Don Quijote launches Lidl-style chain to attack convenience stores

Dec 14

Don Quijote, the country’s largest discount chain, is launching a new format designed to take on convenience stores and mini-supermarkets. Using know-how gleaned from its acquisition of Nagasakiya, it is confident it has solved the problem of food distribution, but will also sell apparel, toys and electronics too. The idea looks like a small version of Lidl, and original enough to appeal to the growing number of price conscious suburban shoppers.

Japan’s largest discount retailer is entering the convenience store market. For Don Quijote (commonly called ‘Donki’ even on its own website) it is a move that has surprised many, particularly given the high level of saturation in convenience stores already, not to mention the huge departure from Don Quijote’s standard format. An initial trial in 2008 didn’t work out, but having acquired Nagasakiya, Donki has since made significant headway in food distribution, introducing foods at many of its larger stores, and is now ready to do the same in small formats.

The first store opened in June 2013 under the name Kyo Yasu Do Big Conbini (literally Amazingly Cheap Emporium Big Conbini), with the fourth added at Umejima Station in Tokyo’s Adachi Ward in mid-October. The stores are between double and five times the size of a standard 100 sqm convenience store – the one opened in Omiya in August is 650 sqm. In addition to the usual processed foods, liquor, daily goods and cosmetics found in standard convenience stores, Kyo Yasu Do also carries apparel, electronics and toys. Don Quijote has done away with its characteristic narrow aisles and jumbled shelves in favour of clear merchandising and ranked displays.

It is the difference in merchandising, coupled with Don Quijote’s usual low prices and convenience, that it believes has significant potential, directly attacking the very standardised format and pricing of the major convenience store chains. Kyo Yasu Do is a unique format, and one that may well appeal to price conscious consumers. Senior spokesmen are comparing their idea with German chains Aldi and Lidl as a small footprint, deep discount neighbourhood retail concept.

Kyo Yasu Do is less low priced supermarket – that role still remains solely with the Lawson 100 format that sells even fresh groceries for ¥100 – and more a neighbourhood discount store with a heavy processed foods appeal, overlapping with standard Japanese convenience stores. It even matches Seven Eleven’s counter foods by the till with its own cheap popcorn (curry flavoured too, of course), coffee and draft beer. Although the merchandise flavours might be different, there are indeed strong similarities to some Lidl stores in Europe, and certainly nothing similar run by other major chains in Japan.

The locations chosen in central Tokyo are likely to impact on small supermarkets, notably the Mai Basuketto chain, for which Aeon has high expectations. Don Quijote’s sales of food have grown rapidly since acquiring Nagasakiya, a rehabilitated company that was the first high profile bankruptcy in the retail industry back in the mid-1990s. According to one analyst, Don Quijote was already a top 15 food retailer in FY2013, with all of its newly opened large stores now selling fresh foods. It has built enough scale in terms of food distribution to warrant a major rollout of new stores, while keeping distribution costs low. The first 10 Kyo Yasu Do stores will open over the next year, mostly as an experimental format, and until there are 100 or more stores in operation nothing is certain, but given consumers’ concern with prices, especially for FMCG and other commodity goods, the new format has the potential to become a real challenge to what Aeon and Lawson are trying to achieve in supermarkets.

Current convenience store chains continue to aim largely at their traditional market of high income working singles, and struggle to increase the number of female or older shoppers despite significant efforts. Don Quijote thinks it can appeal directly to these growing markets, beating rivals both on price and originality of merchandise.