TOKYO -- In baking heat and a cooling economy, Japan's convenience storesoften a bellwether for U.S. storesare thriving as depressed consumers stock up on cigarettes and cold drinks, reported The Wall Street Journal. But analysts say the strength of sales in the country's many "conbinis" in July, even as consumer spending crumbles elsewhere, isn't all attributable to hot weather and a shift in tobacco-sale regulations that favors the operators. They say c-stores also might be ahead of the game in adapting to a more austere period as budget-conscious consumers fill their [image-nocss] baskets with cheap, private-label prepared foods at the likes of Seven-Eleven, Lawson and FamilyMart, rather than visiting restaurants or driving to supermarkets.
"Convenience stores are well placed to benefit from the current economic environment of higher food and gasoline prices," Dairo Murata, an analyst at Credit Suisse, told the newspaper. Discounting the positive effects of the new cigarette-sales rules and the weather, July sales would still mark modest year-to-year growth, "a major improvement given that monthly sales had been on the decline over the past several years."
While food retail is dominated in many developed economies by supermarket companies such as America's Wal-Mart Stores and France's Carrefour, Japan's 43,000-strong network of small, local c-stores, many open 24 hours, are a standby for much of the country's urban population.
At FamilyMart Co., same-store sales, or sales at stores open at least 13 months, rose 13% in July in terms of value, the biggest year-to-year rise in monthly sales at Japan's third-biggest c-store operator by market capitalization since August 1990, said the report. Lawson Inc., the second-largest chain, also enjoyed 13% growth in same-store sales, while much smaller Circle K Sunkus Co. posted an 11% rise. The chains don't disclose the absolute value of their monthly sales on a same-store basis. Meanwhile Seven & I Holdings, Japan's biggest grocer, is set to disclose its July sales figures Wednesday. Analysts expect it to report sales gains.
C-stores' strong sales stand out at a time when many of Japan's department stores and supermarkets are suffering, the report said. That is because consumer sentiment and spending is buckling in the midst of a contracting economy and price increases.
At c-stores, people buying cigarettes accounted for a large part of the sales growth in July. Cigarette vending machines nationwide now work only with age-verification cards, but just 30% of Japan's 26 million smokers had obtained the cards as of August 2, according to the Journal, citing the Tobacco Institute of Japan.
Another major factor that drove up sales figures was the weather. In western Japan, it was the third-hottest July in the postwar era since 1946, the report said.
But while analysts say the effect of those two factors will wear off, July sales also show an underlying robustness. "Strong food sales indicate that convenience stores' business models are working," Shun Tanaka, analyst at SMBC Friend Research Center, told the paper.
The growth in sales of prepared foods reflects changes in spending patterns; the stores say more consumers, in an effort to cut expenses, are picking up takeaway foods instead of eating out. "It is certain that some consumer demand is shifting from restaurants, and we have to make sure that we take advantage of this opportunity," a FamilyMart spokesperson told the Journal. To that end, the retailer has been boosting the volume and lineup of its own-label food items.
C-stores are also trying, with some success, to promote private-label items to counter consumers' preconceptions that their prices aren't competitive, according to the report. Traditionally, supermarkets have used their bigger purchasing muscle to negotiate hard bargains with supplies. But with raw-materials prices rising all around, "The price gap between supermarkets and convenience stores is narrowing," Shinya Torihama, retail analyst at Okasan Securities, told the paper.
At Seven-Eleven, items sold under its Seven Premium label are 20% to 30% cheaper than household name brands. Meanwhile, Lawson is increasing its stake in discount-store operator Ninety-Nine Plus Inc. to strengthen its own-label product range.
Meanwhile, in other news that could affect U.S. retailing, Japan will start an aggressive push to market its mobile technology abroad, especially the nation's popular "wallet phone," a government official said, according to an Associated Press report.
Although Japan boasts some of the most sophisticated cell phones in the world, delivering high-speed Internet connections, digital TV broadcasts and video downloads, the nation has failed to make its handsets, wireless technology and mobile services hits outside of Japan. The latest initiative spearheaded by the government with an industry group of Japanese carriers and manufacturers is an effort to help Japan catch up in wooing global users, said Masayuki Ito, official at the Ministry of Internal Affairs & Communications.
Wallet phone technology relies on a computer chip called FeliCa, which communicates with a reader-device at stores, train stations and vending machines for cashless payments. FeliCa was developed by Sony Corp. Such technology is more common in smart cards, popular in Singapore and parts of Europe. But Japan hopes to market the technology abroad for cell phones.
In Japan, wallet phones have been available since 2004, introduced by top mobile carrier NTT DoCoMo. Most recent handset models have the wallet function. Wallet phones have been hits in Japan because of the omnipresent c-stores and vending machines, as well as the relative lack of credit card use. But conditions in other nations may differ.
"Some critics say Japanese mobile technology tends to be quirky like the Galapagos Islands," Ito said, referring to the isolated Pacific islands with unique evolutionary changes. "But Asian nations such as Taiwan and South Korea have for years expressed great interest in Japanese cell phones."
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