No. 24: The concept of a convenience store is changing (May 18, 2012)

Management

Rawson, Japan’s second largest convenience store chain, will expand the area per store to nearly 160 square meters to increase the number of such items as vegetables and prepared foods. The average area of a new convenience store was 133 square meters in 2011, and the company will increase the area by 23 square meters to 156 square meters. It has already been operating a test store of this size, and plans to start to expand stores of this size in full swing coming June. The company is scheduled to build 800 new stores this year, 50-70% of which will be a store of the bigger area. Construction cost is expected to remain the same as in 2011 partly because of the decreasing price of LED lighting and review of external wall materials.

The big area will allow the company to increase the items by 300-500 to attract the elderly who wish to shop in the vicinity and housewives who wish to buy prepared foods for dinner on their way back to home from work. In addition, it wishes to increase the number of private brands, and some stores now prepare foods inside the store for shoppers. With the expansion of service and increase of handling items, the company naturally needs to expand the area. Currently, the concept of a convenience store is growing close to a small supermarket specializing in foods and daily necessities. Actually, the difference in sales between supermarket and convenience stores is becoming smaller.  

As the competition among the convenience store chains intensifies, each of them focuses on some specific strategic points. Seven-Eleven will introduce seasonings with ingredients that allow shoppers to prepare foods only with a kind of vegetable they buy at the store. Rawson plans to increase the number of contracted firms to 30 in three years to increase the line-up of vegetables. Family-Mart wishes to increase the number of kinds of small vegetable packs sold at 100 yen each, and Circle K will introduce cut vegetable easily prepared by a kitchen microwave. 

A convenience store is growing bigger with an increase of handling items

No. 23: Will electronic books spread in Japan? (May 13, 2012)

Market trend

Amazon announced that it would launch the e-book business this year, and the Japanese publishing industry is formulating several measures to stimulate the e-book market. Leading publishers, bookstores, and printing companies are trying to spread e-books, but the fact remains that the e-book market was 65 billion yen in 2010, of which nearly 90% was comics distributed to young people through mobile phones. At present, there are less than 100,000 books available for distribution. In addition, they are mostly comics and out-of-copyright literary books that are already being released on the Internet for free. As a matter of fact, e-books account for merely 3% of the total book market that amounts to about 2 trillion yen. In the U.S., the e-book market is estimated at 120 billion yen with 1 million contents.

The great difference in the market size between Japan and the U.S. is because Japan has a different copyright system from the U.S. Writers transfer their copyrights to publishers, and publishers can digitalize their books at their own discretion in the U.S. In Japan, however, writers do not transfer their copyrights to publishers. That is, publishers have to get approval of digitalization from each of the writers in Japan. To overcome this stalemate, publishes try to get the neighboring right for easier distribution of e-books. The Japanese government is working on the request from publishers. The Agency for Cultural Affairs has been discussing this issue since November 2010.

The report published last December required further examination of the influence over the e-book market and organization of legal problems in association of expanding the e-book market, and the discussion is still in progress. E-books are truly convenient and easy-to-handle, but it does not seem probable that the e-book market will expand rapidly and considerably in a short time because consumers will not change their custom of reading books published in paper so quickly and promptly. Most railway stations have a bookstore before them, and it is now possible to get a book bought on the Internet at a convenience store in Japan. Actually, you can easily find a convenience store around the corner in Japan.  

No. 22: Yokogawa Electric withdraws from the semiconductor inspection equipment business (May 12, 2012)

Management trend

Yokogawa Electric, one of Japan’s excellent manufacturers of control equipment, decided to discontinue building inspection equipment for semiconductor production in March 2013 and concentrate its management resources on equipment for plant control. After spinning off its semiconductor inspection business in April 2011, the company has been looking for a buyer unsuccessfully. The plant current building inspection equipment will be remodeled as a plant exclusively for the production of plant control equipment.

The company used to be one of the world’s three big names in the semiconductor inspection equipment business with Advantest and Teledyne of the U.S., and it enjoyed big business with Samsung Electronics of Korea. It achieved sales of 20 billion yen in the semiconductor inspection equipment business in 2010. However, its share fell about 2% lately due to a lack of investment in development. In fact, the business has been in red since 2007. While Yokogawa’s presence in the market dwindles, Advantest acquired Verigy of the U.S. in 2011 to strengthen its ability to provide integrated services. And Yokogawa further decreased its share because its equipment is designed only for a specific process.

As Peter Drucker said, innovation and marketing are the two most critical factors for a company. Stay alert anytime. If you drop your guard, you will lose. Think about Nokia and Research in Motion (RIM), both of whom have hard time to regain their golden age. 

No. 21: Selection and concentration for higher profit rates to get ready for global competition (May 9, 2012)

Business trend

Asahi group officially announced that it would take over Calpis that is Japan’s leading maker of lactic fermented milk drinks from Ajinomoto that is Japan’s leading maker and developer of seasonings and amino acids. Calpis will officially be a company in Asahi group on October 1. This deal seems to indicate the beginning of a series of reorganization of the food industry that is basically a domestic industry.

Coca-Cola group is the leader in the Japanese soft drink market with 28.4% share, followed by Suntory with 21.9% share. Asahi that acquired Calpis will have a share of 12.4%. The fourth position goes to Ito En with 11.2%, and the fifth largest is Kirin Beverage with 9.7%. According to the industrial source, a soft drink brand needs to achieve annual sales of 30 million cases to stay on the supermarket shelf. Asahi group has only two brands that clear the standard. As a matter of fact, lots of new soft drinks are launched in succession, but best selling products are long sellers that have a history of longer than 20 years. In this sense, owning No. 1 and No. 2 brands in a highly segmented market is crucial for every company to survive in the increasingly competitive soft drink market.

In addition, Japanese soft drink makers generally do not achieve a high operating profit rate as compared with leading western food companies. In the world food market, the leader is unquestionably Nestle of Switzerland. Nestle enjoys an operating profit rate of 15% on sales of 1,080 billion yen, and it is followed by Unilever with 14% on sales of 670 billion yen and Craft with 12% on sales of 540 billion yen. Asahi got an operating profit rate of 7% on sales of 110 billion yen and Ajinomoto obtained an operating profit rate of 6% on sales of 73 billion yen. As global competition develops, it is increasingly important to improve profitability and capital efficiency. The deal between Asahi Group and Ajinomoto satisfies the business strategy of the two companies. The former needs to increase the presence in the world market, while the latter wishes to focus on marketing and development of seasonings and amino acids.

Reorganization of Japanese companies to make them ready for global competition will supposedly grow widespread, although long overdue. 

The lineup of Calpis water products that are favorite of Japanese children

The traditional and favorite gift of Japanese in the summer and winter gift exchange seasons