Posts Tagged ‘convenience stores’

McDonald’s smells the coffee: Limited expectations are here to stay

Friday, December 27th, 2013

Fill 'er up: Customer using self-service coffee maker at 7-11.

Fill ‘er up: Customer using self-service coffee maker at 7-11.

If the central point of Abenomics is to boost prices and thus wages and consumption — the old “raise all boats” metaphor — then to a certain extent the plan has succeeded over the last year. Consumers don’t seem to be fixated on cheap goods and services any more, though, to be honest, it’s difficult to tell if this willingness to spend more is a function of anticipation for April’s consumption tax hike. But for the time being there seems to be that old desire for high quality stuff, regardless of how much it costs; which isn’t to say consumers aren’t looking for cheap things, only that they aren’t making it a priority any more.

This paradox seems to have had a bad effect on the fortunes of a company that some once thought was invincible: McDonald’s. Since August, the fast food behemoth’s Japanese operation has had to lower its sales projection for fiscal 2013 twice. Profits are expected to be around ¥5 billion, or a whopping ¥6.7 billion lower than originally thought. Sales have decreased five months in row, with the number of customers dropping for 7 consecutive months. The company is telling the media that the reason is “no hit product” this year, thus making it sound like a PR failure, but according to Asahi Shimbun, and almost every other Japanese media that has reported the story, McDonalds’ poor showing seems to be more systemic, an indication of a sea change in consumer sentiment.

The company’s response has been to bring in new blood. Sarah Casanova, a Canadian, was appointed president of McDonald’s Japan last summer, and, again, it seems to be more a matter of an image makeover. The announced new strategy is to target women as a demographic, since it is younger females who have tended to resist McD’s charms the most during its two straight years of falling revenues. The plan reinforces “healthy menu” items, which to a company like McDonald’s means offering more things with chicken in them.

Though it doesn’t sound like much, it’s actually quite a turnaround. When the previous president, Eiko Harada, was appointed in 2004 his big move was pushing the so-called ¥100 Mac, the cheap hamburger that was always going to be McDonald’s mainstay, and it worked. For the next six years profits grew.

The next big coup was ¥100 coffee, which effectively challenged coffee shops and coffee chains like Starbucks. Then the company made over their restaurants with more attractive decor. These various gambits were predicated on boosting the brand, but actually it was the price and the speed of service that mattered to customers. People buy McDonald’s hamburgers not because of the taste or the atmosphere, but because they’re cheap, and the same went for the coffee, which was pretty good considering but not as good as Starbucks, for what it’s worth.

To make matters worse, McDonald’s raised prices in the past year, thinking that the economy justified the change, and in a way it did, but people don’t think that way about McDonald’s. They aren’t willing to pay more for fast food, no matter how well it’s presented or how nice the decor is.

In the era of Abenomics, that means any competition can eat into McDonald’s sales more easily. Just as McD stole customers away from Starbucks when it launched its ¥100 coffee, now convenience stores are taking business away from McD with their own cheap coffee. About a year ago 7-11 put self-service coffee machines, which grind beans and brew coffee while you wait, in 16,000 stores, and by September they had sold 200 million cups. It only costs ¥100, and other CS have followed suit, though Lawson’s coffee is a bit more expensive at ¥150.

The market has grown so much that the consumer report magazine Nikkei Trendy named convenience store coffee the #1 hitto shohin (hit merchandise) of the year. It should be noted that Japan is a formidable coffee market, number 4 in the world in terms of consumption — 50 percent more than green tea, in fact. Even sushi restaurants are now serving fresh coffee. More significantly, 7-11 reports that its new coffee service does not subtract from other in-store coffee-related sales, such as canned coffee or chilled pack coffees. It’s simply gravy.

But someone has to lose in this equation, and it seems to be McDonald’s, which has a lot to lose. After all, ¥260 billion, which is McD’s projected revenue this year, is still a great deal of money. The problem is that McD is associated with hamburgers, whose traction on the Japanese imagination has always been tentative. Older people don’t really eat them as much, and Japan, as everyone knows, is the fastest aging society in the world.

Also, the tendency to eat out is becoming weaker in Japan as the population ages. Restaurant sales have decreased by 20 percent since they peaked in 1997. The weekly magazine Gendai, in typical hyperbolic fashion, has predicted the end of McDonald’s in Japan after reporting that the company will have closed 160 outlets by the end of this fiscal year.

Package funeral services take the (financial) sting out of dying

Thursday, August 30th, 2012

Funeral hearse

Your ride’s here

The Tokyo metropolitan government  has launched a jumokuso service for individuals. Jumokuso means “tree funeral.” For a fee, a person can have his or her ashes buried at the foot of a tree planted in a special park in Kodaira. The financial advantage of this particular burial model is that the person pays only once. Most remains are interred in family graves located in graveyards that are managed by either local governments or religious entities. Graveyards require kanriryo (administration fees) in perpetuity.

In principle, a jumokuso customer will have his ashes mixed with other customers. It costs ¥134,000 for roughly cremated remains and ¥44,000 for remains that have already been reduced to ash (a more involved and thus more expensive process). Enough space for 10,700 people is being planned for the park, and the first group of 500 “plots” was recently sold via lottery. There were 8,169 applicants.

Obviously, many people are not attached to the traditional Japanese style of burial any more, and it probably has a lot to do with the traditional funerals that go with it, which can be extremely expensive. A recent Asahi Shimbun article described a woman in her 60s who was shocked when she received the bill for her husband’s funeral. The funeral service company had quoted ¥1.7 million for the whole thing, but the invoice came to ¥2.6 million.

Continue reading about the funeral business in Japan →

Convenience stores gear up for a brighter future

Thursday, December 29th, 2011

Ready when you are: 7-11 Premium prepared foods

The retail giant 7&i Holdings reported an 8 percent increase in sales for the first half of fiscal 2011 over the previous year. It was a new record and clearly driven by the company’s 7-11 convenience stores. They aren’t the only ones. The three other main CS chains — Family Mart, Lawson and Sunkus/Circle K — have also reported strong earnings, the result of what the Asahi Shimbun calls a “better opinion” of convenience stores in the wake of the March disaster.

Because there are so many convenience stores, they tend to be in closer proximity to people’s homes than larger retail operations, so during that anxious period when people did not want to stray too far from their homes and loved ones, CS became a sort of lifeline. As a result, demographics that previously didn’t patronize convenience stores, such as housewives and the elderly, came to rely on them more and more, and in the process also came to appreciate their distinctive merchandising schemes.

This success has given the industry a sense of purpose, and all four big CS chains have announced plans to open as many stores as possible over the next year or so. According to the Japan Franchise Association, as of March 2011 there were 45,769 convenience stores in Japan. The industry itself, according to the Asahi, believes that the “saturation point” for convenience stores in Japan is 50,000, though some analysts say that due to the rise in single-person households, which is exactly the sort of scenario that benefits CS, the market may be able to absorb even more.

7&i plans to open 1,350 stores in FY2012, while Family Mart, which over the past two years took over 800 former am/pm stores, plans to open another 800 brand new outlets. Lawson’s target for the same period is between 800 and 1,000, and the Sankus/Circle K juggernaut is aiming for 360.

Continue reading about the expansion of convenience store chains →

Seniors reconnecting to retail

Tuesday, February 8th, 2011

A new term being tossed around by the media is kaimono nanmin (shopping refugees). It refers to people who have been cut off from the retail sector. Usually, it describes older people on fixed incomes living in remote areas, which over the past decade or so have become even more remote with the shuttering of traditional local retail districts (shotengai).

Shop til you drop: Shotengai in Sugamo

These shopping arcades used to be the only retail options one had in the countryside. The increased promotion of automobile use, which in turn prompted liberalization of laws related to distribution, gave rise to American-style shopping malls and the introduction of large international discount retailers into Japanese suburbs. Many family-owned businesses couldn’t compete, and those who did were eventually forced out of business by the recession or the fact that no one in the family wanted to take over the shop when the time came. In any case, the situation has left many older people who don’t have driver’s licenses, much less cars, without access to stores. According to Nihon TV, there are an estimated 6 million shopping refugees in Japan.

So far, most of the countermeasures for this problem have been formulated by retailers themselves, or retailers in association with local governments. Coop has a special delivery service for less mobile older folks, but as with many such services there’s a one-week gap between the time the order is made and when it’s delivered.

The most creative solution may be the one from 7&i Holdings, which runs the 7-11 convenience store chain and Ito Yokado supermarkets. On Feb. 4, 7-11 started a new test service in association with NTT and the UR public housing corporation. Five hundred households in Tokyo’s Meguro and Chuo Wards have been supplied with touch-screen tablet computers that they use to order food and sundries directly from 7-11, which are then delivered directly to their homes in a matter of hours. Currently, 7-11 offers delivery services on orders made via telephone or PC, but many elderly persons still don’t know how to use computers, and the tablets are considered simpler to use. All the user has to do is touch the image on the screen. Minimum orders are ¥1,000 with a ¥200 delivery charge per order. The test period will last six months.

Continue reading about elderly shoppers →

Lawson 100 and the evolution of the convenience store

Tuesday, April 13th, 2010

Lawson 100Japan has about 40,000 convenience stores, and sales at these stores have been declining for the past year. Given that sales everywhere have declined, that shouldn’t be surprising, but convenience stores in Japan had previously been resistant to recessions. That’s why there are 40,000 of them.

Apparently, it’s no longer the case. What tends to separate convenience stores from other retail operations in Japan is that people expect their prices to be higher. That, after all, is the cost of “convenience,” and the companies that run the stores took advantage of this prejudice by never reducing prices for any reason. Even when food approached its sell-by date/hour, store managers were not allowed to put it on sale. If they couldn’t sell it, then they would just have to throw it out (and absorb the loss). At least, that was 7-11′s policy until recently, when media coverage of this wasteful practice forced them to rethink it.

Continue reading about Lawson Store 100 →

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