Global insights from Planet Retail

Global retail insights provider Planet Retail looks at latest developments in the international market.

Clare Nutter, Associate Analyst.

JAPAN

Can FamilyMart-UNY merger spur convenience competitiveness?

Japanese convenience store giant FamilyMart and multiformat grocer UNY have agreed to merge in 2016. The duo is considering integrating the two convenience store chains, FamilyMart and Circle K Sunkus, under a single brand, with FamilyMart being the surviving entity, although exact details, including the merger ratio, are yet to be decided.

They believe the merger can increase their competitiveness in Japan’s shrinking market and the cut-throat, saturated convenience store environment.

FamilyMart has been going head to head with Lawson recently, trailing far behind Japan’s convenience leader, 7-Eleven, so this move will secure its second spot in the market and narrow the gap to 7-Eleven.

According to Planet Retail data, total 2013 Circle K Sunkus banner sales of JPY1,070 billion ($10.9 billion) were slightly more than half of FamilyMart sales at JPY1,956 billion ($5.45 billion), compared with 7-Eleven’s total banner sales of JPY3,970 billion ($43 billlion).

THE PHILIPPINES

SM Investment banks on smaller formats

Multiformat operator SM Investment, the Philippines’ largest retailer, achieved a nine per cent increase in consolidated revenue to PHP275.7 billion ($8.2 billion) for the financial year ended December 31, 2014. 

Consolidated net income increased 3.6 per cent, excluding non-core business items, to PHP28.4 billion ($830 million). For its retail operations, SM Investment enjoyed a nine per cent sales increase to PHP197.1 billion ($5.76 billion).

In 2015, SM Investment will continue focusing on expanding its smaller formats, including SaveMore stores and Alfamart minimart outlets as part of its joint venture. Savemore is SM’s fastest-growing banner, introducing a modern retail format in under-served areas.

Meanwhile, SM is still testing the Alfamart chain – essentially hybrid community/convenience stores – with around 30 outlets currently, before launching a full-scale expansion across the country.

Alfamart may soon also offer eat-in meals, which could place it in direct competition with more established convenience players such as 7-Eleven or FamilyMart.

Rapid growth of the business process outsourcing (BPO) industry is generating huge demand for FMCG and catering services from BPO employees who work around the clock.

It will be interesting to see whether outlets will be adapted to offer more convenience store elements.

UK

Morrisons focuses on M Local after another full-year flop

Morrisons has posted another poor set of full-year results with like-for-like sales falling 5.9 per cent, although it wasn’t all bad news with the like-for-like trend improving in Q3 and Q4.

The most significant news, predicted by Planet Retail in 2013, is the decision to slow the M Local convenience rollout and close 23 stores. This comes as no surprise, considering the format remains unprofitable.

Yes, the UK convenience channel is set for a prolonged period of growth, but this doesn’t mean Morrisons will successfully capture this overnight. Contrary to popular belief, convenience is a tough nut to crack.

There are a number of reasons the convenience store business has been suffering:

Site selection has been haphazard at best.

The model itself is typically leasehold rather than freehold, and often entails higher costs and management.

Product range – convenience stores require careful range selection to meet the needs of time-pressed shoppers.

Price – Morrisons embarked on a national pricing policy, including its convenience estate. If larger rivals such as Tesco and Sainsbury’s can’t offer national pricing on convenience, how on earth could Morrisons?

We’re certainly reassured that new leadership is taking a more measured look at the venture.

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