konbini

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Executive Summary

The purpose of this paper is to analyze the business of the convenience store in Japan retail sector. This paper addresses the general concept, the structure, and the changing roles in the convenience store in Japan.



Introduction




The concept of convenience stores was originally from the United States nearly 40 years ago. When the first convenience stores in the U.S. opened in 174, they were just places to sell daily necessities, from food, magazines, to clothing and only be paired with gas stations. Convenience stores in Japan, however, differ from those in the United States although the major role is still to provide daily necessities food.

Japanese had studied management practices from the U.S. convenience store and invented their own business techniques. With its dense urban populations, limited-space homes, and small retail-store stock, Japan was ideally suited to the convenience-store format. Two possible reasons that convenience store position in Japans retail sector is so strong today are from their innovative products and service and the unique distribution system. The concept of U.S. convenience store was modified and transformed into Japanese original retailing concept to focus on achieving both on the economy of scale and scope. “Konbini or Konbiniensu stoa”, which is the term Japanese calls the convenience stores, is a high-technology version of the U.S. convenience store. It is a place for customers not only to buy products but also to get services. They also fit into Japans logistics system since delivery companies use Konbini like distributing offices. There is highly competitive in this business and companies are trying to use several strategies to increase its sales and retain customers and use e-commerce as the driving force to gain the competitive advantage in the future.

History

In the Japanese retail sector history, convenience stores have been growing significantly in recent years. In the earlier years, convenience stores introduced itself as the general store which provides a wide range of products operating 4 hours a day. The first technology used in convenience store was called “Point of Sales system”. It helped store managers gather in the information storing that was related to sales. The benefit from using Point of Sales (POS) helped managers a better decision on product order volume and delivery which links to the concept of Just-in-time (JIT) in the present. Thus, convenience stores had improved better performance than general stores. General stores later had experienced declining in sales due to the increased competition, economic downturn, and the deflation. However, convenience store sales still rose from .8 trillion yen in 1 to 6.18 trillion yen in 18. Although the economy in Japan has experienced ups and downs since then, convenience stores have remained at that desirable level throughout this year.

After the retail industry deregulation, it was opening the way for new offerings that fit the convenience store services strategy. The convenience store has been dominated by three stores, Seven-Eleven Japan, Lawson, and FamilyMart since then. In 16, there were only about ,000 convenience stores in Japan, which estimates a population per store around 4,000. The key companies perceived this as a chance to expand as many as stores. With the increasing and intensive competition, many independent stores could not survive and completely shut down which resulted the total convenience store to decline by ,000 to ,67 stores in early 001. In 00, the top four convenience stores had sales over 67 % of total convenience store sales. By that year, convenience store business was expected to reach its market saturation level. There were 55,658 convenience stores in 00 and a population of ,000 people per store.

General information of key companies

Seven-eleven Japan

Seven-Eleven Japan is the largest convenience store in Japan by stores volumes and sales. The total sales in 00 was 44.0 billions yen which was increasing 10.% from last year and the total stores nationwide was ,60 which was up for 1.4% from last year. It successfully keeps the position of the first rank in convenience stores for rd consecutive years through this February 00. Store locations heavily concentrated in the Tokyo region in which 1,00 stores are and also in Osaka. The majority earnings are from the rice balls and streak products. The company has branched out its business model into e-commerce (7dream.com) and food delivery (Seven-Meal service). Seven-eleven Japan is a 50.6%-owned subsidiary of Ito-Yokado, the Japanese retailer that holds 7% of Seven-eleven in Northern America.

Lawson

Lawson is the second largest convenience store. Lawson, which headquarter located in the Osaka area, is the only chain store that operates in everywhere in Japan. It has more than 7,700 stores throughout Japan and nearby countries. The company was established in 175 as a subsidiary of Daiei, Inc, Japan’s largest GMS. Daiei has been reducing its shareholding, making the company essentially independent, though it has come increasingly under the influence of Mitsubishi Corp. However, during a year through February 00, Lawson got decreases in profit for 45% of about 8.86 billion because of the 1 unprofitable stores and their early retirement program. At the end of the February, Lawson has remaining stores on 7,65 domestic outlets.

FamilyMart

FamilyMart is the third largest convenience store company by number of stores and sales in Japan but becomes one of the largest franchised retailers in Korea. Their store locations are primarily located in Tokyo area. FamilyMart was established in 181. It was a former member of the Seibu Saison group, and considered to be a part of the Itochu group since 18. FamilyMart is focused in Tokyo and Nagoya, Japans third largest metropolitan area.

Table 1 shows the company performance and financial statement of key convenience stores in 00.

Table 1 General information on key conveniences stores in Japan in year 00 (ending at February 00)

(Yen billions) Seven-Eleven Lawson FamilyMart

Revenue 44.0 56.11 15

Operating income 155.86 6.6

Number of stores ,60 7,65 6,01

Average daily sales per store 656 48 50

Source Japan’s retail industry and Seven-eleven, Lawson Company, and FamilyMart annual reports in year 00.

Target Market

In 00, Japanese marketers formed the target groups of convenience store by this

- Men between the ages of 5-60, shop at a convenience store three times a week.

- Students and single men average shop at a convenience store four times per week.

- Working women from 1 to 4 years old shop two to three times per week.

- Housewives and female teens visit two to three times per week.

Business strategies

The key strategy for most Japanese convenience store is to concern on the economy of scope by adding products and services to attract more customers, even though most services do not contribute to profits directly. Another strategy used is to form partnership outside the convenience store sector to create the strategic alliances and expand the potential sales. However, only Seven-eleven Japan company still exploits the benefit of the economy of scale and scope. Seven-eleven Japan still focuses on the aggressive store expansion to take advantage of cost-effective distribution and higher local recognition. There are 10,000 seven-eleven stores expanding ever since started and around 1 outlets in the first six-month period on 00. It also starts to expand around the country. In 00, Seven-eleven opened 54 outlets in Aichi where it has never accessed this location before. In term of economy of scope, besides the main benefit for their original items, which account for the majority sales, the firm also seeks to find products and services diversification as well as the variety kinds of their proprietary merchandise, which is developed together with makers of national brands.

Product and service diversification and differentiation

Box-lunch

Seven-eleven successfully targeted the local tastes in target areas such as Sendai where the company introduced beef-tongue boxes lunch.

Seven-Meal Service

Seven-eleven created a new business model as an expansion of the chains extensive fast-food operation called “Seven-Meal Service”. The service provides prepared meals and packages of cooking ingredients for customers who find that daily meal preparation is not convenient. Items can be ordered by telephone, fax, and Internet, or at Seven-Eleven stores and can be picked up at the store or delivered using vehicles that can keep the food at required temperatures. The service was established in August 000 and was available about 40% of Seven-eleven Japan stores in February 00.

Oden

Oden, which means vegetables, fish dumplings and other types of food simmered slowly in a soup, becomes more attractive and result as the competitive merchandise among convenience store in the winter session. FamilyMart pushed the oden times as its product differentiation by investing in those cooking equipment in their 4,000 stores. FamilyMart accounted for oden products to boost up the profit in 00 as they predicted that there would be increasing in the average sales of oden from last winter of 0,000 and 10,000 yen per store per day.

Tickets

Lawson established its own concert, movie, and event ticket company called “Lawson Tickets Co. Ltd (LTCL)”. TLCL started in July 1 to handle airline tickets and tickets to Disneyland and Universal Studios. Distribution channels are Lawson and Daiei stores, including via phone. LTCL was growing about 0% per year, reaching ¥ billion in revenues for 001. LTCL is profitable than PIA, the Japan’s largest ticket company because PIA sold tickets for a wider range of events while Lawson targeted customers in age 0s and 0s by knowing that their existing customers are in range. The idea seems to have worked, though overall ticket sales in the first part of 00 were down 11% from the previous year and operating income was down 4%.

Point Programs

Most convenience stores offer point cards”, which give their customers points based on the amount of purchases. Lawson and Family Mart were firstly introducing this idea. Although Seven-eleven Japan resisted following this idea, it was forced to do the same. The point card intention is to reward customer loyalty. Getting a credit card issued by one of the convenience stores automatically makes customers become members to earn points. FamilyMart claimed that a list of items points could be redeemed for. When purchasing, it awards 1.4 points for each 100 yen, and after collecting 1000 points, a customer can use them to buy items at FamilyMart stores.

Utility payment (electricity, water, gas, telephone bills)

Convenience stores provided payment services for utility bills in 187 and have become an important activity. In 001, Seven-eleven Japan reported that it had over % of the total Japanese payments market, which includes payments from banks and the postal system. This represented some ¥0 billion in payments and involved over 16 million transactions on behalf of 1 companies. During 000, Lawson processed 8 million transactions for a total of 650 billion yen. In 001 transaction value, mainly from public utility payment (telephone, electricity, gas, water), rose to 74 billion yen and commissions were 5.7 billion yen, up to 7.% year on year. Payment services have grown about 0% annually since 15.

Package shipping

In the mid 10s package shipping was added in convenience store by evolving into a drop-off site and as the ship-to address for their customers. Seven-eleven Japan used Yamato Unyu (Black Cat), Japans largest package-delivery firm. During the year ended February 00 SEJ handled 1.8 million such parcels.

The competitive advantage of using e-commerce strategy

Convenience stores in Japan are now facilitating Internet access and e-commerce. Japanese convenience stores are exploiting the concept of technology differently from the United States e-commerce business model. Because knowing that their customers are reluctant to make credit card payment over the Internet or telephone, Japanese convenience stores now concern on evolve themselves as a third-party payment services which requires substantial IT infrastructure. They are cooperating tightly with their IT-based alliances called “e-retsu” and deal with the database management with the use of smart cell phones called telematics.

retsu often refer to those companies which have no previous alliance relationship but have common shareholding. Japanese firms are normally used to cooperate to take advantage of new business opportunities. Similarly to keiretsu concept, the motivation in forming an e-retsu is to form expertise in a new venture in which all companies hold share and raise capital to invest in R&D and technical expertise.

Telematics referred to interactive computer mediated communications. It is the intersection of informatics (the processing and application of data with specific goals and objectives) and telecommunications, especially wireless communications in a mobile environment. For example, it enables the linking of mobile devices and wired solutions to achieve a multi-media result. Seven-Eleven Japan and Sony is one of the good example that Sony have an agreement to offer high-speed downloading of games for PlayStation using its centralized server. Seven-Eleven stores can offer a selection of games and only has to store blank CDs. This is how convenience stores cooperate with their partners to use telematic idea to create their strategies and build competitive barriers. The pressure on video game rental stores and software shops is enormous.

The first e-retsu was 7dream.com. It owned by seven companies and involving several others that provide goods and services, its web site was launched in February 000. Seven-eleven Japan intended to promote it as the largest e-commerce businesses in Japan. The concept of the service comes from the result polls indicate that 70% of Japanese dislike using credit cards for online purchases. Thus, after placing orders on the Web, customers can pick up and pay for them at any Seven-Eleven shop. Seven-Eleven attracts .6 billion customers yearly--a daily average of 50 per shop. 7dream.com can be accessed directly over the Internet and other networks, including those open to mobile phones and direct TV. Net sales in 001 were 1,170 million yen, compared to ¥617 million in 000.

Lawson, on the other hand, recognized the entrance into e-commerce actually began with the development of third-party bill settlement services in 15. Lawson has developed a multi-channel e-commerce system based on the Internet, mobile phones, and multimedia kiosks. It calls this business model as the BC e-commerce activity @Lawson, and its web site, at lawson.co.jp, was launched in December 1. An affiliate, e-Context, handles product delivery, agency transaction settlements, and other @Lawson agency activities. It is 48 % owned by Lawson, 10% by Mitsubishi Corp, and the balance by various other companies. Lawson perceived e-commerce to be very important currently and prospectively. “In e-commerce, which include the Internet and NTT DoCoMo’s i-mode mobile service, our store network facilitates Lawson’s existing services-settlement services and product pick-up at stores. We aim to provide these services for a fee to retailers and service providers that sell on line. The key element differentiating Lawson from other chains is our nationwide presence. Clients using Lawson services will thus have access to consumers throughout Japan, unlocking a host of new Net business opportunities. Leading companies have already honed in on our strengths. We have, for example, launched joint ventures with NTT DoCoMo, Inc, Matsushita Electric Industrial Co Ltd and Mitsubishi Corp. Indeed, Lawson’s competitive advantage also lies in being able to tap into these companies’ wealth of resources.” (Lawson 000 Annual Report.)

Situation Analysis

In order to analyze the future position of the firms in the convenience store sector, I use the situation analysis theory to analyze the past and current situations, strategies, and trends to predict the future outcome. It can be divided into five major areas of concern.

1. The Cooperative Environment

Konbini is now cooperating with several companies outside the convenience store industry. For example, Japan Post, a public corporation that took over postal services from the government, has been reinforcing tie-ups with Lawson, which operates convenience stores across Japan. Japan Post had an agreement to analyze the possibility of letting all Lawson stores accept postal parcels. If the process is successful, Lawson will represent as Japan Post to deliver small parcels throughout its nationwide convenience store chain in order to strengthen their business alliance. Lawson offers facilities where customers can write letters or work on their own computers to browse the Internet via the stores wireless LAN network. The store sells envelopes, postcards and other merchandise related to postal services, in addition to goods sold at other Lawson stores. The store, which is open 4 hours, sells stamps and accepts parcels outside the post offices business hours.

. The Competitive Environment

Potential Competition

Except for the rivals inside the convenience store industry, Konibi companies have to aware of the new competitor outside their sector called “Supa”. Supa stands for the newly open 4-hour supermarket. Although Konbini is still proliferating and expanding, Supa copy the concept the all-day-available service like convenience stores and has opened more than 100 stores around the country. The main strength of Supa is that it offers lower price comparing with Konbini and Supa has more various merchandises than Konbini. However, Supa had to consider the cost involving with the new concept it used. In order to open 4-hour, it requires the technology to run refrigeration system all day and need to acquire overnight workers like Konbini does.

External Competition

With the highly demanding consumers and intensive competition, convenience store market in Japan has become a challenge for foreign companies to invest. Japanese convenience store market is the worlds second biggest market after the United States, and these shows the opportunities for foreign companies to penetrate into the market. Massive foreign supermarket store companies such as Tesco and Carrefour have tapped into Japan and tried to conquer both in wholesaling and retailing sector. Although Japanese convenience store sector is fragmented, it is still difficult for foreign companies to acquire the market share due to the already saturated market, international acquisition law, and the consumer behavior in Japanese people. It resulted that Carrefour had to scale back its expansion from 1 stores in 00 to only 7 stores while Tesco is still trying to acquire C Two-Network, one of the retailing companies in Japan.

Outsider Competition

Regarding with utility payment service, the convenience stores are competing against the banks, which accept payments at their teller windows and through their ATMs. The ubiquity and longer hours of convenience stores give them a clear advantage for those paying cash. However, according to the Japan Bankers Association, banks also offer automatic direct-debit transfers, and an estimated 80% of utility bill payments.

. The Economic Environment

According to the Japan Franchise Association, In this year, the sales of Japanese convenience stores fell down for 1.% from last year. The primary reason focuses on the decline on a fall in the average spending per customer resulting from the prolonged economic recession. However, the number of customers on the February 00 showed the increasing of .6% from last year.

4. The Political Environment

Besides those financial institutions such as bank and brokerages, which allow to sell bonds in public, Japanese financial minister expected to sell government bonds to individual via convenience stores. In order to fill the government budget deficit, government analyzed the convenience stores as the connection to the individual investors. Because convenience store provides the idea of easy buy and familiar setting, it is likely that convenience stores could easily offer the government bond transaction to encourage the individuals. Although the process has not approved in the final procedure yet, the financial service agency has to submit to the current diet session an amendment to the securities and exchange law to allow convenience stores to be commissioned by brokerages to engage in equity and government bond transaction.

5. The legal environment

Due to the recession from the bubble economy period that affected sever decline in many Japan sectors, Japan government started to restructure the fundamental of the law since then. The Japanese government started amending the Law in 1. Among its provisions, the amended Law reduced the coordination period for new store openings to one year from a year and a half, and it eliminated the coordination processes by local business people altogether. Further changes were made in the regulatory implementation of the Law in May 14. The floor area subject to advance review was raised from 500 m to 1,000 m. Also, the number of unregulated closing days per year was reduced from 44 to 4, and stores that formerly were required to close at 7 PM were allowed to stay open until 8 PM. These changes made it easier to open and operate large retail stores. Convenience store sector are one of those sectors which using this deregulation to push the strategy of the aggressively opening stores to expand its revenue. In the other hand, the deregulation was also destroying the barrier entry which allows the foreign companies to gain the market segmentation of the Japan convenience store.

Conclusion

Although most convenience stores are successfully using product and service diversification, partnership alliances, and e-commerce distribution channel. It could not guarantee the continuing successful outcome in the future. E-commerce in the convenience store last year accounted for $. billion which is relatively small comparing with the total e-commerce industry.

Many companies tried to expand to the nearby countries FamilyMart and Lawson are now considering to move into China. They realized that Chinese market would have more potential to grow greater than the Japanese Market. However, in Shanghai, there are more than ,000 convenience stores and the number of these shops is still increasing rapidly. Lawson launched an outlet there in 16 and now has about 0 shops in Shanghai. But most outlets are locally owned. FamilyMart also doubted about the certain level of demand and people’s income to tap into those countries. Moreover, the consumer behaviors in China are also different from those in Japan. How could they successfully introduce the traditional Japanese food into Chinese people? It requires more market research and the new product and service development to fit with Chinese people, and the more important thing, they have to analyze the distribution system which will be suitable with the China’s big geographic area, which is totally different from Japan.

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