Blended 7-Eleven and supermarket concept proves a tough sell
THE 7-Eleven store in Chiba prefecture, a suburb of Tokyo, isn’t like the the 21,000 other ones across Japan. It’s almost double the size of regular ones with more than twice the number of products and carries baby products, trendy makeup and foods such as frozen bread.
Opened a year ago, Seven & i Holdings conceived it as a prototype to test the synergies between the company’s retail supermarket chain and its more-successful convenience stores business — and find out if shoppers had any appetite for a hybrid of the two.
Initially, monthly floor sales and customer numbers jumped more than 20 per cent, according to the company. Despite the fact that a rival supermarket began operations just in front, revenue maintained a 10 per cent increase until September.
But it’s unclear if that’s been sustained, and Seven & i has no plans right now to open more.
Although some ideas are being adopted at other outlets, such as placing bread and tea products next to the cash register, the Japanese retail conglomerate is still researching whether to expand grocery offerings to other outlets, according to Keisuke Yamaguchi, the manager in charge of future business development at 7-Eleven Japan.
The effort to find synergies between the two parts of its business appears to have fallen down the list of the company’s list of priorities as it faces growing pressure to unlock more value from its core convenience store operation.
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Circle K operator Alimentation Couche-Tard wants to take over the company with a 7.2 trillion yen (S$64 billion) buyout proposal. In response, the founding Ito family is putting together a competing management buyout.
At the same time, chief executive officer Ryuichi Isaka has embarked on a radical restructuring to carve out Seven & i’s legacy supermarket and retail operations.
“With the company’s own growth a top priority, it’s unclear how much of resources and willingness will be devoted to finding synergies,” said Satoshi Tanaka, analyst at SBI Securities.
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Seven & I’s supermarket arm, Ito-Yokado, has been reducing the number of outlets, making it hard to compete with bigger grocery chains. Although the company now plans to spin off its supermarket and retail operations as a separate unit and bring in strategic investors, it wants to retain a stake in the business, which will be called York Holdings.
In the 1970s, Seven & i imported the convenience-store concept and improved on it over the following decades, making them ubiquitous and essential to daily life in Japan. It’s also now the core part of the company, and investors have argued for management to separate it from the rest of the business in order to bring greater focus on global growth.
There’s a limit to how much influence the legacy Ito-Yokado operation can have on the larger and more profitable convenience-store business, according to Hiroaki Watanabe, a consumer analyst. “In terms of purchasing power, there’s a divide between the more than 20,000 convenience stores and less than 100 Ito-Yokado stores,” he said.
The prototype store itself does not appear to have been more creative than bringing the two store formats together in one place, he said. “Rather than a cross-fertilisation of knowledge, there’s just a convenience-store area and a supermarket area inside the store,” Watanabe said.
Isaka is betting that Seven & i’s strength in food offerings will be the key differentiator to “expand globally” and achieve the company’s goal of reaching 30 trillion yen in sales by 2030. The knowledge gained from the supermarket business is critical for this, according to the CEO.
Although Seven & i describes the hybrid store concept as a place for “one-stop shopping,” that doesn’t seem to have worked with one customer who was at the outlet.
She expressed that she liked being able to buy all her groceries in one place, but then shortly after headed across the street to a rival supermarket. BLOOMBERG
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