While GMS chains are still larger by sales volume, convenience stores continue to make the greatest progress in the FMCG sector. Last month saw a range of announcements of yet more sales growth, new private brands, and other marketing initiatives.
The Japan Franchise Chain Association (JFCA) recorded convenience store (CVS) sales up 1.6% in May at ¥788.4 billion for the sector as a whole, the second consecutive month of sales growth. Higher than average temperatures helped sales of beverages and ice cream, while sales of so-called ‘counter coffee’ continue to grow at the major chains. Lunch boxes (bento), deli items and packaged foods were also up, with only non-food declining – this partly due to the increased emphasis on food by the larger chains.
Same store sales were also up 0.1%, with sales per customer up 1.5%. Most of this is, however, a rebound from the downturn last year, with same store sales overall still lower than they were in the same month in 2013.
Seven Eleven continues to lead sales growth
All of the top five chains achieved increased same store sales in May, and Seven Eleven continues to lead from the front. The chain’s domestic same store sales have now grown for 34 consecutive months. Its Japanese and American chains had combined operating profit of ¥66 billion, 80% of total profit for the entire Seven & I Holdings group, and the only reason group profit for 1Q2015 was at an all time high – the group’s other formats continue to struggle.
At home, Seven Eleven’s innovative merchandise adjustments and new private brand lines continue to draw attention. Last month saw the launch of Ice Cafe Latte, the newest addition to its counter coffee products. Billed as a limited edition item, the latte is jointly branded with Glico and a regular size costs ¥180 – a third of a similar beverage at Starbucks.
Seven Eleven says it has now sold 700 million cups of coffee at its 18,000 store counters since the launch of the service in early 2013.
Seven Eleven also announced a switch from aluminium cans to paper packaging for several of its premium Seven Gold private brand alcoholic drinks last month. Use of the new paper packaging has no effect on product longevity but, the company says, reduces carbon emissions in production by as much as 12% or around 170 tons of CO2 a year, and is easier to recycle.
Familymart expanding rapidly
Familymart also posted record profits for 1Q2015, March to May, up 20% on last year to ¥11 billion and the first new record for three years. Lunch boxes and noodle dishes sold particularly well, and same store sales increased in both April and May, up 5.3% and 2.9% respectively. Sales in 1Q2015 were up 10% to ¥100 billion.
Familymart has copied Seven Eleven by introducing ice cream chest freezers in many stores, with the result that ice cream sold well in the warm May weather. It has also increased the proportion of vegetables in its bento ranges, targeting women looking for healthier fast-food options. It now expects operating profit for the parent company alone to grow 16% to ¥46.9 billion for FY2015 to February, with sales up 10% to ¥411.8 billion.
The chain also continues to expand rapidly, and could well overtake number two chain Lawson sometime this year. As of May Familymart boasted 11,399 stores at home, with another 700 due to open by the end of FY2015.
What will certainly make it the second biggest chain is a merger with Uny Group Holdings – negotiations are ongoing, with an initial agreement due by August. If all goes well, the two groups will merge in September 2016.
Familymart made a number of other strategic and marketing announcements last month too. From this year, it will expand the number of stores that accept the Chinese Ginren card from 250 to 1,250, and from 2016 it will also offer cash withdrawals from its ATMs using overseas credit and debit cards.
It will double the number of stores with in-store eating areas to 6,000 over the next year, shrinking magazine racks and expanding sales areas into carparks to do so. Eat-in areas are popular with families and senior customers during the day, and are often used by commuting workers in the evenings. Ministop and Lawson also offer in-store eating areas, often no more than a tiny counter and a couple of stools, but Familymart has enhanced the idea with special merchandise designed to provide a fast-food restaurant experience. Some stores even have eating spaces above the store.
Familymart has begun to offer the new T-Money service from Convenience Culture Club (CCC) – it is already the largest supporter of CCC’s loyalty point system, T-Card. Users will now be able to spend their loyalty points as cash in Familymart and several other retailers, and new cards will have an option of an e-wallet function similar to that offered through the Edy, Nanaco, Waon and Ponta systems from rivals.
Lawson looks for new avenues to expansion
Although celebrating its 40th anniversary last month, Lawson looks likely to drop to third by sales volume as Familymart expands, but since its IPO in July 2000, Mitsubishi’s canny management has made the chain one of Japan’s retail powerhouses in terms of financial stability.
Since the IPO, Lawson’s market capitalisation has grown from ¥680 billion to ¥810 billion today, making it a similar size to Isetan-Mitsukoshi Holdings. It also has one of the highest ROEs of any retailer at 13% in FY2014, compared to just 7.9% at Seven & I Holdings and a measly 4.2% for Aeon.
Aeon’s links to Mitsubishi, along with the imminent merger between Uny and Familymart, have led some to suggest a likely merger with Aeon, or at least its Ministop CVS chain. In reality, however, Lawson’s emphasis on strong financial performance, not to mention its rivalry with Aeon in the small format food market, means such a merger is unlikely, at least for now.
Since Gen Tamatsuka took over from Tadashi Niinami as CEO, Lawson has acquired Seijo Ishii and United Cinemas, but scrapped an attempt to expand into small format supermarkets. 80% of Lawson’s stores are standard CVS, going head-to-head with the other major players, but the remaining 20% of stores are where its growth and, most importantly, profits are strongest. With the CVS sector now supporting more than 52,000 stores nationwide, this level of diversification is likely to be Lawson’s main hope for growth.
The other potential source of growth is e-commerce. Lawson’s recent tie-up with Sagawa is a major coup. Sagawa will provide direct to door deliveries from each and every Lawson store, as well as provide the last one mile solution for its fledgling efforts in e-commerce. Yamato, Sagawa’s main rival, introduced its own third-party e-commerce solution in May, and Askul has launched a similar service this month, but the Lawson-Sagawa deal is the only fully integrated logistics-plus-retail operation to challenge Seven Eleven’s in-house omnichannel project.
While Ministop might not be the best option, Lawson is certainly open to more M&A deals, and is now actively looking to expand its store network outside Japan. Both Seven Eleven and Familymart dwarf Lawson overseas, with 38,000 (including country franchises) and 5,600 stores respectively compared to Lawson’s 600. Lawson recently opened stores in Indonesia and the Philippines and is actively seeking joint venture partners and even acquisitions overseas to help catch up with rivals. JC
FOCUS: Leading shopping centres upgrade their way to 3.9% jump in sales in 2014-15
November 2015 News in Brief
Rakuten losing in online fashion
Consumer loyalty in Japan: loyalty programmes add value
Seven & I continues major overhaul of GMS and department stores
Lumine plans direct franchises with international brands and retailers
Mobile ads help reach 15 million young women
Itokin and Onward under pressure from changing market