Lawson to expand drugstores

Jul 15

Lawson is set to expand its directly operated drugstore business. With all major convenience store players expanding into the same area, Lawson will add both more franchise partners from existing drugstore chains and convert around 500 of its own convenience stores to drugstores, as well as open new, directly operated Lawson Drug outlets.

Lawson, the number two convenience store chain, continues to diversify into new formats with further expansion of its fledgling drugstore interests. Lawson has a small but so far largely ineffectual tie-up with drugstore leader Matsumotokiyoshi. It also began working with another major chain, Qol, last year, making Qol a corporate franchisee and helping in the development of hybrid stores run by Qol but using both companies’ banners.

Lawson now plans to expand the range of drugstore related items sold through a new concept based on its core convenience store chain. The new store will carry more toiletries, daily household items, cosmetics and some drugs. Total SKUs come to around 5,000, about double a standard Lawson store, meaning the format is suitable for larger stores. An early trial store operates at Yujima Station in Tokyo’s Bunkyo-ku. The store was refitted in October last year and has since increased its daily sales by 50%, enough to convince Lawson the format is ready for wider rollout. It now plans to have 500 similar stores within three years.

Lawson signed its deal with Matsumotokiyoshi back in 2009, establishing a jointly owned subsidiary with a target of 100 stores within three years. The deal has floundered badly, however, as the two companies are wary of a new format that encroaches on each other’s space. Only three hybrid stores have opened during its five year lifetime. Lawson says Matsumotokiyoshi’s expectations were unrealistic, with the two companies failing to find common ground on operational areas such as pricing and logistics.

The opportunity for all the major convenience store chains to expand drugstore and related operations is clear, however. Seven & I has its own small chain under the Seven no Bi banner in a joint venture with Ain Pharmaciez, while Familymart has almost a dozen area franchise agreements with drugstore chains in regional markets. In both cases current coverage remains small, but both are looking to increase the pace of expansion. Lawson is the first chain to announce that it plans to convert existing stores to drugstore formats and go it alone in terms of supply and merchandising.

It will continue to expand area franchises while at the same time converting Lawson convenience stores to the new format. Of the first 500 stores planned, 150 or so will be with area franchisees run by existing drugstore chains, similar to the ones operating through Qol. With these included, Lawson hopes to have 3,000 stores offering drugstore or drugstore-like services by 2018. Currently, of the 16,000 stores in Lawson’s chain, only the 100 operated by current franchise partners offer drugstore ranges.

Arguments over online drug sales continue

New regulations came into effect in early June banning sales of a small number of over-the-counter (OTC) drugs to all but the final end users – mothers can no longer buy some drugs for the kids and men can’t buy menstrual pain relief for their partners. The move is widely seen as yet another political response to calls by retailers and Rakuten for the complete opening of OTC drug sales online. This lobby won a major victory last year when the supreme court ruled the government’s refusal to deregulate online OTC sales to be unlawful.

As a result, OTC drug sales are now legal – Aeon, Ito-Yokado and Bic all began sales of OTC drugs online last month. But 20 SKUs, 0.2% of the total, remain banned. This tiny number is seen by the traditional lobby as a buffer, forcing further debate over OTCs rather than moving on to the dreaded opening up of prescription drug sales online. The same lobby claims opening up the prescription market would lead to excessive prescription use, although fear of the larger, more efficient distributors muscling into their profits is far greater. The battle is an important one. While the OTC market is a mere ¥600 billion, the heavily protected prescription drug market is estimated at ¥10 trillion and growing fast.

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