Faced with a slowing rate of growth in the convenience store sector and increasingly price-conscious consumers, c-store operators such as market leader Seven & I are adapting their offers to meet the consumer need for both convenience and value for money. Michael Fitzpatrick and HsiaoYing Lin in Tokyo reports.
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It had to happen eventually. Growth in the Japanese convenience store sector has finally flattened off after many years of almost continuous expansion. Having ridden the wave of c-store expansion, market leader Seven & I is faced with the challenge of maintaining growth in what may now have become a zero-sum market, and doing so as the global economic downturn begins to bite.
In response it has looked to develop new concepts, while also expanding overseas. At least the years of growth have ensured the company has a powerful platform on which to build. Japan’s largest retail group, Seven & I includes the Millennium Retailing department store group and supermarket chains such as Ito-Yokado in its portfolio, in addition to the 7-Eleven c-store operation.
Last month, the company posted a 1.6% rise in first-half turnover to JPY2.86 trillion, with operating profit rising by 3% to a first-half record of JPY148bn. Net profit for the half-year to 31 August fell to JPY67.50bn from JPY69.15bn, last year’s figure being boosted by shareholding sales.
The company’s c-stores contribute around 70% of overall profit. In the first half of the current fiscal year, Seven & I’s Japanese 7-Eleven unit saw operating profit rise by 8% to a record JPY96.35bn.
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By GlobalDataHowever, according to the annual c-store survey published by the Nikkei financial newspaper, the overall convenience sector in Japan grew by just 0.4% in the 2007 fiscal year, the slowest rate of growth since the poll’s inception in 1978.
As the country braces itself for yet another deep recession, inflation is also set to rise, which is likely to be more of shock for Japanese consumers than for those in other developed markets, according to Robert Gregory, retail analyst at Planet Retail.
“For 2008, consumer price inflation is forecast to grow by 1%,” Gregory says. “Although the rate is still low compared to Europe and the USA, it represents a significant change for Japanese consumers, who have enjoyed the benefits of a deflationary economy for the past ten years or more. With shelf prices of staples such as pasta, instant noodles, cooking oils, mayonnaise and bread, all on the rise – the first such increases for ten to 15 years – consumers have become much more price sensitive.”
However, Seven and I is confident that c-stores will weather the recession. Indeed, according to a senior executive at the company, “conbini”, as c-stores are known in Japan, can benefit during these hard times.
As Japanese consumers look to cut back on fuel and food bills, there appears to be a growing demand for what convenience stores offer. With the demand for convenient, local shopping on the rise, c-stores have been increasing their emphasis on areas such as frozen food.
For example, 7-Eleven doubled its line of inexpensive frozen foods to six products at the end of July, adding fried rice, shrimp pilaf and shumai dumplings to its range. The company says its frozen-food sales in June were 20% up year-on-year.
Given the tougher economic conditions and heightened price consciousness among consumers, the introduction of ‘100-yen’ fixed price concepts, where products are sold either at JPY100 or JPY99, would appear to be a timely move for c-store groups. The majority of these products come in single-size servings to cater for single-person households, which carries the dual benefit of also tapping into consumer desire for greater convenience.
As one Seven & I executive speaking to just-food puts it, the company “aims to provide a convenient service for its customers, compared to the larger-sized offers of frozen food sold in the supermarket. A JPY100 small pack of frozen food complements modern lifestyles perfectly.”
Gregory adds: “Following on from Lawson, other convenience store chains are starting to introduce value lines to their stores. Seven-Eleven Japan introduced Seven & I’s group-wide economy private label – Seven Premium – to its 7-Eleven stores late last year. Ministop, meanwhile, is also introducing Aeon’s TopValu economy lines. Such moves suggest that Japan’s convenience store operators have begun to modify their policies in accordance with the changing economic situation.”
Seven & I is also to open more stores under its discount brand, The Price, adding two by the year end, and at least five in 2009. These stores will carry Seven’s JPY100 range. Some of its underperforming Ito-Yokado stores, notably in the Tokyo metropolitan area, are also to be converted to The Price format.
With the c-store boom in Japan appearing to have finally plateaued, Seven & I is looking to accelerate its international expansion. In particular, the company plans to pursue development of its convenience store franchises in coastal areas of China. However, the company says it has no plans for more general merchandise stores or supermarkets in other areas of China at this stage.
Although China is an exciting development market for Seven & I, there are currently only 1,358 outlets in the country, compared with 4,705 in Taiwan and 4,279 in Thailand.
