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JAPAN’S THIRD LARGEST CONVENIENCE STORE CHAIN

FamilyMart epitomizes Japanese service and targets tenfold growth in Asia

Interview - November 23, 2015

For FamilyMart, the concept of the convenient store goes beyond convenience: it is creating a whole experience for the consumer. President Isamu Nakayama explains how the company focuses on offering customers a unique and enjoyable experience, while aiming to grow domestically and in Asia from 10,000 to 100,000 stores.

 

ISAMU NAKAYAMA, PRESIDENT OF FAMILYMART CO LTD
ISAMU NAKAYAMA | PRESIDENT OF FAMILYMART CO LTD

What would you say has been the impact of Abenomics on the convenience store sector or indeed FamilyMart specifically?

By monetary quantitative easing that was conducted twice in 2013, we had a positive result in the weakening of the yen and increase in the risk money and stock prices, so we have just been able to leave our era of our recession behind us. We also had the increase in VAT in April 2014, which was an increase of 3%, and we had negative impacts from this tax increase in 2014. We have had positive results since the beginning of 2015; coupled with a decrease in oil prices, this has been very positive. In the retail sector, people often rely on cars to get to the stores so the decrease in gas prices has almost cancelled out the negative effects from the increase in VAT. So that’s where we stood in the beginning of 2015 and that is the trend that has led to now. Although there will be the volatility in economic factors, the overall environment is that the amount of capital is increasing, money is continuing to stay in the stock market and wages are increasing – particularly in the exports sector because of the positive effects of the exchange rate – so consumer consumption has definitely been on the rise.

 

With the significant transformations that are happening with Japanese society, such as an aging society and increased women in the workforce, what opportunities do they present to FamilyMart?

These are core concepts to our management strategy and philosophy. They include: an aging population, women’s advancement in society, and globalization. In terms of the Japanese rate of aging, the percentage of people over 65 in the population in 2015 is 26.7%, which means more than 1 in 4 people. So by 2030, it will be certain that according to the calculation of the current death rates that this percentage will rise to 31.6%.

Regarding the number of working women, this has increased finally in Japan so that for those women between the ages of 25 to 54, 71.8% have jobs.

On the other hand, the users of convenience stores until now have been 60% men and 40% women. Out of the 60% men, the main users were those in the 30s to 40s.

The number of households in Japan is on the increase even though the population as a whole is on the decrease. That is because in the past, many households had 4 to 5 people but now more than 50% of households in Japan has 1 to 2 people. The important question for us is how this market change is going to affect our convenient store sector.

From the way I see it, I believe that seniors as long as they are physically fit, they prefer to go to the physical stores and shop whilst speaking to the staff rather than relying on e-commerce. The traditional style of Japanese society is that people prefer to shop in the areas that are in walking distance, because they are used to having local shopping areas close by, so this is the style that Japanese people prefer, especially the seniors. Convenience stores operate on the very small territorial bases so one convenience store would usually encompass a radius of about 500 meters.

Within our business sector we believe that there is still room for growth so we are continuing to open new stores. In the beginning of 1970s, the convenience stores were born in Japan. Since then convenience stores in the Japanese style have been developing along with the changes of people’s lifestyles.

I believe that the convenience store sector is now in the third phase of growth. The first phase began in the beginning of 1970s, when convenience stores were born in Japan, and encompasses up to the beginning of economic bubble, which began in late 1980s. During that time of phase 1, I believe that convenience stores were characterized in Japan as mini supermarkets. During this period, store networks expanded on the back of their close proximity to consumers, extended business hours and ability to provide convenience to users as well as local communities.

The second phase is when people started to perceive convenience stores as fun and interesting, and this phase has lasted until today. Convenience stores introduced new products every week and although the store spaces were small, the products were continually renewed so people loved going to the convenience stores as they make new discoveries every time they go.

Japanese convenience stores operate on the concept of production and retail so we have been optimizing our production lines for ready-to-eat items like bento boxes, rice balls or sandwiches. They might not create the product at the stores but they have the central kitchen that delivers to the stores three times a day, so they are able to provide an interesting line up. It was not only the products that we improved but the service that we provide that we worked on during this phase, including the provision of an ATM service, or being able to pay taxes or utility bills, etc. This is the phase where we really established a really convenient, store concept.

We have just launched our medium management plan, which is for the next three years, starting this year and aiming to create a new vision for our CVS sector – and that is our third phase. Regarding the content of the third phase, although we have a general vision, we do not yet have concrete elements. We plan to solidify the content of the third phase in the next three years, and in the next medium-term plan we hope to implement these plans. So by 2020 when the Olympics happen, FamilyMart will be reborn as a third-phase convenience store. In developing the third phase of CVS, the key words I believe will be adapting to the aging society, increasing women in the workforce, and becoming the center of each local community within a 500 meter radius area.

 

FamilyMart is a pioneer in overseas expansion, being the first convenience store in Japan to go overseas in 1988, and today operating in seven markets worldwide. But what are your overall international ambitions for FamilyMart? Where do you see opportunities for growth?  

When I speak about the chronological growth strategy for us, it is to aim for completing the third phase domestically, while at the same time continuing operations abroad. Our basic principle in overseas operations is to conduct the Japanese style of business abroad. The hospitality of store staff in the Japanese retail sector, including FamilyMart, is the greatest advantage all over the world. Because they have the hospitality, such as they give great service and smile at the customers, bow to welcome them, and go to help them if the customers are confused or need help.

We are aiming to bring Japanese-style convenience stores abroad and at the moment we have about 1,400 stores in China, 3,000 stores in Taiwan, 1,200 stores in Thailand, 120 in the Philippines, 70 in Vietnam, and in Indonesia we have about 30 stores. They are all in various stages of development in that some of them are still in phase one, whereas in a place like Taiwan, they are going from phase two to phase three.

 

As you expand internationally, how are you working to promote your brand? What should the FamilyMart brand be synonymous with your consumers? Are you using your Japanese roots as a brand in itself to embody high-quality, high efficiency etc.?

Our basic principle when we operate abroad is to partner up with the major companies in the local area and create joint ventures with them. When we select our partners, our main conditions are the partners have to be someone we can trust and that they share our values and agree with our principle in bringing Japanese-style convenience stores. For example, in the Philippines we partner with both Ayala and Rustan’s, which are among the leading companies in the Philippines. In Indonesia we work with Wings Group, one of the largest conglomerates, and in Thailand we work with Central Retail Corporation Limited, the country’s largest retailer. So in each country we work with the top-class companies that we can trust. We will meet the top people within the companies and build a relationship of trust and have them promise to us that they will support the Japanese-style convenient stores and share our values. This is how we conduct business in Asia. So because we always work with the local major players, we are able to develop a strong brand.

As for where we see the frontier of our overseas expansion, we of course operate in the areas I have just mentioned. But with regard to bringing our Japanese-style convenience stores to the Western-style market, I believe that this is going to be quite difficult. We had some stores in Los Angeles that we just closed. The reason why I think it is more difficult in the Western market is because in America they have proper delis, in Italy they have bars, and in France they have cafes and people don’t see much value in a store being open for 24 hours or 365 days a week. We’ve had success bringing these Japanese-style stores to the Asian countries because they are characterized by denser populations and people tend to live within walking distance, and they also had the culture of outdoor stalls.

There is also the fact the GDPs of these countries are increasing, making them interesting markets for us. The magic number we talk about in our convenience store sector is $3,000 GDP per capita and once people reach this level, they tend to become more interested in sanitarian alternatives rather than stalls, which provide convenience stores the opportunity.

In Indonesia at the moment the GDP per capita is $3,700 and in Jakarta over $11,000, so that makes Jakarta very interesting. In Taiwan we’ve had a history of 27 years of Taiwan FamilyMart and at the beginning of our history, our convenience stores there were kind of lost amongst all the stalls ,and only our drink beverages had any sales. In the second stage, we would co-exist with the stalls in that we may provide food materials to the stalls or we would allow the stalls to set up in front of our convenience stores and charge them rent. This is actually the stage that Thailand is in at the moment.

The situation in Taiwan has definitely gone beyond that; people use both stalls and convenient stores as their needs now and the convenience stores are supplying and meeting the demands of working people because people in Taiwan tend not to eat at home, they like to eat out – so what they used to eat from stalls, now they replaced it with the convenience stores.

Convenience stores must go through these various stages, so in Asia we still have a lot to do and I am sure Myanmar will become an interesting market soon. In the Mekong Delta area, there are about 250 million people at that level, and in Indonesia the same amount, 250 million. Furthermore in China with the population increase, there seems to be now about 500 million Chinese people who have GDP per capita of $3,000. So if you add all that, there are about 1 billion people that we still have to serve and this is the frontier for us. This is 10 times the population of Japan so if we have 10,000 stores in Japan, it means in Asia we have a lot of room to grow, so that should be opening 100,000 stores. So as you can see we are still very occupied with Asia.

 

One of the main reasons we wanted to sit down with you sit and profile FamilyMart is because you embody a lot of the Japanese virtues that we are working to communicate to the international community: innovation, efficiency, high-quality, and giving back to community. Do you view your company as an ambassador for Japanese values? What role does FamilyMart play in spreading to the world Japan’s reputation in these virtues?

As you mentioned, these Japanese values I believe translate into the strength of Japanese corporations. For example, the craftsmanship of manufacturers in Japan is known for their attention to detail and quality. They are often considered as over spec because they not only care about what is visible on the outside but also polish and work on what is not immediately visible. This quality has differentiated Japanese manufacturers from the competition.

Similarly, I mentioned earlier about the highly motivated store staff of FamilyMart who provide very hospitable quality service. I believe this is another value that makes Japan strong, and these employees are willing to listen to our policies and implement them.

Another strength of Japanese people is that many of them, not all, do not operate on a give-and-take basis, but rather they operate on a selfless service or dedication basis, which is something that is unique to the Japanese people. I believe that this is the virtue that was nurtured throughout the long history of the Japanese people and this has been put to a very good use in the manufacturing sector, as well as in our service sector. This is something that we can capitalize on in order to become competitive in the world.

 

At its core, Abenomics aspires to make Japan’s economy more international and in many respects FamilyMart is this case study of success for a Japanese company that was deeply domestic and is now transforming into a global company. You speak frequently at high-profile conferences such as Davos, so what advice would you give to other Japanese CEOs and chairman who would like the follow in FamilyMart’s footsteps and create global companies?

When going abroad, I believe that “curiosity” is very important and the motivation to try something. More than 30 years ago, one of my first projects was to be involved in the acquisition of a small company overseas, which was located in San Francisco, and of course it was very tough as we were using company money to do this so I had to discuss the return and the future prospects. But I believe that what allowed me to overcome the various challenges that were involved in this was my “curiosity” leading to the motivation to make something happen. 

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