Abstract
at recent events in Japan’s mass grocery retail (MGR) sector, it is
clear just how much of an
impact the country’s economic downturn is
having on the industry. As discussed in BMI’s recently
published
Japan Food and Drink Report for Q309, Japan will experience its worst
recession since World
War II in 2009, with real GDP shrinking by 6.1%,
according to our downwardly revised forecast. This
will make Japan one of
the worst-performing major economies in the world, and is having a major
negative impact on consumer confidence, as consumers look for ways to cut back
on daily expenditure.
The deteriorating economic outlook for major trading
partners, coupled with a downturn in China and
exacerbated by yen
strength, have dealt a severe blow to Japanese exports. Weak domestic demand,
as
consumer confidence slumps to its lowest level since records began in
1982, has meant no domestic
respite for the economy and retailers have had
to drastically rethink their operating strategies in an effort
to retain
even moderate growth levels.
The main beneficiary of these developments
has been the country’s discount sector. While we are
forecasting an
overall contraction in the MGR sector, sales through discount stores are
forecast to grow
by 21.2% between 2008 and 2013. Even though Japanese
consumers have long been price conscious, they
have also long disregarded
the discount model, perceiving it as cheap, rather than as good value.
However, this attitude appears to be changing, and recognizing this, many
leading retailers have shifted
their focus over to the discount store
model.
In March leading MGR operator Seven & I Holdings confirmed the
early success of its The Price
discount banner, indicating that it will be
committing more resources to this format in the short term. As
consumer
confidence has plummeted and demand for low price groceries soared, Seven & I
has been
forced to suspend organic growth plans, instead converting
existing Ito-Yokado supermarkets into
discount stores, with plans to
convert 20 Ito-Yokado stores to its The Price banner. However, with sales
at
the first two converted stores climbing 50% in February on the back of
the lower priced offerings (goods
are on average priced 10-30% cheaper),
it may yet ramp up its efforts in this area. Convenience rival
Lawson Inc
has also detailed its own plans for achieving success in this currently
popular format.
Lawson has taken pre-emptive steps to appeal to lower
income groups, via single-priced subsidiaries
Value Lawson and Ninety-nine
Plus.
This trend represents a sharp reversal from the days when high
price, cutting edge innovation was used as
a tool for enticing customers.
An ageing population and stagnant wage growth have long contributed to
the
woes of Japan’s supermarket sector. Having taken so long to be swayed by
the merits of discounting,
consumers are unlikely to completely turn their
back on it as soon as confidence improves and as such
retailer margins
will remain under as much pressure as ever.
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