Aeon to make Daiei a supermarket, may scrap Daiei brand

Jul 15

Aeon has announced plans to turn Daiei into a supermarket chain, handing over the recently acquired chain’s regional GMS outlets to other Aeon businesses. With every expectation that Aeon will turn Daiei into a majority owned subsidiary in the next 12 months, the chain’s new major shareholder is keen to reposition Daiei and make it work effectively with other assets in the Aeon Group.

At the end of May Aeon announced some clear directions for Daiei, its new major acquisition. Aeon is expected to boost its stake in Daiei to above 50% to make the 11th largest retailer in the country a majority owned subsidiary in the near future. This means re-positioning the Daiei brand to complement existing retail operations within the Aeon Group portfolio. Although Aeon has acquired numerous companies in the past, including other large scale acquisitions such as Mycal, turning these ailing companies around has been slow due to encumbant senior executives, but with Daiei Aeon is keen to get a return sooner rather than later. It is faced with revamping a company that has made major losses in each of the past six years and has not made any significant profit for more than a decade.

Daiei will change in two ways. First, Daiei stores will be concentrated in Tokyo and Kansai alone. Regional stores, notably those in Hokkaido and Kyushu, will be taken over by other parts of Aeon Group. The aim is to consolidate Daiei’s supply chain, create a clear operating area, and then market heavily into these areas to revive the key brands in Daiei’s portfolio once again.

Indeed the Daiei brand may well disappear altogether. The strongest banners within the chain are Gourmet City, a standard, large format supermarket located mostly in Kanto and Kansai, and Big A, a discount supermarket chain with stores entirely in Kanto. Aeon has already said it will concentrate on these banners.

Secondly, and more significant still, since some 70% of Daiei’s turnover comes from food, the chain will now be focused on this category alone. Although it was the first company in Japan to open mixed merchandise GMS stores back in the 1960s, it is likely that the format will now disappear, along with the Daiei brand itself. The number of cases where acquirers have killed off brands is increasing – Aeon has done it before with the Saty brand for example.

The supermarket operation will receive an immediate injection of Aeon’s Topvalu private brand ranges, helping further expand sales volumes for Aeon brands. Daiei’s Kanto and Kansai supermarket operations will be consolidated along with the Peacock Store chain recently acquired from J Front Retailing, and both banners are likely to join the newly announced supermarket alliance that Aeon is planning to establish with Marubeni next year, which includes Maruetsu, Kasumi and Maxvalu Kanto in the first instance.

With Daiei now in the mix, Aeon’s total supermarket sales in Tokyo and the surrounding prefectures run to around ¥1.5 trillion, three times the size of the largest independent supermarket chain Life, and bigger than any other rival by a long way.

Since the announcement of the new alliance last month (see JC1406), a few insiders at Aeon have begun to leak weak protests at the plan. Aeon has grown through M&A over the past 30 years, with many senior management teams remaining in place long after merger. The move to consolidate these many brands is not a popular one among the senior staff at these different chains, who are now expected to work together for the first time, and who can clearly see that their own jobs will be in jeopardy. In contrast, Daiei is in such need of reconstruction and new direction that Aeon can step in immediately and take full control with little if any internal opposition.

Aeon is far from being heavy handed in its new approach to Daiei or indeed any of its supermarket businesses. The consolidation of these various food chains is long, long overdue. The issue is no longer whether acquired companies can keep their independence and long-term senior management hang on to their jobs, but more about how Aeon will break through such barriers and establish itself as the retailer it should now be. Once it gets started in earnest, the real entertainment will be in seeing how rivals react.

Daiei begins pick-up service for net super orders

In a move that remains surprisingly unusual in Japan, Daiei has announced a store pick-up service for orders through its net super operation. This is an idea quite common for convenience stores, and many online supermarket operations overseas offer in-store pick-ups, but there are few examples in supermarkets in Japan. The new service will be launched at the Daiei Kanayama store in Nagoya that opens on 25 July. Daiei will rollout the service to around 25 other stores by the end of the year.