For eight years in a row, revenues have been dropping for Japan's convenience store industry. The country is nearing saturation with something like 45,000 locations nationwide, and people in the industry have seen the writing on the wall for some time. Eventually there would have to be some consolidation because smaller chains (those with only a one or two thousand locations) are susceptible to the majors who can fund multiple shop openings in key areas to drain sales from weaker rivals.
So it was no surprise last week when Japan's second-largest operator, Lawson, announced that it had come to terms with am/pm to purchase and then merge with the smaller company. Lawson will take am/pm on as a subsidiary at the end of this month, and the full scale merger is expected sometime during the summer of 2010.
While this is noteworthy in an of itself, the real M&A drama is probably just beginning.
At the moment, the industry leader is 7 Eleven, which has 12,100+ shops in Japan. The new Lawson-am/pm combo will have 10,000+. In third, fourth, and fifth places are Family Mart (7,300), Circle K Sunkus (6,100), and Mini Stop (1,900). Smaller chains account for the remaining 8,000 or so.
Lawson and am/pm came together because am/pm was too small to continue going it alone, and Lawson, whose roots are in western Japan, has been struggling with its coverage of Tokyo for some time (if you combine the two brand's coverage, however, the new entity has more stores in Tokyo than top dog 7 Eleven).
7 Eleven, knowing that competition is going to very rough in the next few years, is openings new stores at a very aggressive pace, with something like 1,000 new shops slated for 2009. As the best performing convenience store company, and having the backing of a very strong retailing parent company 7&i Holdings, 7 Eleven is well positioned to hold onto its lead, at least for now.
But what about Family Mart, Circle K Sunkus, Mini Stop and the others?
Here's where it gets interesting.
Mitsubishi Trading, Japan's largest trading company, is Lawson's largest shareholder and owns part of am/pm too (another probable impetus for the merger). In addition, Mitsubishi owns 5% of AEON, Japan's other retail titan, which has been fighting 7&i Holdings for dominance of Japan's retail scene for some time. AEON also happens to be parent company to Mini Stop, the fifth largest convenience chain.
Given those connections, one could make a case that Lawson+am/pm+Mini Stop would be natural candiates for a merged company to take on 7 Eleven and the remaining chains, Circle K Sunkus and Family Mart.
So far so good.
But is this the only possibility?
Circle K Sunkus is a subsidiary company of Japan's 3rd largest supermarket chain, UNY (which by the way, is a rival to 7&i's Ito Yokado supermarket/GMS chain, and AEON's broad stable of supermarket brands).
But who's connected to UNY?
Why Japan's 3rd largest Trading company, Itochu, which has some tie up agreements with the firm.
Does Itochu have connections to any of the other players?
Natch. They own a chunk of number three convenience store Family Mart!
Confused yet?
Well, to add a bit more drama, AEON, which owns Ministop, and is partly owned by Mitsubishi, also has important business ties to Family Mart. Late last year, Family Stop agreed to start honoring WAON denshi money (prepaid IC-equipped money cards), the electronic money system owned and operated by AEON.
To summarize (and hopefully clarify), you have Mitsubishi Trading, Lawson, and am/pm in one corner, 7&i Holdings and 7 Eleven in another corner, and Itochu, Family Mart, and possibly Circle K Sunkus in a third. AEON owns Mini Stop, and is itself partly owned by Mitsubishi, but also has strong business ties to Family Mart, and conceivably could ally itself with either the Lawson group or the Family Mart group.
If 7 Eleven adds 1,000 stores in 2009, it will have over 13,000 shops.
Lawson+am/pm comes to over 10,000.
Family Mart+Circle K Sunkus comes to 13,400+.
If MiniStop joined the Lawson group, their total would come to around 12,000, creating near-parity across three major groups (at least in terms of number of shops).
But if MiniStop were to combine with Family Mart and Circle K Sunkus. . . .well, that group would suddenly be number one in Japan.
