Convenience stores aiming to be default for online delivery

Nov 02

Japan’s network of 55,000 convenience stores, 80% of them run by just three companies, is an ideal delivery system for online sales. The growth in online retailing in general is a tremendous opportunity for domestic and overseas brands alike, with expanded market access and lower cost distribution options of particular interest to overseas firms. The new trend will only help boost interest in buying online, further fuelling growth and accelerating consumer acceptance.

Seven & I Holdings launched its new Omni7 website early this month, the biggest step so far towards turning the entire group into the world’s first true mixed merchandise omnichannel business. As noted previously, Seven & I’s overwhelming advantage is its 19,000 Seven Eleven convenience stores, providing order pick-up and customer service points nationwide and operating 24-7, 365 days a year. This is the front end of the country’s second largest, but perhaps most well-rounded, retail business covering more than 20,000 stores across formats ranging from food through to luxury brands, and potentially 3 million or so SKUs – Omni7 launched with a reported 1.8 million SKUs and Seven & I says it will have 6 million through 2018 and sales of ¥1 trillion.

Seven & I understands it needs to go even further to compete with pure-play online retailers, specifically Amazon Japan. With this aim in mind it has already completed a deal with Uniqlo to be a main delivery point for the apparel brand. Last month it added delivery services for 90 food suppliers, including exclusive online sales of 170 new products. Similar deals are certain to follow given the group’s compelling ability to reach such a large proportion of the Japanese market.

The food suppliers in question are mostly large, established brands. Products have been carefully selected for online sale, concentrating on items less suitable for sale through stores due to bulk, rarity or even perishability – Seven Eleven’s logistics network provides for a minimum of three deliveries per day to each and every store in the country, as well as ensuring temperature control throughout, making even highly perishable items possible online. In contrast, the recent launch of Amazon’s new ‘netsuper’, Amazon Pantry, is notable for the conspicuous absence of all forms of fresh food in order to avoid precisely this issue. Again, it’s a problem Seven Eleven has already solved.

Manufacturers are keen to leverage the possibilities. Calbee, the packaged snack maker that already supplies many of Seven & I’s private brand items in the category, introduced a new line of ‘Hokkaido Express Delivery’ potato chips, offering delivery within 24-hours of production, using fresh Hokkaido potatoes. A pack of six will retail for ¥1,620, more than three times Calbee’s standard chips – perhaps not a product for anywhere other than Japan, but Calbee is betting local consumers will love the limited edition feel and emphasis on freshness, even for potato chips.

The marketing opportunity is so compelling that even Nissei’s cup noodles, the most infamous form of ‘nutrition’ and the core diet of Japan’s single households, are getting in early. Nissei is offering a cup noodle ‘ingredient variety set’, exclusive to Omni7, providing a range of new toppings to sprinkle on.

As normal for Seven Eleven, Seven & I will use its considerable sales data analysis skills to work with manufacturers to come up with further exclusive product ideas, and the most popular online exclusives will be introduced in its retail stores too. In 2014, the group managed online sales of ¥160 billion, but it is now targeting ¥1 trillion as soon as 2018.

The Omni7 site (www.omni7.jp) was in trial mode in October, selling the new Jean Paul Gaultier private label lines. Along with a major PR campaign to promote the launch, Seven & I reports that Ito-Yokado apparel sales grew by 20% in October compared to last year. A third of shoppers researched the brand online before purchase (see Page 10).

Amazon Japan is Japan’s largest online retail business, but it lacks a store network of its own. The launch last month of Amazon Pantry, its first attempt to offer a consolidated food and FMCG ordering service in Japan, can be seen as a direct response to Seven & I’s new strategy. While the leader in online sales of books, toys and electronics (see Page 11), it seems unlikely that Amazon or other competitors can compete in terms of grocery shopping.

Not that they won’t try. Seven Eleven is Japan’s largest convenience store chain, but it is not the only one. Yamato and Askul have both launched new services aiming to offer e-commerce to SME and other businesses across the country, integrating their own fulfilment and delivery services with Seven Eleven’s rival chains, Lawson and Familymart. These are naturally keen to encourage precisely this kind of competition, seeing Omni7 as a threat to their own store businesses too – Lawson tied with Amazon earlier this year on deliveries.

Store coverage is key and this is a vital motivation for Familymart’s now confirmed merger with Uny Holdings (see Page 3), effectively grabbing 6,000 more convenience stores from Circle K Sunkus (CKS), and overtaking Lawson in terms of store numbers – although, given the overlap between Familymart and CKS, not necessarily with better coverage.

Last month Familymart launched another integrated online sales delivery service, this time in conjunction with Itochu and Yahoo Japan. Orders through Yahoo’s shopping and auction sites will be consolidated and delivered through Familymart stores near to the customer’s home. This latest service, called ‘Hako Boon Mini’, allows individuals selling on auction sites to also offer delivery through convenience stores – Yahoo Japan is the country’s biggest online auction site at present.

The actual service will be run through Itochu Group’s logistics system, the main provider for Familymart as a whole. Auction vendors can pick up an appropriately sized delivery bag at their local Familymart, and arrange delivery through the same store to a Familymart near to the purchaser’s address. The company says delivery costs should be around 30% lower with the new service. Familymart plans to expand the service to other auction and online sales sites, as well as possibly the general public, next Spring.

For 2014, METI figures put the online BtoB market at more than ¥270 trillion, and the BtoC market at more than ¥12.8 trillion, with a forecast of ¥20 trillion by 2018. Given Seven & I’s own targets, the activities of many other retailers, the growth in smartphone use and increased access to low cost wifi, this forecast could well be beaten up to a year early. Until recently, a major barrier to rapid growth in e-commerce was retailer intransigence, but even the desire by some chains to protect investment in physical stores is now being eroded as competitors turn to digital channels.

What remain, however, are the issues of technical know-how and labour shortages. While more and more retailers are trying to kick-start their online operations, most have little experience and are bound by belief in the same service and marketing criteria they’ve used in stores. Yamato and Askul have both recognised this issue and are looking to provide third-party solutions to help a few, but demand for independent knowledge is likely to outstrip supply for some time. More practically, Japan faces a significant shortfall in labour for convenience store shop assistants, warehouse workers and delivery drivers. Some experts see this as the one remaining and very real barrier to growth for online retailing.

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