Konbini: A bricks and mortar success story | KPMG | PK

Konbini: A bricks and mortar success story

Konbini: A bricks and mortar success story

Customer focused, relentlessly innovative and social hubs, konbini (Japanese convenience stores) are thriving.

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Shopper leaving from convenience store

When the Japanese insist you can buy anything at a konbini (convenience store), they’re not exaggerating. In 2014, if you had US$160,000 to spare, you could buy a custom-painted anime-themed car at a 7-Eleven. If you run your own business in Tokyo, you can purchase electricity from your local Lawson store. And if you want to see Korean pop duo Tohoshinki in concert, you can book your tickets via FamilyMart.

Japan is carpeted with konbini. And so, increasingly, is the rest of Asia as the country’s three leading chains – 7-Eleven, Lawson and FamilyMart – export the format to China, Malaysia, the Philippines and beyond. Compact, yet packed with an astonishing variety of fare, these stores can reduce even hardened foreign journalists to rapturous, gee whizzery. Yet there is nothing miraculous about konbini – they prosper because they fill a need.

The convenience store format was imported from the US in the early 1970s – when 7-Eleven, Lawson and FamilyMart all opened stores in Japan – but the concept has been brilliantly adapted. The Japanese government did its bit, allowing them to sell stamps in the 1980s, a policy that paved the way for them to evolve into community centers where you could pay your utility bills.

Property is so expensive in urban areas that many stores have less than 1,000 sq feet of floor space. To maximize revenue – and customer convenience – many open 24/7. (Crime rates are so low that people have no fear about shopping late at night.) Within these small spaces, stores typically pack in 2,000-3,000 products – varying from neckties to newspapers and beer to bento (a traditional take-out meal in a box, eaten for lunch or dinner).

Food is the biggest revenue earner: it accounts for 59.1 percent of FamilyMart’s revenue. Snacks and meals may cost more than in supermarkets but they are fresh (food is usually delivered to a store between two and five times a day), good quality and constantly changing. Each chain has a signature snack. They draw on their deep, data-driven knowledge of consumers to relentlessly develop new products. For example, oden (hotpot), traditionally a warming winter treat, is now on sale all year long – with new flavors in summer. To make distribution cheaper and easier, stores are often clustered together in the same neighborhood.

The konbini format has, so far, defied a boom in e-commerce: since 2006, FamilyMart estimates, the format’s sales have soared by 55.4 percent in Japan. There are now around 60,000 stores nationwide and the big three – which account for 90 percent of the market – look set to build or rebuild another 1,000 in the next year or so.

Like many retailers, Lawson and FamilyMart have recently struggled to grow profits, partially due to competition from other discount stores, but both are bullish about reversing that trend. 7-Eleven has profited from its huge promotional spend and private label business.

With supermarkets moving into hot foods, competition isn’t going to get any easier. Yet some consumers are fiercely loyal to konbini – 40 percent of their customers are single men.

American cultural anthropologist Gavin H. Whitelaw said: “Super- saturation is actually an amazing motor for innovation, because it drives competition.“ The chains have kept diversifying – Lawson will soon move into banking services, while 7-Eleven is ramping up its private label. They are also collaborating to manage their greatest common challenge – a shortage of labor – with innovative new technology.

In the West, many retail chains talk about turning their stores into social hubs. In Japan, konbini already are. Whitelaw, who clerked in one, recalled: “People came in to kill time before meeting friends or catching the train. Parents turn to konbini when sending their children out for their first shopping errand. The konbini is a cultural institution – integral to Japanese society.”

The chains proved Whitelaw’s point in 2011 when Fukushima was struck by an earthquake, a tsunami and a nuclear accident, touring the devastated area bringing essential supplies to displaced victims with mobile convenience stores in trucks. Even now, six years after the disaster, Lawson and e-commerce giant Rakuten are testing drone delivery to the region.

In hyper-competitive retail markets, with e-commerce eroding bricks and mortar’s market share, retailers are searching for an edge that makes them stand apart and strengthens their bond with their customers.

Could konbini provide an answer? These distinctive stores generate billions of dollars partly because they have woven themselves into the fabric of Japan’s daily life.

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