all in the familyinside japans familymart

Japan’s FamilyMart, whose Famima convenience store brand is attracting an upscale clientele in Southern California, readies expansion to several new markets and New York City may be on the agenda.

With the experience of operating 12,452 convenience stores worldwide, Tokyo-based FamilyMart Co. felt the time was right to take on the complex U.S. market. So while much of the attention over the past six months was being paid to Tesco’s much-anticipated entry into the U.S. early next year, FamilyMart was quietly building a network of six stores in Southern California.

Japan’s No. 3 convenience store chain is now poised for rapid expansion in the U.S. It hopes to have as many as 30 of its upscale, Asian-inspired Famima shops in the Los Angeles area by the end of this year and 250 in the U.S. by 2009, according to Shiro (Sho) Inoue, president of FamilyMart’s Famima Corp. subsidiary.

At fist glance, Famima stores have the look and feel of modern convenience stores. At the West Hollywood, Calif., store, where the Japanese retailer hosted Convenience Store Decisions

for a personalized tour of its U.S. operations, the front counter was well organized and free of clutter. It features two registers to minimize the wait in line during busy times and carried high-impulse, highmargin items like gourmet chocolates and snacks. Cigarettes are available, but are barely visible behind the counter to consumers.

Famima also makes good use of display cases and hardwood floors, both of which make the company stand apart from its c-store competitors, which include Chevron, am/pm and 7-Eleven. The display units, a mixture of wood and metal, are adorned with friendly earth tones and easy to navigate.

What is not typical about Famima’s stores is the product mix. The shelves are stocked with the upscale items you would expect to find at specialty retailers, which enjoy a strong presence in the Southern California market. Organic products dominate the offering highlighted by organic coffees, cereals, candy snacks and even health and beauty items like toothpaste and mouthwash.

The price tag on some of these items is also atypical for a convenience store. Some of the specialty coffees and teas retail for as much as $20.

Additionally, items to attract the market’s heavy Asian population are prevalent. The assortment includes Japanese newspapers, magazines, videos and food items like soy-based cereals and candy.

Inoue believes Famima’s offering is a sophisticated store concept based on the extremely successful Japanese model, enhanced with an upscale foodservice offering. “It is tailored for the savvy American customer and represents the future shopping experience they can expect,” he said.

Food for Thought
The foodservice offering isn’t huge, but it’s quaint, effective and diverse. Served in an easily accessible six-foot chilled gondola, the extensive line of meal solutions features items that can be eaten cold right out of the gondola or heated. The product mix includes a variety of sandwiches, pastas, salads and entrees such as meat loaf and chicken teriyaki. Traditional Asian favorites like moo shoo pork, spring rolls and dim sum are also available.

All of the food items are prepared off premise at four independent commissaries contracted to make food items based on Famima’s ingredients.

The foodservice offering is supported with indoor and outdoor seating, freshbaked goods, gourmet coffees and teas and a Coke branded soda fountain. At press time, the company was in the process of securing liquor licenses to sell beer and wine.

Price point is one area where Famima seeks to differentiate itself from specialty marketers. Prices for menu items are inline with its convenience store competitors rather than the specialty stores. Meals range from as little as $4 to $6.95, a relative bargain compared to local restaurants.

The retail offering gives customers a unique and refreshing taste of convenience. Geared toward on-the-go consumers, Famima is a hybrid featuring successful components of convenience stores, supermarkets and natural foods stores.

“When we first opened our West Hollywood store, many people did not know what type of business we were,” Inoue said. “From our modern store design, some people mistook us for a bookstore or cell phone store. We understand the need to build our brand awareness and this will take time. But we believe we can steadily increase awareness by expanding to new markets and continuing to provide satisfying products and services.”

The retail model Famima has created is catching the industry’s attention. The company has received more than 100 requests to operate franchisees in different markets, Inoue said. It’s an option the company plans to explore after it establishes itself as a major retail brand. “Our first priority is to establish a profitable retail brand that is delivering value, then we will consider franchising the brand,” he said.

Experienced Marketers
It’s important to remember that Famima is hardly a retailing neophyte. The chain has a rich history that spans 25 years in several countries, including Japan (6,000 stores), South Korea (3,000 stores), Taiwan (1,800 stores), Thailand (500 stores) and China/Shanghai (100 stores).

Inoue, a savvy marketer with many years of retail experience with FamilyMart in Asia, senses he has created something special in the U.S. “We are extremely pleased with the reaction to our stores. It is 100% better than even we expected,” he said.

So excited about the offering, Inoue confided that the company is quietly considering expansion by 2009 to New York City and other major markets in Arizona, Nevada and Washington.

“New York is an attractive market for our retail offering because it appeals to upscale customers,” Ionue said. “Overall, we believe we have created a winning retail solution that appeals to a wide-range of consumers that can be successful in many big markets.”

To facilitate its aggressive growth, Famima is working around the clock with five different real estate brokers to identify land to open new stores. Currently, all six of its stores are leasing property, but it plans to buy the land for future stores, “when the right opportunity presents itself,” Inoue said.

Inoue is also fast becoming a respected leader recognized for his knowledge of the convenience market in the U.S. He is already a member of the National Association of Convenience Stores’ International Committee and has talked extensively with his peers about the benefits of investing in retail technology. Still, despite his growing notoriety, his focus remains on growing the business in Southern California’s affluent markets.

California was chosen to launch Famima’s U.S. operations for several reasons. First, it boasts strong Asian communities and significant wealth among its target 18- to 45-year-old demographic. Plus, the markets have strong foot traffic, enabling the company to attract customers with corner stores that require minimal parking space—something that can’t be overlooked due to the enormous cost of real estate in California.

Next, Ionue believes Famima can attract women, a crucial, yet underserved customer base for most convenience marketers.

“Because of our upscale environment, women tend to view our stores as small supermarkets and they feel more comfortable coming in alone or at night,” he said. “We instruct our store and assistant managers to make sure all customers feel safe and protected when they enter and when they leave.”

The company said its high-end food and merchandise could compete with convenience stores and satisfy the same demographic targeted by specialty marketers whole foods retailers.

Let the Competition Begin
Inoue is deftly aware of his retailing surroundings. Like
other operators, he is concerned about how Tesco’s entry into the market—with its Fresh & Easy convenience concept—will affect sales.

FamilyMart and the UK retailing powerhouse are not competing in any other markets, but are on a collision course to do battle in California when the first Fresh & Easy opens early next year. The two companies are targeting a similar demographic and using an upscale foodservice offering as a key point of differentiation.

“[Tesco is] a strong company that isn’t investing its money in the U.S. market with the intention of failing,” Inoue said. “So we are in a similar position to our current competitors in that we are going to have to wait and see how aggressively they go after consumers and react accordingly.

“Our main priority right now remains strengthening our portfolio so customers get to know and trust us,” he added. “Then, hopefully, when Tesco opens up, they will be struggling to keep up with us.”

One area Famima and Tesco will not be competing in is fuel operations. Tesco has extensive fuel operations in the UK and will likely pursue fuel operations in the U.S. in 2007 or 2008. Famima has no plans to enter the fuel business.

“That’s a completely different operating model that doesn’t interest us in the U.S.” Inoue said, adding the FamilyMart operates fewer that 100 gas stations in its entire 12,452-store network.

Overall, only about 1% of Japan’s 55,000 convenience stores sell gasoline, and that’s for a variety of reasons, such as laws that prohibit self-service and the hefty real estate investment required to purchase a parcel big enough to build both a gas station and c-store. By contrast, 110,000 of the 140,000 c-stores in the U.S. sell gasoline.

Instead, FamilyMart’s focus in Asia is on maximizing c-store space. Units in Japan are typically not more than 800 square feet. This means stores have to operate smart and emphasize fresh foods, groceries and items to meet all of the consumers daily needs—almost eliminating the need for a trip to the supermarket.

Many stores are even reset several times a day to capture traffic by daypart. For example, many U.S. stores will market single-serve doughnuts, cookies and cakes on high-end gondolas near the front of the store. This is great for the morning rush, but sales of those items normally fall off as the day goes by. Rather than maximizing this prime real estate, the items do little more than simply taking up valuable space.

Japanese stores avoid this entirely by rotating items throughout the day so no matter what time customers come in, the items that greet them are relevant to the meal or snacking occasion.

“Consumers in America rarely say they are going to go to the convenience store for the majority of their shopping, but people in Japan do it all the time,” said Hidenari Sato, Famima’s chief operating officer. “We thought this kind of concept could be successfully recreated in the U.S., and, so far, it seems to be working very well.”

FAST FACTS

Established: September, 1981
Net sales: $8.7 billion
Capital: $151 million
Number of stores: 12,452
Employees: 2,318

Major activities: Operating a chain of convenience stores in Japan, Korea, Taiwan, Thailand and Shanghai/China using the FamilyMart name and franchise system.

Famima Corp.

Established: September, 2004
Number of stores: 6
Store forecast: 250 units by 2009
Employees: 100

Major activities: Operating a chain of specialty convenience stores in the U.S. using the Famima brand name and franchise system.

Long-range plans: Developing a franchise network, expanding to other major markets like New York.
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