Investment in fresh food reinforcement is also accelerating. The impressive growth of Food & Drug shows no signs of stopping.
Discover the factors influencing food supermarkets.
Further emerging as a rising star in the food and drug industry is “Welcia Plus,” operated by Aeon Welcia Kyushu, a joint venture between Welcia HD and Aeon Kyushu (Fukuoka / President Yuji Shibata). Aeon Welcia Kyushu, led by President Toshinari Abe, has created specialized sales areas for food, leveraging Aeon Kyushu’s expertise in this area, and non-food items, utilizing Welcia HD’s distribution channels. Distinguishing itself from competitors dependent on concepts and tenants, this format stands out and is making strides in cultivating demand in the fiercely competitive Kyushu region.
These developments have a significant impact on supermarkets (SM). Particularly threatening is the strong price competition in food driven by the food and drug sector, making it increasingly impossible for small and medium-sized supermarkets with limited buying power to compete on price.
The reasons for being unable to break away from “DgS’s fresh produce” include several factors.
Retail insiders and experts are raising doubts about the fresh strategies employed by food and drug (F&D) stores. A senior executive from a Kanto-based supermarket (SM) company, after inspecting multiple F&D stores for competitive analysis, criticized the freshness, stating it hasn’t surpassed the level of ‘DgS Plus Alpha.’ While some F&D stores aim for expertise in fresh product selection, the significant variation among these stores poses a challenge, according to Rikako Unagizora, CEO of KTM Planning R. Former employees note that F&D’s emphasis on fresh products was primarily for differentiation from DgS, rather than direct competition with SM. The challenges in managing fresh offerings independently within departments have become apparent, with rapid store expansion leaving little room for adjustments. The dilemma persists—whether to compete based on DgS’s expertise or make substantial investments in strengthening fresh offerings, with no easy solution in sight.
The table summarizes the performance of major companies in the fiscal year 2022 that have strengthened their stance on food, either by having a high composition ratio of food sales or expanding the handling of fresh products in some stores. The sales figures show a growth rate approaching 10% across the board compared to the previous fiscal year. Welcia Holdings (Tokyo / President Tadahisa Matsumoto), Kusuri no Aoki Holdings (Ishikawa Prefecture / President Hiroyuki Aoki), and Yakuo Holdings (Iwate Prefecture / President Tatsuhiro Nishigo) have all achieved double-digit growth.
Amidst these trends, there is a noticeable presence of companies making bold investments to further enhance their food lineup and sales. For example, Kusuri no Aoki has executed mergers and acquisitions (M&A) of small to medium-sized local supermarkets in various regions such as Kansai, Hokuriku, North Kanto, and Tohoku. By inheriting some of the fresh product procurement and management expertise, as well as personnel and stores, the company is progressing in transforming into fresh full-line stores with higher customer attraction and competitiveness.
Still, SM is not “superior”.
Is food and drug (F&D) no longer an “enemy” for supermarkets (SM)? It seems premature to conclude so. One challenge is the difficulty for SMs to gain an advantage in price competition. Except for some major chains, SMs struggle to match the intense pricing strategies of F&D, particularly in processed and perishable goods. The impact of players like Cosmos Pharmaceutical, with a commitment to Everyday Low Prices (EDLP) and rapid expansion, cannot be ignored.
Another challenge is the presence of forces like Genki and Aeon Welcia Kyushu, focusing on enhancing freshness. Though their approaches differ, the competition is high, impacting SMs significantly. Collaboration or format development emphasizing both DgS and SM expertise might be a solution. While F&D continues robust growth, challenges in fresh strategies are evident. This analysis, based on nationwide research, explores the future tactics and survival strategies for both F&D and SM, providing valuable insights for their growth strategies.