[Convenience Store Kingdom Japan] There Is a Reason Convenience Store Meals Taste Good... Active Overseas M&A Through Partnerships with the Food Industry

Partnering with the Food Industry and Collaborating with Telecom Companies
Exploring New Markets through Overseas M&A
Active Expansion into the Middle East and Greater China

The saturated Japanese convenience store industry has narrowed its choices to two options. One is to seek synergies that qualitatively enhance store value through mergers and acquisitions (M&A) or partnerships with industries other than convenience stores, and the other is to escape the domestic market, where only cutthroat competition remains, and target overseas markets.

What to add to convenience stores... Seeking synergy through partnerships and M&A

The joint store 'SIP Store' by Seven-Eleven Japan and Ito-Yokado features a significantly enlarged store size. (Photo by Seven-Eleven Japan)

Japanese convenience stores focus on ready-to-eat foods such as triangular kimbap and lunch boxes. This is because the population cooking at home by buying ingredients is continuously decreasing due to low birth rates, aging, and an increase in single-person households. Media reports have analyzed that "in new refrigerators, the refrigerated compartment is shrinking while the freezer compartment is expanding," indicating high demand for ready-to-eat and convenience foods. Accordingly, the food industry is the first sector convenience stores partner with.

Seven-Eleven Japan, the industry leader, formed a 'Delica Food Cooperative' partnership with 63 food manufacturers. Side dishes, lunch boxes, and other products made by these 63 companies are all supplied as Seven-Eleven's private brand (PB) products. Additionally, it is expanding its scale through collaboration with the large supermarket chain Ito-Yokado. Seven-Eleven's parent company, Seven & I Holdings, owns Ito-Yokado, and by combining it with convenience stores, they introduced a new type of store called the 'SIP Store.' This store expands convenience stores to the size of a supermarket and stocks premium products instead of the low-margin, high-volume products typically found in discount stores.

The SIP Store first increased the store size to 1.5 times that of a typical convenience store and significantly increased the number of frozen and other ready-to-eat foods. This strategy was inspired by the aging population and the increase in consumption near homes due to COVID-19. By adopting the fresh food assortment and product handling methods of the supermarket chain Ito-Yokado, they aim to create synergy within convenience stores.

FamilyMart partnered with Coca-Cola Bottlers Japan to improve its logistics system. In Japan, there is a shortage of truck drivers and other personnel, and a new system limiting their weekly working hours raised concerns about a logistics crisis. Through this partnership, Coca-Cola Bottlers Japan uses its delivery trucks to transport FamilyMart's products to stores. Already, 240 FamilyMart stores in Kanagawa Prefecture have started receiving ambient temperature products delivered by Coca-Cola trucks.

Synergy efforts with other industries are also actively underway. On the 6th of last month, KDDI, Japan's second-largest telecommunications company, announced it would publicly purchase shares of the convenience store operator Lawson in April. Mitsubishi Corporation owns 50% of Lawson's shares, and KDDI plans to buy the remaining 50% to jointly manage the company. The investment amount KDDI will use for the stock purchase is 497.1 billion yen (approximately 4.3977 trillion won).

Japanese media also regarded this as unusual. Usually, convenience stores have solid distribution networks, so M&A is mostly done with trading companies that can create supply synergies. FamilyMart became a non-listed company through Itochu Corporation's public purchase in 2020, and the same applies to Lawson and Mitsubishi Corporation.

There were negative views in Japan about why a telecommunications operator would enter the convenience store business, but Lawson plans to leverage KDDI's communication technology to create business synergies. Lawson intends to actively enter the quick commerce market, which delivers groceries and daily necessities immediately. Since Seven-Eleven Japan has already launched the quick commerce service 'Seven Now' and is leading the industry, Lawson plans to participate in this competition by combining its nationwide convenience store distribution network with digital technology.

The other strategy is developing remote customer service to create next-generation convenience stores. Lawson aims to function as a comprehensive service provider offering financial services and medication guidance for the elderly at convenience stores. Since such specialized services cannot be handled by regular part-time workers, the plan is to create remote service counters utilizing KDDI's digital and communication technologies.

Turning to overseas M&A amid saturation of the Japanese market

Leaving behind the slowing domestic market, the Japanese convenience store industry is actively seeking new markets through overseas M&A. Originally, stores were mainly opened in Southeast Asia, but recently they have expanded into the Middle East and Greater China regions.

Seven-Eleven acquired 204 convenience stores located at gas stations through an M&A with the mid-sized American petroleum company Snoco LP in January. They are steadily strengthening their presence in the United States. Additionally, on January 12, 2022, Seven-Eleven International was established for overseas business, and last February, they decided on additional investment in a Vietnamese company with which they had previously formed an M&A. Furthermore, they opened their first store in Tel Aviv, Israel, in January last year and plan to expand stores throughout Israel over the next five to six years. Their goal is to open more than 50,000 stores outside Japan and the United States by 2025.

Lawson store in China. (Photo by Lawson)

FamilyMart is focusing on Taiwan. Since entering Taiwan in 1988, it has successfully opened 4,000 stores by 2022. FamilyMart has not been very competitive in other regions besides Taiwan. It withdrew from South Korea in 2014 after entering in 1990 and closed its U.S. operations in 2015 after starting in 2004. Therefore, it is pursuing a localization strategy in Taiwan to expand its stores.

Lawson was the first Japanese convenience store to enter Shanghai, China, in 1996. Currently, it has opened more than 6,000 stores in Thailand, Indonesia, the Philippines, and Hawaii, USA. China is a major target, and Lawson is investing assets in overseas business comparable to its domestic operations. According to its mid-term management plan 'Challenge 2025,' Lawson aims to open 10,000 stores in China by 2025. To achieve this, it will strengthen private brands and review basic product assortments.

Editor's Note'The convenience store kingdom' Japan is sending a warning to South Korea, which has entered an oversaturated convenience store competition. The history of Japanese convenience stores began in the 1970s and has already surpassed half a century. While there may be no department stores, there is not a single area without a convenience store, and the number of stores is vast. However, now it is a crisis situation. As the market has become saturated, the number of new store openings has sharply declined, and external factors such as rising rents, labor costs, and a shrinking domestic market have led to voices saying the industry's golden age is over. South Korea, which has already surpassed the number of Japanese convenience stores, is following the same path as Japan's declining market due to oversaturation. By examining the history of Japanese convenience stores and the strategies of companies facing crisis situations, we seek survival strategies for the Korean convenience store industry.