Japan’s convenience stores are legendary for their ubiquity. Retailers such as FamilyMart, Lawson and Seven-Eleven also offer a wide variety of goods. Juice boxes of sake, with a straw, anyone? Profits have stagnated however. FamilyMart took a different tack last year by buying a 5 per cent stake in discount retailer Don Quijote’s holding company Pan Pacific International. Late last week it agreed to buy a further 10 per cent stake, lifting the share price a tenth on Monday. Its moves highlight why ultra-low price inflation may never disappear in Japan.
The two groups have grown closer. Don Quijote is known for jumble sale-like retail experiences. Pan Pacific acquired some of FamilyMart’s poorly performing low-end UNY department stores back in 2017 and began turning them around. Customer traffic at six stores converted so far had leapt 75 per cent by late last year, according to CLSA.
Expect more discounting. Last year, Japanese trading house Itochu increased its holding in FamilyMart from 40 to just over 50 per cent. Shareholders liked the idea of a big trading house buying control, especially given Itochu’s expertise in domestic distribution. FamilyMart’s shares rose 70 per cent last year, leaving them on an expensive price to forward earnings multiple of 40 times by year end, twice that of rivals. Its share price has since reversed a lot of those gains.
Gross profit margins at the convenience store companies, and even Pan Pacific, have stagnated in recent years. So growth by acquisition is important. And yet more discounters appear. Food wholesaler Kobe Bussan has turned its skills to retailing. With a limited shelf of goods and plenty of private brands, Kobe Bussan offers prices reportedly 30-70 per cent below domestic supermarkets. Its market value has doubled over one year.
Decades of intense competition over the purses of the Japanese has resulted in just more deflationary pressure in shop retailing. FamilyMart’s connections with Itochu and Don Quijote ensure that process will continue.
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