Notes on the Investigation of Japan's Retail Industry: Low-Cost Operations Have Become Part of Corporate DNA#
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Highlights#
A Japanese expert suddenly realized the inherent differences in supermarket management between China and Japan. It turns out that Chinese companies work by stimulating employee initiative and encouraging more work for more pay. In contrast, Japanese companies rely on scientific planning; the number of employees needed at a distribution center, the hours each employee works, and the tasks they perform are all predetermined. From the perspective of Japanese corporate management, it is an employee's duty to complete their work with quality and efficiency, and there is no need for rewards. Of course, the company does not have overly high expectations of employees: just complete the work you are supposed to do; there is no need for you to "perform exceptionally." ⤴️ ^ee6b8acf
As management guru Peter Drucker mentioned in "The Effective Executive," well-managed factories are always monotonous, with nothing exciting happening. This is precisely the result of scientific planning. ⤴️ ^c050ec14
After visiting several representative supermarket companies in Japan, the participants unanimously felt that competition among Japanese supermarkets is fierce, and those that survive are "very capable." ⤴️ ^f6f6f8ad
This article is from the WeChat public account: Third Eye on Retail (ID: retailobservation), author: Zhao Xiangyang, original title: "Notes on the Investigation of Japan's Retail Industry: Discount Stores Are Not Necessarily the Mainstream, but Low-Cost Operations Have Become Part of Corporate DNA," cover image from: Visual China
This article introduces the author's notes on the investigation of Japan's retail industry, pointing out that discount stores are not the mainstream format of Japanese supermarkets, while traditional supermarkets still have significant growth potential through product strength enhancement. At the same time, the article explores the low-cost operations and refined management of Japanese supermarkets, as well as the insights they provide for China's retail industry.
• 💡 Discount stores are not the mainstream format of Japanese supermarkets; traditional supermarkets still have significant growth potential.
• 💡 Japanese supermarkets focus on low-cost operations and refined management, with efficiency improvement being key to cost reduction.
• 💡 The service of Japanese supermarkets reflects a sense of "being in place without overstepping," meeting consumer needs through equipment and settings.
From March 6 to 11, "Third Eye on Retail" organized more than twenty entrepreneurs to investigate the supermarket industry in Japan. For me, I am both an organizer and a learner. This in-depth study has given me a deeper understanding of the Japanese supermarket industry and has led to new insights into the development of domestic supermarkets.
I went to Japan seeking answers to questions. The first question is whether discount stores, which have gained popularity in China, are the mainstream format in Japan, the first country to enter the "low-price retail" era. The second question is how Japanese supermarkets, which face much higher levels of competition than their Chinese counterparts, manage to survive and what experiences are worth learning for domestic companies.
After five days of study, I formed a basic viewpoint: Although discount stores are highly regarded in China and are one of the fastest-growing formats in Japan, they are not the mainstream format in Japanese supermarkets. According to Tetsuo Suzuki, the founder of the 52-week MD theory, discount stores account for only 10% of the Japanese supermarket market, while traditional supermarket formats account for 85% of the market share.
This provides a lesson for domestic supermarkets: it is not necessary to open discount stores; traditional supermarkets still have significant development potential. For example, the BELC supermarket under Aeon is a traditional supermarket, but it has achieved sales growth even during the pandemic through continuous enhancement of product strength. In 2022, BELC supermarket's 133 stores achieved sales of 15.1 billion yuan, becoming the most popular supermarket in the area.
In fact, the top discount stores in Japan have unique genes, and if outsiders blindly imitate them without possessing these genes, they are likely to fall into a cognitive trap. For example, the discount store LOPIA, which is often praised by domestic peers, started with selling meat, and its unique gene is its strong meat management capability and supply chain resources. According to research data from Qicheng Capital, LOPIA's meat products contribute 30% of its sales and 80% of its profits. It can be said that LOPIA is not something that can be easily learned. Similarly, there are other discount-type enterprises like Don Quijote and business supermarkets.
Since discount stores cannot be directly copied, what should local supermarkets learn from Japanese companies? "Third Eye on Retail" believes that the refined management centered on "low-cost operations" in Japanese supermarkets is a more feasible learning direction for Chinese supermarkets. Some say that the gap between Chinese and Japanese supermarkets is 30 years. I believe this 30-year gap is not in terms of company scale or business model, but in the core of lean management.
After experiencing a phase of internal competition, Japanese supermarkets have developed their own accurate positioning and fixed customer bases. In Japan, it is common to see two supermarkets facing each other across a narrow passage in a shopping mall. The two supermarkets not only do not fall into operational difficulties due to competition but can also share customer traffic. It is common for consumers to exit the checkout of supermarket A with a shopping basket and immediately enter supermarket B.
This competition is differentiated, prompting both companies to do their best in their strong categories and serve their core customer groups, ultimately benefiting consumers. This is unlike the price wars in China, where one store just lowered the price of Nongfu Spring to 1.5 yuan, and its competitor immediately dropped it to 0.9 yuan.
This article is lengthy and consists of three parts:
- Classification and Competitive Landscape of Japanese Supermarkets
- The Internal Logic of Low-Cost Operations in Japanese Supermarkets
- Insights from Japanese Supermarkets for China's Retail Industry
- Classification and Competitive Landscape of Japanese Supermarkets
To better illustrate the points of this article, it is necessary to introduce the basic situation of Japanese supermarkets.
According to Tetsuo Suzuki's classification method, Japanese supermarkets can be roughly divided into low-price-oriented supermarkets, convenience-oriented supermarkets, lifestyle proposal-oriented supermarkets, and value-oriented supermarkets.
Low-price-oriented supermarkets can be understood as discount store formats, represented by companies like LOPIA, business supermarkets, and Don Quijote, which account for about 10% of the market share;
Convenience-oriented supermarkets are those that are close to consumers, with moderate prices and varieties, which are the traditional supermarkets, represented by companies like BELC and Summit, accounting for about 85% of Japanese supermarkets;
Lifestyle proposal-oriented supermarkets are those that provide dietary solutions for consumers based on convenience-oriented supermarkets, represented by companies like Hachiyaku, Aeon STYLE, and Ito Yokado, accounting for about 4% of the overall market share;
Value-oriented supermarkets can be understood as boutique supermarkets, represented by companies like LIFE supermarket and Hankyu OASIS, which account for 1% of the market share.
"Although the share of discount stores in Japan is continuously increasing, traditional supermarkets are also transitioning to lifestyle proposal-oriented supermarkets, the market structure will not change significantly. In the future, low-price-oriented supermarkets may reach a market share of 15%, and the share of lifestyle proposal-oriented supermarkets will increase to 5%~6%, but convenience-oriented supermarkets will not account for less than 75%," Tetsuo Suzuki told us.
Tetsuo Suzuki's classification method for supermarkets provides a reference framework for the study of Chinese supermarkets. A participant in this study tour, Guo Juntao, founder of Taoxiaopang, stated that his company is currently a convenience-oriented supermarket and hopes to become a lifestyle proposal-oriented supermarket in the future.
The following is an overview of some major supermarket companies in Japan:
- The Internal Logic of Low-Cost Operations
Low-cost operations are a major topic for current supermarket owners in China, and each company is exploring methods suitable for itself. This investigation allowed me to see the practices of Japanese supermarkets, leading to new thoughts on "low-cost operations."
I believe that the core of low-cost operations is improving efficiency. In business operations, cost is a fraction (cost-to-sales ratio), a relative value, not an absolute value. Reducing costs does not mean directly cutting hard costs but rather lowering the expense ratio by improving efficiency. Therefore, reducing costs is division, not subtraction. This is the internal logic of low-cost operations.
When business operators understand this principle, they will not place their hopes for reducing costs on cutting some hard expenses, such as equipment investment, personnel salaries, training costs, etc. While reducing these expenses can improve financial statements, the room for saving on these costs is limited, and excessive cuts to basic expenses can negatively impact the effective operation of the business.
Therefore, business operators should focus on reducing ineffective labor, optimizing redundant processes, and improving efficiency through technology. Japanese companies are very clear about this.
Continuing along this line of thought, what is the internal logic of improving efficiency? My conclusion from observing Japanese companies is: planning. Japanese supermarkets have a near-religious pursuit of planning; they habitually cycle through work according to the PDCA method [Plan, Do, Check, Action], and their meticulous nature allows them to excel at planning, resulting in a very small gap between their plans and implementation outcomes. Whether it is product ordering, supply chain management, or staff scheduling, the scientific plans made based on the PDCA method contain enormous opportunities for improving efficiency.
A case shared by a Japanese expert left a deep impression on me. He once led some Chinese supermarket owners to visit a Japanese supermarket's distribution center. Several owners asked him the same question: how do Japanese companies assess the employees of the distribution center?
Do distribution center employees need to be assessed? He questioned the premise of the question itself. One Chinese owner countered, "If there is no assessment, some people will work more, some less, and what if someone slacks off?"
==The Japanese expert suddenly realized the inherent differences in supermarket management between China and Japan. It turns out that Chinese companies work by stimulating employee initiative and encouraging more work for more pay.== ==In contrast, Japanese companies rely on scientific planning; the number of employees needed at a distribution center, the hours each employee works, and the tasks they perform are all predetermined.== ==From the perspective of Japanese corporate management, it is an employee's duty to complete their work with quality and efficiency, and there is no need for rewards. Of course, the company does not have overly high expectations of employees: just complete the work you are supposed to do; there is no need for you to "perform exceptionally."==
This case illustrates that the deeply ingrained planning in Japanese companies transforms employee work (in terms of duration and quality) from non-standard to standard. The company's management department can plan each person's work like building blocks. The different perceptions of "assessment" for distribution center employees between Chinese and Japanese companies stem from this. Of course, this management philosophy also permeates the store level, affecting various positions such as processing, stocking, and checkout. It is reported that Japanese supermarkets can precisely divide the work of store employees down to 15-minute intervals.
Continuing to analyze low "cost operations" through the lens of planning, an interesting situation arises. Japanese companies expect employee output to be "just right"; too much or too little is not acceptable. It is understandable for employees to be criticized for doing too little, but why would employees be criticized for doing too much?
According to Wang Qi, Aeon sets a productivity standard for frontline store employees at 7,000 yen in sales per hour; if it is lower, it indicates poor store sales, but if it exceeds this number, the headquarters will consider the store understaffed, leading to employee fatigue, mistakes, and compromised service.
This philosophy of Japanese companies contrasts sharply with domestic companies that encourage employees to "sell as much as possible." I recall a consulting case involving a leading supermarket company in a certain region of China. The company wanted to improve service levels in its stores, so it hired a consultant. During their conversation, the company's chairman revealed that they had opened a new store in a certain location, achieving sales of over 1 million on the first day. He felt optimistic about the market and set a sales target of 1.2 million for the upcoming second store's opening day.
The consultant quickly halted this approach, suggesting that the opening day sales target be lowered to a normal level. "The number of employees in a store is limited, and increasing sales will undoubtedly increase their workload. This makes employees too busy selling to have the energy to serve customers. Furthermore, sales and customer traffic driven by opening promotions are of low quality and will not yield high profits," the consultant stated.
Later, the first thing the consultant did to improve service in this company was to lower sales expectations, reduce ineffective work, and allow employees to "take it easy," before then providing intensive service training.
In summary, the core of low-cost operations is improving efficiency, and the core of improving efficiency is planning. Scientific planning has a quality of "just right," which allows for a smooth flow from headquarters to stores, from staff scheduling to supply chain management, from ordering to sales. ==As management guru Peter Drucker mentioned in "The Effective Executive,"== ==well-managed factories are always monotonous, with nothing exciting happening. This is precisely the result of scientific planning.==
In addition to the underlying logic of low-cost operations discussed above, Japanese supermarket companies have also implemented a series of specific measures to improve efficiency.
First, they have vigorously developed artificial intelligence (AI) to save managers' time. It is understood that Aeon has been using AI for automatic ordering/restocking, product discounts, and staff scheduling for many years. Previously, when it was time for products to be discounted, department heads would have to scan each product (mainly fresh goods) on display with a scanner and then apply discounts based on inventory levels. Now, this task is completed automatically by the system, which calculates the discount rate at a set time.
Additionally, Aeon has a powerful intelligent scheduling system that creates scientific schedules based on various factors, including each employee's work content, working hours, capabilities, personal situations, and even the degree of harmony among employees. These two AI-driven tasks save managers a significant amount of time.
Second, the widespread use of self-checkout machines. I have visited Japan several times before the pandemic, and upon returning after many years, one immediate observation is that the prevalence of self-checkout in Japan is very high. I always thought that, due to the internet's influence, China was ahead of Japan in self-checkout and mobile payment. However, upon arriving in Japan, I found that the usage rate of self-checkout is higher than in China. Japanese supermarkets have more self-checkout stations than staffed checkout counters. For elderly customers who prefer cash payments, Japan has also developed "semi-self-checkout machines" that can recognize cash, link orders, and provide automatic change.
Third, they have developed display and logistics tools that can enhance efficiency. Japanese supermarkets have invested considerable effort in the development of display tools and stocking equipment, which can significantly reduce labor costs. For example, most Japanese supermarket shelves have a bottom layer that is a pull-out low cabinet (or shelf) with wheels, used for displaying whole boxes of goods or larger and heavier items. This small improvement greatly saves employees' physical strength.
Moreover, I discovered an embedded "cold cabinet" in a Japanese supermarket. The uniqueness of this "cold cabinet" is that, apart from the air vents and light strips on the top and sides, the middle is empty, without any partitions or shelves. The usage method is that staff push the products along with the cart into the "cold cabinet," and consumers take items directly from the cart, thereby reducing the processes of loading and unloading in the store.
In summary, many details in Japanese supermarkets reflect their intention to improve efficiency, and careful observation can reveal many such instances, which I will not list one by one here.
Self-checkout machines that can provide automatic change, convenient for elderly users. Photo provided by the author.
- Insights for China's Retail Industry
As mentioned earlier, there is a 30-year gap in operational levels between Chinese and Japanese supermarkets. How can this 30-year gap be bridged? "Third Eye on Retail" analyzes this from three basic aspects: products, services, and competition.
Regarding products. When discussing products, I believe the gap between Chinese and Japanese supermarkets is primarily reflected in product depth. Product depth refers to the number of SKUs that can be extended within the same category; the more SKUs available, the deeper the product depth.
For example, a semi-finished dish in Japan is packaged in three sizes—large, medium, and small—to cater to single, double, and multiple-person consumption scenarios, extending to three SKUs. As for the soul of the supermarket, meat, it evolves into a rich variety of SKUs based on different types (beef, lamb, chicken, pork), varieties, cuts, and consumption scenarios.
The depth of product extension allows Japanese supermarkets to have significantly more SKUs than domestic supermarkets. For instance, the flagship store of OK supermarket in Yokohama has an area of 2,700 square meters and boasts 15,000 SKUs, achieving sales of 300 million yuan annually.
We believe that product depth makes the store more worth visiting due to the wide variety of products, while also increasing sales opportunities. However, the issue with excessive product depth is that too many SKUs complicate product management, increase research and development costs, raise inventory risks, and increase loss rates. This places further demands on the refined management of supermarkets.
Secondly, breakthroughs in prepared foods, frozen products, and pre-prepared dishes. In recent years, domestic supermarkets have seen significant growth in prepared foods, frozen products, and pre-prepared dishes. From the situation in Japanese supermarkets, the growth of these categories is an inevitable trend, and domestic supermarkets have more opportunities in the future.
In particular, when it comes to the operation of pre-prepared dishes, we should look to Japan. The maturity of Japan's pre-prepared dish market is far ahead of that of China. According to data from the China Culinary Association, the penetration rate of pre-prepared dishes in Japan exceeded 60% in 2021, while the penetration rate in China is only 10%~15%.
Japanese supermarkets do not have a dedicated category for pre-prepared dishes; instead, they are divided into departments for prepared foods, semi-finished products, or frozen goods. This indicates that Japanese consumers have accepted pre-prepared dishes (or have eliminated this label, treating them like other products). In this regard, domestic supermarkets still have a long way to go.
It is worth mentioning that during this investigation, we visited a frozen food specialty store created by Aeon, named FROZEN. This store was established in August 2022, has an area of 424 square meters, and offers about 1,500 SKUs to cater to five major consumption scenarios: breakfast, lunch, dinner, snacks, and desserts. It is still in the testing phase.
Why are there so many refrigerated and frozen devices displaying a variety of products in Japanese supermarkets? As Japan's largest retailer, why is Aeon testing a store specializing in frozen foods? All point to one signal: "fresh" products are always potential products, and freezing and refrigeration are currently the best methods for preserving freshness. This is closely related to prepared foods, frozen products, and pre-prepared dishes.
Regarding services. When it comes to services, domestic peers should first think of benchmark companies like Haidilao and Pang Donglai. Compared to the "enthusiastic" service of Haidilao and Pang Donglai, Japanese supermarket service reflects a sense of "being in place without overstepping." This feeling is that if you do not need service, you may not notice its existence; once you need service, you will find that everything you need is prepared for you. For example, when you buy a boxed meal from the supermarket and plan to heat it up, you look up and see that the microwave is not far away; when you buy meat and want to keep it fresh with ice, the ice machine is right next to the checkout, along with plastic bags for the ice.
Comparing the service differences between benchmark companies like Haidilao and Pang Donglai and Japanese supermarkets, I believe the former encourages employees to provide thoughtful service through incentives, employing a "human sea tactic." However, due to high labor costs in Japan, they can only anticipate customer needs in advance and integrate service into hardware through equipment and signage. Although this service may not have the enthusiastic "humanistic care" of Chinese companies, these thoughtful considerations and meticulous setups give you a sense of "every branch and leaf matters."
If Chinese companies' services are enthusiastic, expansive, and overwhelming, then Japanese supermarket services are restrained, controlled, and low-key. Of course, this also aligns with the characteristics of the Japanese people.
Regarding competition. "After observing the competitive situation of Japanese supermarkets, you won't think that domestic supermarkets are so 'intense'." The expert leading this investigation, Wang Qi, told us.
For example, within a 500-meter radius of our hotel, there are six supermarkets, but since each supermarket has its own positioning, even though there is competition among them, they all manage to survive. For instance, a supermarket under Seiyu is located just across the street from a supermarket named Seijo Ishii. The former is a convenience-oriented supermarket, while the latter is a lifestyle proposal-oriented supermarket, with the latter clearly targeting a higher price point and customer base.
After experiencing sufficient competition, Japanese supermarkets have each formed their own core and fixed customer bases, transforming competition from vicious rivalry into shared customer traffic. In Japan's commercial complexes, it is common to see two supermarkets facing each other. Consumers exit supermarket A's checkout with a shopping basket and immediately enter supermarket B.
In the basement of the Ebisu CENTER PLAZA in Tokyo, there are two supermarkets: LIFE and Meijiya, a high-end supermarket with a history of 130 years, separated by only a main passage. Since both supermarkets target mid-to-high-end customers, I was concerned that they might engage in malicious competition due to overlapping customer traffic. However, the reality is that both companies have survived. I personally witnessed a consumer buying a few tomatoes from LIFE supermarket and then going to browse Meijiya supermarket.
The Japanese retail industry has undergone differentiation through competition, becoming more specialized in the process. What we refer to as supermarkets have transformed from comprehensive marketplaces into food supermarkets, allowing them to cede categories they are not good at, such as personal care, daily necessities, and small goods, to drugstores. As a result, drugstores in Japan are very developed. I found that almost every supermarket in Japan has a drugstore nearby, and these drugstores not only carry nominal pharmaceuticals and cosmetics but also integrate personal care, cleaning, personal hygiene, and even tableware and cling film. It can be said that drugstores and food supermarkets together support the food and supply needs of local residents.
Japanese supermarkets generally adopt a "front store, back factory" model, with a rich variety of processed foods being the core competitiveness of each supermarket. Photo provided by the author.
The embedded cold cabinet that allows carts to be pushed directly in greatly simplifies the stocking process. Photo provided by the author.
The pull-out shelves with wheels save employees' physical strength. Photo provided by the author.
Japanese supermarkets have a very deep product depth; even a small category like tofu has more than a dozen varieties. Photo provided by the author.
Meat is a category that every supermarket places great importance on; the plump and vibrant meat products are a highlight of the store. Photo provided by the author.
LIFE supermarket (left) and Meijiya supermarket are directly across from each other, separated only by a passageway; this is true "internal competition." Photo provided by the author.
- Conclusion
==After visiting several representative supermarket companies in Japan, the participants unanimously felt that competition among Japanese supermarkets is fierce, and those that survive are "very capable."==
Japanese supermarkets are undergoing an evolution where the "new wave pushes the old wave," with the first generation of kings, Daiei supermarket, now a thing of the past; while the current king, Aeon Group, despite being the largest, is overshadowed by emerging challengers. This iteration is similar to the development history of supermarkets in China, where the earliest foreign hypermarkets were surpassed by local companies like Yonghui; then, national companies like Yonghui and RT-Mart were defeated by regional leaders; now, I see a new trend where regional leaders are being disrupted by a new generation of smaller, more refined supermarkets, particularly evident in the Zhengzhou market.
As the saying goes, "One should always keep an eye on the long-term perspective; a new king will surpass the old."
This article is from the WeChat public account: Third Eye on Retail (ID: retailobservation), author: Zhao Xiangyang