The Japanese c-store model has had a successful few years, but even its top operators have difficulty exporting the system to other countries.
Retailers on the Independent Retail Owners Forum study tour spent time in Tokyo with Taro Kosaki, international business manager of Family Mart, which is number two to 7-Eleven in Japan but mirrors its success across an estate of 17,409 outlets.
Family Mart grew sales by 14.1% last year, despite the fact it spent that time converting thousands of Circle K stores that it had bought the previous year.
Sales growth was driven by constantly innovating its mostly own-label range, with a 29% share of the ready to eat and fast food categories. Food is a key differentiator and it also enhances gross margins, with fast food providing 45% and ready-to-eat 36%. Overall retail gross margin is 27%, held down by the 11% margin on cigarettes, which account for 24% of sales.
Family Mart has 88 central kitchens across Japan providing rice meals, sandwiches, salads and desserts, as well as fried food and steamed buns, which are served hot. These kitchens are co-located with many of the 209 distribution centres that supply almost all goods except tobacco to the shops.
The supply chain has been optimised and each outlet gets five deliveries a day, with orders expected by 10am and then processed through head office. There is one frozen and one ambient delivery, along with three fresh deliveries. One driver for this is the high cost of retail floor space meaning there are no stock rooms. Another is ensuring product is always fresh.
The power of flexibility
The 10am fresh order is broken down into three windows for breakfast, lunch and dinner. Deliveries to stores are between 10pm and 2am for breakfast, 7am and 11am for lunch, and 2pm and 6pm for dinner. The timings of deliveries have been carefully calibrated to ensure that waste is as low as possible. Stores do not have to order whole outers and the stock-keeping unit (SKU) count can be as low as three, so shops are not cluttered with surplus stock.
At the same time, there is a huge churn in the stock supplied, with 100 to 200 new products made available each week, of which only one in 10 becomes successful. This is partly because Japanese consumers always want novelty and partly because they expect seasonal variations – even beer SKUs change packaging during the year.
Delivery disciplines – combined with franchisees’ ordering all their stock from the centre – have maintained profitability, even as the average number of customers served by a Japanese c-store has dropped from 3,200 in 2005 to 2,394 in 2015 as the number of outlets has rocketed.
Operators are also struggling to attract new staff, with younger people apparently preferring to work for the likes of Starbucks.
To boost productivity and ensure staff spend less time on routine tasks and more time with customers, the company is investing in predictive ordering systems and cashless payment systems to speed up shopping trips.
The company is convinced its success will come from getting closer to last-mile customers than its competitors can, as well as selling more things to them, such as cinema tickets, insurance and holidays.
The company collects all money from shops daily and advances retailers their profit share regularly. This reflects a homegrown style of retail operation that has been refined over more than 30 years working in partnership with independent retailers. The emphasis in store, with the exception of tobacco, is on making its offer unique rather than pressing suppliers for marketing investment.
The biggest lesson for UK wholesalers is the focus on working collaboratively to ensure Family Mart outlets appeal to shoppers. Is your culture ready for such a challenge?