Wednesday, May 8, 2013

No. 28: Convenience store chains in a turbulent age: IT and differentiation are the keys to survival (2/2) (May 9, 2013)

As leading chains focus more on locality, local chains are fighting back with their own strategies. There are about 2,700 convenience stores in Hokkaido that is the northernmost island, and a local chain by the name of Seicomart has 40% share there. The chain introduced the 100-yen prepared foods corner in 2009. They always sell about 50 kinds of 100-yen prepared foods and change menu seasonally to prevent customers from getting bored with the same menu. Every store of this chain has a kitchen inside, and customers shop around for 100-yen prepared foods, fresh foods, and drinks while they are waiting for their orders to be cooked. Seven-Eleven also offers 100-yen prepared foods, but it offers only 10 kinds. The game is over. The difference between 50 kinds and 10 kinds is too great.  

Self-efficiency supports prepared foods offered by Seicomart. As vegetables used for prepared foods are subject to market fluctuations, it is hard to maintain the price at 100 yen. This local chain procures 50% of vegetables from its own farms. It gets nearly 50% of its sales from private brands that range from 100-yen prepared foods to pickles and milk products. Trucks travel around the farms to pick vegetables and pickles after delivering commodities to each store. The logistics this chain built is working very well. This strategy helps it increase sales by 20% and operating profit by more than 70% in the past five years. As this chain shows, differentiation based on locality is important for survival.

As IT grows more important to business expansion, no chain is free from the pursuit of economies of scale. It is natural that some member stores affiliated with smaller chains are eager to increase sales by becoming a member of a larger chain. A convenience store in a rural area increased sales by 6.8% by changing the franchise to a larger nationwide chain. While the larger chain delivers commodities three times a day, the smaller chain decreased the frequency to two times a day. The store owner renewed his awareness of the comprehensive strength of the large chain. In fact, the brand strength of a larger chain is vital for convenience store owners. The difference of sales per store between Seven-Eleven and medium-sized chains increased from 140,000 yen in 2002 to 200,000 yen in 2012.

Accordingly, large chains open new stores in succession. Seven Eleven and Family Mart will open 1,500 new stores this year. Lawson, however, is taking a different approach, saying that being absorbed in opening new stores may impair the mind to develop innovative products and services. Lawson decreased the number of new stores to be opened this year 7% from the previous year to 870 stores this year. Lawson put more energy on making the existing network of chains more versatile. No one can tell which strategy will work well in the long run. As always, there is no correct answer in business. What is clear is that IT-supported efficiency and differentiation seem to be the two keys to survival.  

Super delicious fried chicken by Seicomart 

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