GenBridge study tour to Japan: Innovative insights in a buyer’s market

Category
Date
12.5.2023

The Japanese retail market serves as a valuable benchmark for Chinese consumer entrepreneurship and investment research. China and Japan share similar cultural environment, lifestyle habits, densely populated urban living patterns, economic development cycles, and demographic evolution cycles. This similarity positions Japan’s more advanced and mature retail industry as a mirror for the future evolution of China’s retail sector. By leveraging insights from Japan, we can better contemplate the developmental trajectory of China’s retail industry.

We have systematically studied Japan’s consumer retail sector since the inception of GenBridge, and our benchmarking research spans three dimensions: macroeconomics, industry evolution, and enterprise development. To date, we have completed nearly a hundred in-depth research reports. Continual comparative analysis has deepened our understanding of China’s offline retail trends. This accumulated knowledge has also enabled us to invest in and support the growth of emerging national chains like Qiandama, Guoquan, and Xueji.

As Inamori Kazuo once said, “The answer is in the field.” The GenBridge team has undertaken numerous on-site visits to Japan for firsthand research and learning. In early November, we organized a “Deep Dive into the Japanese Retail Landscape” for key personnel from various retail enterprises.

During the three-day visit to Japan, we meticulously studied six renowned retail outlets and engaged in profound discussions with executives from three pivotal companies in Japan’s retail industry: Japan’s leading food supply chain company – Japan ACCESS, Japan’s premier domestic consultancy -JMAC, and the renowned Japanese retail consultancy – Retail Science.

This immersive experience left our delegation with profound insights and inspirations. We recognize that China still harbors abundant opportunities for retail innovation. We are eager to share the core takeaways from our in-depth exploration of Japan’s retail landscape, aiming to inspire and foster collective growth among GenBridge partners.

 

PART 1

Retail Store Exploration

Life

Life is a renowned supermarket in Japan, boasting 300 directly operated stores nationwide. Each store spans approximately 2,500 square meters, with an annual revenue of around 38 billion yuan. Their primary channels focus on food, basic apparel, and household daily necessities.

In an era where comprehensive superstore formats are declining, Life stands out by maintaining its competitive edge through medium to large-scale formats. Strategically locating their outlets closer to consumers in urban areas, Life doesn’t compete solely on price but rather emphasizes the adaptability of each store’s local commercial environment, curating products that cater to the specific needs of the local clientele.

Seicomart

Seicomart, established in 1971, is a convenience store chain originating from Hokkaido. With approximately 1,200 outlets across Japan, 80% of which are directly managed, the company garners an annual sales revenue of about 10 billion RMB. It consistently ranked as Japan’s top convenience store in customer satisfaction.

Seicomart leverages Hokkaido’s abundant agricultural resources, establishing a vertically integrated supply chain for product development. Remarkably, Seicomart has expanded into Hokkaido’s villages with as few as 3,000 residents, carving out a niche unattainable by Japan’s three major convenience store chains.

 

Hanamasa

Hanamasa was founded in 2008 and stands as a specialized discount chain store for meats in Japan. Famed for offering high-quality, cost-effective meat products and fresh ingredients, as of September 2023, they operate 56 primarily directly managed outlets, achieving a total revenue of 700 million yuan in 2022.

Kobe Bussan

Kobe Bussan, established in 1981, is a renowned Japanese discount chain integrating sales and manufacturing, with a revenue of 20.3 billion yuan in 2022 and 1,032 outlets across Japan as of September 2023.

Their primary offerings include discounted frozen foods and imported ingredients. Since 2008, the channel has continually acquired upstream manufacturing enterprises, leveraging scale efficiencies in food production to enhance their product value proposition.

Lopia

Lopia, founded in 1971, is often dubbed the ‘Japanese Costco’, and specializes in fresh meats and meat products. With an annual revenue of 17 billion yuan in 2022 and 78 outlets as of September 2023, each store achieves an average annual sales of 220 million yuan.

Lopia’s strength lies in its vertically integrated supply chain focusing on maximizing the value of every part of a pig or cow. Their expertise in meat product segmentation and processing positions them uniquely in the market, appealing to consumers within a 20km radius as their primary shopping destination.

OK Store

Established in 1958, OK Store embodies the ethos of ‘high quality, Everyday Low Price’ in Japan’s hard discount supermarket landscape. Predominantly offering fresh and non-branded processed foods, they operated 144 outlets in 2023, generating a revenue of 25.4 billion yuan in 2022.

OK Store employs a trade-oriented supply chain strategy, adeptly navigating shifts in Japan’s non-branded product competitive landscape. By deepening collaborations with secondary brands, they’ve successfully implemented a hard discount model for non-branded products while also prioritizing the quality of fresh produce.

PART 2

Expert Insights

To better understand the evolution, driving forces and core capabilities of each enterprise within Japan’s retail sector, we had the privilege of engaging in profound discussions with top executives from ACCESS, JMAC and Retail Science.

ACCESS: Integrated Retail Supply Chain Management

ACCESS stands as a wholly-owned subsidiary under Japan’s Itochu Corporation. Primarily catering to supermarkets, restaurants, and convenience stores, ACCESS offers integrated supply chain solutions. The top executives at ACCESS shared us with comprehensive insights into their primary operations, core competencies, strategies for market expansion in China, and collaborative models.

Key Insights:

  1. Industry Relations: A notable trend in Japan’s emerging retail landscape is a shift from adversarial relationships with suppliers to fostering genuine partnerships.
  2. Freshness Mastery: At the heart of ACCESS’s prowess in fresh produce lies its end-to-end supply chain management. From harvest to store shelves, a meticulous cold chain and temperature control are maintained throughout. This meticulous approach includes precise tracking of production times, the establishment of visualized processes, ensuring efficient inventory turnover with minimal stagnation or losses in transit. Notably, this exceptional freshness is achieved without relying extensively on cutting-edge technology but, rather, on human expertise. Every participant in the chain is dedicated to ensuring the freshness of the products, with each intermediate point maintaining stringent temperature controls, down to every minute, leaving no room for oversight.
  3. Private Label Strategy: ACCESS currently values product development, recognizing the necessity to transcend the role of a mere wholesaler and establish distinctive capabilities. While the company doesn’t operate its own manufacturing facilities, it predominantly engages in joint product development with selected, compatible factories. Additionally, ACCESS has ventured into substantial investments in big data market analysis, providing valuable insights to manufacturers or retailers to collaboratively produce superior products.

Retail Science: Opportunities in Convenience Store Growth

Retail Science stands as a renowned retail consultancy in Japan. Over the two enlightening hours with experts from Retail Science, they took us on a journey through the developmental history of Japan’s retail industry, dissecting the underlying dynamics of its rise and fall, and the future growth avenues for Japanese convenience stores and the pivotal capabilities they would require.

Key Insights:

  1. Future Growth Categories: Currently, the fastest-growing category in Japan is frozen foods. The surge in the popularity of frozen foods in Japan can be attributed to matured infrastructures like cold chain logistics and advancements in frozen food R&D technology. As the technology for frozen foods has advanced—with reduced cell damage during freezing processes—there’s a noticeable improvement in the taste of these products. Coupled with the fact that many shelf-stable and refrigerated foods contain additives, this has led to a shift in consumer perception that they now perceive frozen foods as not only tastier but also free from additives.
  2. Retail Strategies in a Stable Economy: During Japan’s rapid economic growth, profits naturally followed increased sales. However, as retail channels are currently grappling with stagnant sales figures, they have to shift the focus to competing on margins. The overarching strategy across channels now revolves around targeting specific demographics, creating differentiated value propositions, and ensuring cost-effective operations.
  3. Core Capability of Convenience Stores: The most crucial capability for convenience stores is the ability to forecast demands with pinpoint accuracy.
  4. Core Assets of Storefronts: The zoning and categorization of products on store shelves are the most significant intangible assets in the retail sector.
  5. Execution of EDLP: Discount stores aren’t merely engaging in a price war but are embracing the concept of EDLP. This entails achieving lower operational costs through savings in labor and logistics expenses. Essentially, it’s the concept of EDLC that paves the way for EDLP.

JMAC: Poring on Retail Store Competencies through the Lens of Regional Convenience Store Seicomart

Established in 1942, JMAC is Japan’s earliest consulting firm. It is dedicated to enhancing operational efficiency for clients in the manufacturing, retail, and logistics sectors. With approximately 2,000 employees, the association undertakes around 1,500 projects annually. Mr. Katsuki Fujikura, the General Manager of JMAC China, used Seicomart as a case study to elucidate the distinct positioning and success strategies of a regional convenience store brand. He also highlighted the core operational competencies inherent in Japan’s exemplary retail and convenience store enterprises.

Key Insights:

  1. As a player in Hokkaido’s regional convenience store market, Seicomart has charted a path widely divergent from that of 7-Eleven. By managing its entire supply chain in-house to reduce costs, establishing its own logistics to ensure freshness, and focusing on hot foods as a core product category, Seicomart has erected formidable competitive barriers.
  2. Core competencies requisite for outstanding retail and convenience store enterprises include:
    • Store Management Capability: The crux of all retail issues and solutions lies within the store. Regardless of scale, every reform initiative originates from the store. If consumers leave without buying anything, it indicates they might have had no expectations from certain channels or not sure about why they come in the first place. Challenges might arise from extreme product structures, price ranges, excessive stockouts (common issues faced by Chinese enterprises), or disjointed shelf displays. Therefore, it’s imperative to refine the shopping experience for every consumer and continuously optimize the store visit cycle.
    • Supply Chain Management Capability: While Chinese enterprises possess commendable prowess in popular product creation, there are still substantial room for improvement in overall supply chain capabilities. In contrast, 7-Eleven’s notable distinction lies in its profound capabilities and barriers at the comprehensive supply chain level. The ten pivotal supply chain competencies of 7-Eleven have evolved into intangible assets that competitors find challenging to discern or emulate.

PART 3

Summary of the Japan Trip

For Chinese entrepreneurs and investors in the consumer retail sector, “Japanese Retail Research” has undoubtedly become a popular field of study in recent years. While articles and videos on Japanese retail abound online, insights gained from mere digital content barely compares to the experience of on-site visit of real stores. This underscores the value of the adage, “The answer lies in the field.”

Fellow entrepreneurs on this trip recognized that, “The three-day exploration of Japan’s retail landscape has broadened our horizons and offered a glimpse into the trends and opportunities for China’s retail sector over the next decade. Engaging with Japanese entrepreneurs and experts offered invaluable insights, granting us a comprehensive understanding of the underlying logic and core competencies behind Japan’s retail success. Grouping with other partner companies during this visit provided diverse perspectives and observations on Japanese retail, enriching our knowledge base. We’re already looking forward to our upcoming study tour in Europe.”

For the GenBridge team, this exploration of Japan’s retail landscape has been immensely rewarding. Intensive store visits offered a nuanced and profound understanding of various retail formats. Discussions and workshops with top executives and experts from three different companies further refined our framework for Japanese retail research, deepening our insights into the recipe for retail success in Japan. In summary: in a buyer-centric market era, retail enterprises must laser-focus on their target audience, continually innovate and differentiate through strategies like collaborative alliances, and achieve an EDLP operation through EDLC throughout the year.

Lastly, I’d like to conclude with a sentiment from our Japan trip that deeply resonated with me. The philosophy of the Lawson Company is: “We make the cities we live in together better.” Grounded in such a philosophy, our stores will resonate more closely with consumers’ lives. I believe this encapsulates the ultimate essence of physical stores and is the driving force behind the burgeoning momentum of China’s new generation of community-centered national chains.