce cut vegetables and fruits at around 4,500 c-stores between now and July, expanding to the rest of its chain over the next year. Familymart also entered an agreement with Izumiya late in 2013 to jointly develop small footprint supermarkets, with the first opening in Osaka in October. As with Lawson Mart, the new store, called Familymart x Izumiya, offers fresh fruit and veg alongside convenience store services. Progress has been slow, however, with only one more store planned for 2014 at present, possibly due to Izumiya’s recent merger with H2O Retailing.

Circle K Sunkus is also looking at a similar venture. It plans to open its first ‘Circle K Fresh’ store this month. Parent company Uny Holdings meanwhile has its own small footprint store under the Mini Piagio banner. Piagio is an upscale supermarket run by Uny in and around Aichi Prefecture, and there are already 77 Mini Piagio in the Chubu Region. Uny hopes to have 200 stores in operation by 2017.

With the population ageing and more and more women staying in the workforce full-time, the trend towards smaller conveniently located supermarkets will strengthen and spread to all major urban areas. Although in terms of store numbers Aeon is the largest supermarket operator (see Page 7), in operational terms convenience stores have an advantage. When they first opened in Japan in the 1970s, the companies involved reconsidered the entire retail flow, from sourcing through logistics to the actual store format, and built a new system entirely from scratch. Convenience store chains are geared towards small store, rapid supply, whereas Aeon’s systems were made for large store retailing – one of the reasons its Mai Basuketo chain took seven years and 500 stores to reach break even.  For this reason, many expect that current convenience store chains will again be the strongest players in small footprint supermarkets.

Get a concise monthly update on Japanese Consumer Markets – and a FREE copy of our monthly report.