Logistics centers – Microfulfillment – Convenience stores – Dark stores
Local decentralized hubs – Image: @shutterstock|Ingaga
Japan has around 50,000 convenience stores, known as konbinis. The best-known are FamilyMart, Laswson, 7-Eleven, New Days, and Ministop. The largest of these is 7-Eleven, with over 50,000 employees and a turnover of €35 billion.
To have a comparison of numbers:
- Edeka generated €55.7 billion in revenue in 2019, with over 381,000 employees.
- Aldi Nord and Aldi Süd together employ around 220,000 people. Aldi Nord generated €21.8 billion in revenue in 2015 and Aldi Süd €59 billion in 2019.
- The Rewe Group generated €62.7 billion in revenue in 2019, employing over 363,000 people. Rewe Markt is the second-largest food retailer after Edeka, with €23.8 billion in revenue and 140,000 employees. Penny, also part of the Rewe Group, achieved €12.4 billion in revenue in 2018.
convenience stores vs. grocery retailers
Konbinis are convenience stores, a type of retail business, similar to a neighborhood store, mini-market, or general store. In Germany and Switzerland, they are also known as "Tante-Emma-Laden" (corner shop). In Austria, they are called "Greißler" and are often also referred to as "Greißlerei."
Convenience shops are small stores whose product range is rather high-priced, narrow (i.e., few product groups are covered) and shallow (i.e., only a small selection within the covered product groups) and focuses on the food sector, and especially on products ready to be consumed (convenience food).
Often, additional smaller services are also offered (e.g., order taking for mail-order companies, lottery outlets, or post office agencies). Convenience stores focus on customer convenience and are often located near high-traffic areas (train stations, gas stations). Particularly in Germany, they can also benefit from the country's especially liberal opening hours (24/7). Kiosks are also considered convenience stores.
The importance of this type of business has increased significantly in recent years. They are seen as competitors to both traditional food retailers and catering establishments (bakeries, fast-food restaurants).
Especially small grocery stores are currently undergoing a transformation into convenience stores due to the liberalization of shop opening hours. However, German shop opening hours (with few exceptions) do not permit 24/7 operation, as is common in the USA or Japan, for example.
What makes convenience stores so successful in Japan?
These convenience stores not only offer everyday items but also allow you to pay your electricity and phone bills. Furthermore, you can have packages delivered from these stores. You can also withdraw and deposit money, pay for online purchases, make copies, send faxes, buy tickets, and much more. You can even park your luggage or shopping and have it transported to a specific location. Often, several convenience stores from the same chain are located close to each other to ensure more frequent and cost-effective delivery.
Well-known convenience stores include 'Spar Express', 'Nah & gut' (Edeka), 'nahkauf' (Rewe Group), 'Lekkerland' (Rewe Group), 'Rewe To Go', 'Migrolino' (Switzerland) or 'Żabka' (Poland).
The goal of konbinis, or convenience stores, is to provide local necessities. What's special in Japan compared to ours is that they are based onドミナント戦略, which is known in our business administration as the 'dominant strategy'.
It is a strategy that offers the highest benefit among all possible strategies, regardless of what other actors do. In contrast, the dominated strategy represents one of the worst strategies. Again, regardless of what other actors do, the dominated strategy is always dominated by a better, so-called dominant, strategy.
In Japan, the ever-increasing number of convenience stores (konbini) is crucial in the battle for local supply. This also requires appealing to a broad customer base. Presence is important, but mere presence is no guarantee of success. To remain competitive, new products and innovations must be constantly promoted. We see this with Aldi and its seasonal and temporary product offerings. Similarly, Medion's recurring temporary special offers on technical devices are a good example. Less obvious, but based on the same concept, are the products featured on the German TV show "Die Höhle der Löwen" (Shark Tank).
The regional dominance of many branches is the aggressively applied 'dominant strategy' of convenience store companies in Japan, which rely on a system of decentralized hubs. This allows them to reduce logistics and other costs. The greater the regional dominance, the more effectively they can serve a broad target group in urban or rural areas with their local conditions and individual regional characteristics, which in turn increases attractiveness and fosters customer loyalty. The goal, however, is not only to cultivate broad customer loyalty but also to prevent the entry or expansion of competitors.
Further efficiency gains lie in automation, autonomous power supply, marketing advantages through regional dominance, purchasing power (higher quantities through more branches, more favorable purchase prices) and fixed cost degression (distribution of costs across multiple branches and higher sales volumes).
These positive economies of scale are therefore the basis of Konbinis' competitive strategy. The company aims for the lowest costs of all its competitors. This, in turn, translates into higher profits and larger market shares. This explains why many companies and corporations strive for greater size, enabling them to conquer new markets or acquire other firms.
This targeted market development is practiced, for example, by Walmart in the USA. Walmart's revenue in fiscal year 2020 was US$524 billion. Walmart now dominates a large share of the US retail market and is the world's largest company by revenue. The corporation is also by far the world's largest private employer, with over two million employees. Its biggest competitor, the French Carrefour Group, is not even half the size of Walmart.
Walmart is also the largest energy consumer and the largest real estate developer in the US. To reduce electricity costs, the company has made its rooftops available for solar panel installations. Companies like SolarCity have installed solar panels and sell the electricity directly to Walmart. Walmart benefits from the cheaper electricity, which is further secured by a long-term supply contract. Already, 327 Walmart stores are equipped with solar panels. By 2020, twice as many are expected to be equipped with solar panels.
In the mid-1990s, Walmart attempted to gain a foothold in Germany with considerable financial investment. However, Walmart failed to adapt to the German market conditions. In Germany, Walmart encountered a retail oligopoly whose companies operated according to similar business principles. Thus, the corporation had no competitive advantage from the outset.
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In contrast, the Rewe Group is accelerating its convenience business with the acquisition of Lekkerland. This is intended to strengthen its convenience food business. Lekkerland AG & Co. KG primarily supplies petrol station shops and kiosks. It operates 14 logistics centers , from which over 61,300 points of sale are managed.
It will be interesting to see how the Rewe Group optimizes order picking through automation. Controlling order pickers via headsets and mobile mini-computers at the Lekkerland logistics center is intriguing, but Japan is already much further ahead. While Lekkerland serves over 61,300 points of sale with each picker able to assemble up to six orders simultaneously, Japan is already planning for contactless shopping and full automation without human intervention. By 2025, a large proportion of its 50,000 convenience stores are expected to be fully automated. RFID technology will be used for this purpose. This is essential for complete automation. At self-checkout, goods can be automatically scanned and paid for without the need for any staff.
- Urban growth – How Japan is setting the course for the future
- Japan is already working on the future of tomorrow
In this micro-fulfillment variant, it is up to the logistics centers to ensure that the supply of the decentralized hubs runs smoothly.
It remains to be seen how the concept of dark stores will establish itself in the market. Following Amazon's acquisition of the organic supermarket chain Whole Foods, six Whole Foods stores were converted into so-called dark stores. These stores now exclusively process online orders. Whole Foods employs 91,000 people (2015) and generated $12.9 billion in revenue (2013).
There are therefore some exciting and realistic approaches to expanding rural infrastructure and thus ensuring basic services. As the example of Japan shows, it is also important that policymakers set the right course for this.
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