In Japan, Convenience is an Art
Retailers in Japan raise convenience to an art. Well-trained clerks at the local konbini restock displays daily with everything from fresh fruit to clothing. Customers pick up online orders, use ATMs, pay utility bills and buy baseball tickets.
Bento boxes, hot noodles and more ready-to-eat items arrive morning, noon and night. More than one-third of all meals in Japan are prepared meals sold at retail, with a following among both young singles and growing ranks of less-mobile seniors.
The supply of ready-to-eat items changes with the weather as much as POS receipts from the night before. Just-in-time van deliveries also made konbini quickest to recover from the 2012 tsunami.
Fresh fruit and vegetables help konbini reach out beyond the salaryman. The Ministop chain sells 20 to 30 different kinds of fresh vegetables in its 2,100 stores. The chain cut spoiled and unsold vegetables by half with airtight packaging that extends shelf life by two days. Euromonitor says fresh produce is also available in 5,000 Lawson stores and 680 Three F locations.
Convenience stores are setting Japan's pace for growth in grocery–up 2.5 percent in 2012, according to Euromonitor International. More than one-third of food sales are from konbini, and little more than half from supermarkets.
Seven-Eleven Japan has nearly 16,000 convenience stores in Japan, twice the U.S. count. The company runs the 7-Eleven system worldwide, after buying Dallas-based Southland Corp. out of bankruptcy in 1991. The other major players are national chains Lawson, Family Mark and Circle K Sunkus, followed by Tokyo regionals Mini Stop and Three F.
"Convenience stores now compete to identify potential property before their competitors find them," says a December 2013 report from the U.S. Department of Agriculture's Foreign Agricultural Service.
Supermarkets are close behind at 2 percent growth in the Euromonitor survey. The Coca-Cola Retail Research Council calls Japan a "discriminating shopper" market like Australia, Hong Kong and Singapore– "mature markets, where shoppers demand superior service from their retailers, and where supermarkets are significant." In supermarkets as well as convenience stores, operators must work hard to earn customer loyalty.
"Housewives generally shop for food every day, and are very knowledgeable about local supermarkets," says Roy Larke, visiting professor at the University of Waikato in New Zealand and editor of JapanConsuming.com. The Coca-Cola research study reports that 38 percent of consumers say they shop daily.
Aeon and Ito Yokado account for 40 percent of supermarket sales, the USDA says. Half their sales come from non-food items. Other major supermarket chains include Uny, The Daiei, Life Corp. and Izumi.
It's a mature market not only in store count, but in the customers' ages. Japan has the fastest growing over-65 cohort in the world–one-third the population, according to Euromonitor International's Countries and Consumers database.
"Retailers issue fliers to local households, and housewives choose their weekly shopping options based on these promotions, very often buying meat at one store, vegetables at another, fish at another, and rotating round the following week depending on promotions," Larke says.
Aeon courts the elderly "Generation M" with 7 a.m. openings and early-bird specials in many of its 1,000 stores. The Daiei issues senior club cards that give over-60 members five times the discount points.
The aging market affects everything from accessible locations to smaller portion sizes. Globally, Mintel research finds 82 percent of all new food, drink, and beauty products that targeted seniors in 2012 were launched in Japan and China.
More shelf space is being set aside for private-label brands, a strategy led by Aeon TopValu to lure older and value shoppers. Private band revenues are predicted to more than double in five years' time, a Fuji-Keizai survey predicts.
Small urban markets find a sweet spot here, with more produce and refrigerated choices than convenience stores. Britain's Tesco Express concept has translated to Japan and other Asian countries, with 3,000-square-foot stores offering about 7,000 items, including bakery and liquor sections.
Walmart is the major value player. Its Seiyu stores leverage the global network to sell U.S. beef for 30 percent less than competitors, according to the USDA.
Meidi-ya, the first premium importer, has been joined by specialty markets including the U.S. brand Dean & Deluca, the Kinokuniya self-serve stores, the Seijo Ishii konbini shops, Kaldi Coffee Farm kiosks and mall stores, and National Azabu, which the USDA calls "one of the favorites for expats."
The combined market for food and fast-moving consumer goods is highly fragmented. Two top operators, Seven & i Holdings and Aeon, share only 6 or 7 percent of the market, Larke says.
But that makes the segment ripe for mergers and acquisitions. Seven & i, which owns Seven-Eleven Japan and Ito-Yokado, last year bought a 45 percent stake in Barneys Japan, 10 stores run by the Sumitomo trading group. Seven & i also owns the country's Denny's restaurant franchise.
Last year Aeon bought the Peacock urban markets, joining its smaller MaxValue Express and MyBasket stores. Supermarket chain Uny in 2012 bought out its shareholder partners in Circle K Sunkus Co., local licensee of the Circle K brand.
ONLINE MARCHES ON
Online grocery orders are likely to expand into the brick-and-mortar space. Seven & i executives toured the U.S. late last year to find new ways to integrate online retail with its locations, which already function as mail drops due to limited post-office hours. Larke says Seven & i has made online acquisitions that point to a future "omnichannel" strategy.
"The main users of online shopping are women 40-plus, partly because they buy food too," Larke says. Online sales often feature same-day delivery in big cities. "We think this will grow exponentially–more people are working long hours, good, efficient delivery services are available, smartphone diffusion is currently 38 percent and there's the inconvenience of shopping at physical stores. Plus, the lack of competition there anyway."
Hypermarket growth has stalled, either because destination big-box stores run counter to ingrained daily shopping habits or the konbini have taken on so many supermarket and department store functions.
Walmart still offers an everyday low price strategy, but since Aeon closed its last hypermarket in 2011, Euromonitor says no retailer has launched a value concept.
The Coca-Cola research suggests that high rents in cities like Tokyo, where Ginza district rents run $56 per square foot, undercut the hypermarket's value proposition, and landlords don't seek out food retailers as anchor tenants. Its study suggests compact hypermarkets of 20,000 to 60,000 square feet as an alternative format for "choice, excitement and entertainment, along with easier navigation and convenient location."
Department stores' basement groceries (depachika) and food courts account for about 10 percent of Japan's retail food sales, and a rising proportion of total department store sales.
They've learned from competition. They've added brand-name restaurants to their basement food courts. Higher standards have turned the sleepy depachika into a traffic magnet. Restaurants in Tokyo's Shibuya Hikarie mall stay open as late as 4 a.m. on weekends.
MAD FOR FADS
All sorts of fads move Japanese consumers. On one end of the spectrum are snack items like Pepsi and Mountain Dew-flavored Cheetos. At another extreme are functional foods that make health claims. Not all require the lengthy review that classify them as Foods for Specific Health Use, but the government certification earns them a FOSHU seal.
Busy lifestyles favor products that offer cooking, grooming, or exercising shortcuts, according to Mintel's surveys in Japan. Consumers are more cautious about food safety and minding labels for country of origin, ingredients, and calorie and nutrition counts.
Frozen food sales rose markedly after the tsunami, when shoppers started thinking about stowing away items in case of future disasters. Sales of precooked frozen imports rose 14 percent. Cooked rice dishes, noodles, breads, fish and other home-meal replacements show staying power.
Sweets bring shoppers to konbini, just as they do to corner stores or bodegas elsewhere. Lawson's Uchi Cafe Sweets are known for roll cakes and cookies. Family Mart has a house-brand Sweets + line, and the Circle K Sunkus stores' private-label Cherie Dolce has expanded from tiramisu cups to rice balls and baked goods. Family Mart targeted male shoppers with bigger portions and bolder graphics for its Ore no suitsu (manly sweets).
Most gas stations are separate from convenience stores. Most still have service at the pump, so customers don't leave their cars, and food shoppers find gas and diesel fumes a turnoff. But Euromonitor notes that many konbini locate nearby, with more parking than selling space.
Traditional small grocers are the losers in Japan's competitive market, with Euromonitor tracking a 5 percent drop in 2012 sales. Traditional small grocers are far from commuting routes where retail sees the biggest growth. Chain stores near subway or rail stations show the fastest growth, according to the Japan Supermarkets Association.
COURTING THE YOUNG
Even with the large senior population, twenty- and thirty-somethings are courted as shoppers. They show higher consumption spending and hang out in threes at restaurants, movies and events.
Mature shoppers present some of the same problems as in Western markets, according to the Coca-Cola study. Rising disposable incomes get siphoned into leisure, travel and entertainment rather than luxury food items.
"Retailers will often say they are attempting everyday low pricing or doing away with fliers, and there's some switch to digital flyers, but in reality all of this is yet to catch on," Larke says. "There are pockets of price competition where some local stores monitor prices in nearby competing stores and match prices on an hour-to-hour basis. But this is short-lived and doesn't happen very often."
Larke predicts that Japan's rising consumption tax–an attempt to break saving patterns and stimulate the economy–might spur interest in value pricing. In April it increases to 8 percent, from 5 percent.
"People are spending now in advance of the price increase," he says. "There are still few signs of any real wage increase, and without this, some worry that April 2014 will see a big downturn in spending."