Lopia: Japan’s meat retail “category killer” boasting a single store revenue of 600 Million RMB

The premise of this article is to assist retail enterprises in their discounted transformation.

“Discounting” undoubtedly stands out as the hottest topic in the retail industry this year. The anxiety brought about by the current environmental changes can easily lead retail enterprises into the pitfalls of simply imitating successful overseas formats or excessively focusing on short-term price strategies. Yet the essence of “discounting” lies in the strategic choices and capacity building of enterprises.

We believe that discounting in retail needs to emphasize the following three aspects:

• Differentiated Product Strength: Choose categories with advantages, address consumer pain points, and excel in product development, and pricing.
• Supply Chain Management: Based on the natural characteristics of categories, select corresponding vertical supply models, establish trust with upstream partners, and reduce the bullwhip effect.
• Organizational Agility: Improve organizational agility through incentive systems, allowing employees to proactively tackle complex issues, thereby enhancing operational efficiency.

Among these, differentiated product strength is often the most overlooked. China’s retail industry has a vast supplier system, with most companies selling products from an “open-source” supply chain. Traditional retail enterprises mainly focus on upstream bargaining, selection of products, corruption control, and the management and operation of stores. They collect shelf fees from suppliers/brands but do not put enough emphasis on how to cultivate their own dominant categories through deepening supply chain capabilities.

In the selection of retail categories in China, fresh products hold exceptionally high value. They have a broad and frequent demand spectrum, contributing to gaining consumer trust. However, due to the complex supply chain management and homogeneity of fresh products, there are few instances overseas where discount retail achieves both price and quality advantages with fresh products. How to achieve differentiated product strength through the fresh product category is a pressing issue for the Chinese retail industry.

This study will introduce a discount retail case focused on fresh products: Lopia, a Japanese food supermarket.

Lopia positions itself as the “Japanese version of Costco for four-person families” and is a manufacturing-oriented food retail channel with meat products at its core. The company has turned fresh products into profitable items, with 30% of revenue from meat contributing to 80% of profits. With the philosophy of “meat for all children,” the company deeply cultivates the supply chain capabilities of meat products and achieves competitive advantages through the integrated procurement and sales system in its stores.

As Lopia is not publicly listed, there is very little publicly available information. This study is the first comprehensive research in both China and Japan. We have reconstructed the competitive capabilities and development path of the company through store visits, expert interviews, and collation of second-hand information.

The article is divided into six sections:

1. Introduction: Provides an overview of Lopia’s fundamentals and business model.
2. History: Explores the founder’s philosophy and the significant changes the company has undergone.
3. Demand: Examines consumer pain points and Lopia’s solutions.
4. Supply Chain: Assesses the vertical supply capabilities that contribute to meat product strength.
5. Procurement and Operations: Details the incentive-driven, integrated procurement and operational system.
6. Dynamic Development: Understands the capacity building of discount retail from a dynamic perspective.

Lopia’s precision in cultivating the strength of its meat products is inseparable from the founding principles of its visionary founder, Hideo Takagi.

The founder of Lopia, Hideo Takagi, embarked on his entrepreneurial journey with the intention of “ensuring all children can afford meat.” Growing up amidst the ruins of post-war Japan, where there was a scarcity of food and people are starved every day. At that time, sausages provided by the U.S. military became a rare delicacy. Hideo Takagi often shares with his team during company meetings, “Back then, I could have one sausage every day. I liked it so much and didn’t want to just devour it, so I would lick the sausage until it is tasteless, and then eat it.”

From this ideal to the eventual establishment of Lopia, Hideo Takagi made numerous experimental explorations. Lopia’s earliest predecessor was called “Niku no Takarabako” (translated as “Meat Treasure House”), a stall specializing in meat products established in 1971 in Fujisawa City. It involved various ways of cutting and selling purchased meat. Hideo Takagi delved personally into product development, for example, flying to Germany to see the sausage production process and establishing a backend production center. This allowed stores not only to sell meat but also freshly made sausages and prepared foods, enhancing profit margins.

However, even the best quality products cannot escape the iteration of the retail channel. By the 1980s, Japanese consumers’ food purchasing channels had transitioned from community stores to supermarkets. Supermarkets possessed shallow processing capabilities and placed more emphasis on a merchandise combination marketing strategy centered around 52MD. The popularity of the supermarket format transformed consumer purchasing from buying single items like a radish or a piece of meat to selecting solutions for three meals (meal solution). Faced with channel changes, Hideo Takagi had to transform. After testing the waters in 1980 and fully transitioning in 1996, it became “Yutakaraya” (translated as “Abundant Treasure House”).

Yutakaraya Koenji store

“Yutakaraya” was a medium-sized supermarket format with a core focus on meat, covering an area of approximately 700 to 1000 square meters. Initially, the company lacked category management capabilities other than meat, so vegetables, fish, and prepared foods were sold by inviting individual businesses from other categories. After learning the knowledge of various categories, Yutakaraya gradually shifted ordinary food, vegetables, prepared foods, and seafood to direct management. In 2007, Yutakaraya had about 21 stores with 18 billion Japanese Yen in sales revenue.

The true transformation from “Yutakaraya” to “Lopia” took place in 2011. After testing the Lopia format in 2009, the first store achieved significant success. High cost-effectiveness and a diverse range of meats earned the trust and wallets of consumers. At this point, Hideo Takagi, already advanced in age, wanted to hand over the business to his son, Yosuke Takagi. The company was renamed “Lopia” and redefined its mission: “Same things at cheaper prices, and better quality for the same price.”

What supports Lopia through each transformation? We believe it is still the commitment to “meat for all children.” Of course, this heartwarming story may well be a carefully crafted narrative by the company. Whether it’s true or not is not crucial. What matters is understanding how Lopia precisely caters to the demands of its target audience.

How does Lopia meet consumers’ latent demand for meat?

The answer lies in three key aspects: choosing, producing, and selling.

Choosing: This refers to the method and quality of procurement. Unlike regular supermarkets in Japan that simplify operations by purchasing different cuts of beef and pork, and then conducting cutting and selling at the backend factory or store, Lopia engages in multi-part/whole-head procurement. This method requires assessing the yield after cutting during procurement. Rooted in its origins as a meat store, Lopia has accumulated rich experience and channels in meat procurement.

“Choosing” also means establishing stable trust-based relationships with upstream suppliers. Founder Hidetake Takagi still visits the meat wholesale market every morning to personally procure raw materials. This proactive approach is a form of respect for upstream wholesalers and farmers. For livestock farmers, if the prices offered by various buyers are similar, they prefer to sell their hard-raised livestock to companies that treat them well and can market the products effectively. According to a meat expert, suppliers at the Yokohama meat wholesale market are willing to provide Lopia with a few extra points of margin. Additionally, Lopia primarily relies on cash purchases, and most stores do not accept credit card payments.

Producing: This involves channel-based commercial development of meat products. Lopia has extensive experience in the commercial processing of various meat cuts, maximizing the sale of high-value cuts with higher profit margins. Furthermore, Lopia processes meat into different forms, allowing consumers to choose pre-cut products based on recipe requirements. Through different cutting methods, different cuts, and different price ranges, Lopia achieves a diverse range of meat products.

Lopia noted the flavor difference of different parts

On this basis, Lopia blends the profit of various cuts of meat from a whole head/animal. The cost of purchasing in multi-part/whole-head method is about 15% lower than purchasing individual cuts. However, this method also tests the channel’s ability to utilize various cuts of meat; purchasing without efficient utilization increases costs. Lopia effectively uses the scraps generated during cutting and production in the backend factory. While other channels may discard these scraps, Lopia utilizes them to create products such as sausages, ham, hamburger meat, and more.

Lopia’s Private Brand meat products are more than 30% cheaper than National Brand standard goods and reach the same taste level. These PB products, including sausages, contribute to the source of Lopia’s meat profits. Lopia’s self-owned sausage products have a full-chain gross margin of over 50%, and some marinated seasoned meat products can achieve a gross profit margin of up to 80%. These products are prominently displayed in Lopia stores, using a large quantity of individual items.

To further enhance the added value brought by self-processing meat products, Lopia has also introduced distinctive ready-to-eat products. Lopia’s ready-to-eat products do not include seafood, vegetables, or other categories outside of meat products. All ready-to-eat products revolve around maximizing the value of meat products. For example, Lopia’s freshly baked sausage and bacon pizza (27 RMB) cleverly utilizes the value of freshly baked pizza and the meat product image of the Lopia brand, becoming a star product in the ready-to-eat category. With the profit support from these product categories, Lopia can offer beef products with the strongest consumer value at lower prices.

Freshly baked sausage and bacon pizza at Lopia

Achieving exceptionally high profits through meat products signifies the transformation of the backend meat processing factory from a cost center to a profit center. The traditional meat processing factories of chain channels typically function as a “sorting center,” primarily focusing on portion control. For instance, after the slaughter of pigs, when transported to the factory, the backend factory decides which parts to use for fresh cuts, which to freeze, and which to wholesale to catering channels, managing comprehensive cost and loss control. However, Lopia amplifies the product development function of its backend factory, utilizing different cuts through processing techniques and commercialization thinking to maximize profit.

Lopia has also organized its meat processing facilities based on different product price bands. The backend factory mainly handles the processing and commercialization of mid- to low-end meat, achieving maximum efficiency with the lowest labor cost. The factory has imported production experience from the world’s largest electric motor company, minimizing costs throughout the entire process. Store processing mainly focuses on cutting high-priced domestically produced premium beef, effectively controlling losses while providing consumers with a stronger sense of value.

Lopia’s meat processing factory

The inherent characteristics of meat products contribute significantly to Lopia’s strong image of cost-effectiveness and high quality. However, achieving good quality is not solely a matter of waiting; it requires effective strategies to promote and sell the products. This involves strategies such as establishing price perceptions, store marketing activities, and promoting brand value.

Lopia establishes a perception of high cost-effectiveness through the anchoring of prices with slices of premium beef. While the gross margin for this category is only about 15%, the selling price is less than half of that in department stores and 30% cheaper than other food supermarkets. The price of premium beef at Lopia ranges from 20 to 25 RMB per 100g, allowing consumers to buy a slice of beef with snow-like meat quality for only around 50 RMB. Because premium beef is not a daily purchase for Lopia’s target consumers, they may not fully understand the price, creating an impression of “affordability.”

Grade 4 “Source Beef” Thick-Cut Slices 130rmb/539g; Kumamoto-Produced Beef Steak Meat, Frost Drop Shoulder Core Muscle Meat 110rmb/440g

The variance between the expected quality and price of Lopia’s beef comes from the branding of Lopia’s beef. The premium Wagyu product line from Lopia is named “Gen Beef” and has its own set of grading criteria. However, “Gen Beef” does not have strict environmental requirements for breeding like “Kobe Beef” or “Matsusaka Beef”; it is a general term used by Lopia for domestically produced high-end black-haired beef. This branding approach leads consumers to believe that “Gen Beef” is close in quality to “Kobe Beef” and “Matsusaka Beef.” In reality, the taste of “Gen Beef” is not on par with true branded beef, but this is not crucial for Lopia’s consumers.

In terms of sales, Lopia actively employs flexible promotional activities, leveraging the channel’s perception of low-cost, high-quality meat to attract consumers. For example, Lopia holds a “Meat Day” promotion on the 29th of each month (29 is a homophone for “meat” in Japanese), which has become a day many families visit Lopia. Additionally, Lopia has “Local Strongest Day” promotions every day other than weekends, offering specific items at the lowest regional prices. About 3% to 6% of the product SKU quantity is on rolling promotions.

Regional Strongest Day Poster; Lopia Meat Day Poster; Lopia’s Meat Product Promotion

The development of a business is not linear but rather a continuous evolution in a spiral ascension. The main thread has always been the company’s continuous deepening of its advantages to solidify them into competitive barriers. Let’s further understand Lopia’s development choices from the perspective of dynamic upgrading.

In 2023, Lopia implemented a structural adjustment by establishing the OIC Holding Group, further decentralizing managerial authority, and assigning various subsidiaries to professional managers. The founder and top executives then focused their time and energy on high-quality decision-making, better managing the expanding business radius.

The reason behind the significant adjustments made by OIC Group was Lopia’s integration of the supply chain in 2014, involving mergers and the establishment of multiple enterprises. This necessitated a new management system to cope with the increasing complexity of tasks. Some of the companies acquired by Lopia include “Kai Shokusan” in the chicken supply chain, the seasoning production factory “Marukoshi,” the agricultural wholesale market “Saiwai ichiba,” and the soy sauce factory “Toragawa Soy Sauce.” These entities became crucial components in deepening Lopia’s product strength and supply chain, consolidating the advantages established in the meat category.

To encourage cross-category purchases between meat products and other goods, Lopia further replaced commodity products with PB items to improve profit margins beyond the fresh food category. Currently, PB products under the Lopia brand account for less than 10% of non-fresh category sales, with a future goal of increasing it to 30%.

The development standard for Lopia’s PB products adheres to the principles of being delicious and reasonably priced, without compromising quality for lower costs. PB development follows an internal bidding system, allowing employees to define products, find suppliers, and submit proposals to the headquarters. Every month, a high-level executive meeting at the headquarters decides whether a new product is good enough for sales, with “taste quality” as the core criterion. In 2022, OIC acquired the well-known Japanese culinary expert, Rokuro Dojo, and his studio, enhancing Lopia’s capability to plan high-quality PB products. The development principle for PB items is not to create products that lack differentiation.

Lopia’s development started with a breakthrough in meat products, progressing to a vertically integrated meat supply chain, transitioning to a unified procurement and sales operation model, and returning to the enhancement of PB product strength and deeper supply chain cultivation. Lopia aims to achieve a revenue target of ¥2 trillion (100 billion RMB) by 2031. As the company scales up and managerial challenges increase, its business model continues to upgrade and evolve. OIC Group is also expanding its business into the incubation of restaurant brands, continuously pushing the boundaries of the company’s management and capabilities.