COVER STORY • 8 The Expansion of the Service Industry in Asia – the Example of Shanghai Lawson By Niinami Takeshi

AWSON operates 283 stores in to China. In the supermarket sector, taining a high proportion of China’s L Shanghai, China (as of December Japan’s Yaohan moved into the Chinese well-off citizens. So in the beginning, 31, 2005). In a city which is rife with market, and Chinese state-operated Daiei sought to put its overseas retailing 4,000 convenience stores including stores started to open. Against this image out in front and appeal to for- locally funded ventures, Lawson has background, the Daiei Group, which eigners and wealthy Chinese. established a position as a store popular focused on general supermarkets, sought This strategy was wonderfully success- with young people. From 2004, it has what it could do in China, and chose to ful. Both the Gubei and Tianlin East registered single-year profits, and has get involved with Lawson, which oper- Road stores attracted large numbers of put down local roots as a business. ates convenience stores. Until then, customers. Because China had had no Lawson’s business in Shanghai started China had no real convenience stores, convenience stores up until then, the with a joint-venture agreement signed in and Daiei determined that it would be Chinese saw them as something new and January 1996 with the Shanghai better to choose a business that did not fresh, and the fact that they were located HuaLian Group (now, the Shanghai yet exist rather than operate supermar- in high-class residential districts and spe- BaiLian Group), a local distribution kets, of which there were many compet- cial areas where foreigners lived made group. The preparation period was just ing with each other. After three months them chic in the eyes of local young peo- over one year. The real start of the busi- in April, Daiei had established a joint ple. When you looked inside, Japanese- ness was the links between Shanghai’s venture, and another three months after style know-how was everywhere in the municipal government and the top that in July, opened its first convenience products and services. They sold unique management of Lawson’s parent compa- store. This first branch was in Japanese foods such as onigiri rice balls ny at the time, Daiei. Since the 1992 Shanghai’s Gubei New Area where and oden (Japanese hot pot dish). At talks given by Deng Xiaoping when he many overseas businessmen, including that time you could find Japanese foods visited the south, the Chinese govern- Japanese, live. Along with the first like sushi and sashimi in Shanghai, but ment has maintained a policy of encour- branch, Daiei opened a second store in you could only buy them from a limited aging economic growth, and since then, Tianlin East Road, a new residential dis- number of outlets such as department has actively enticed overseas companies trict for local Chinese and an area con- stores. The appearance of convenience stores in residential districts meant that Photo: Lawson, Inc. people could now buy these items in their neighborhood. While the Chinese were surprised at the appearance of these new types of shops, they were also surprised at the selling of chilled obento, lunch boxes. In China, it was normal to make lunches on the premises and sell them warm. Chilled lunches had never been put onto store shelves and bought or sold like this before. People’s surprise invit- ed trial-buying, just to see what they were like. In the first year, the stores steadily expanded in various areas, including those in which large numbers of people on average incomes lived, and by December, 14 outlets were operat- ing. Any novelty, however, eventually wears off. As customers were getting over the surprises of the new lineup, some stores began to have difficulties. One reason was that, as a result of A Lawson store in Shanghai. Lawson currently has 283 stores in the city. emphasizing quality, they carried goods

26 JAPAN SPOTLIGHT • July / August 2006 COVER STORY • 8

that were mostly higher priced than alive. These fresh ingredients are invari- the top distribution group in China. It those in neighboring supermarkets, and ably cooked. A basic tenet of Chinese can call on merits of scale in products struggled to sell them. thinking is looking after one’s own safe- and store development. The second So Lawson returned to its starting ty. strength is that Shanghai Lawson offers point and reaffirmed that convenience One particular feature of China is the differentiated products. With its obento stores were not for a minority but were one-child policy adopted at the end of lunches, oden, breads and numerous “convenient” precisely because of their the 1970’s. Parents lavish attention on other products, it enjoys the advantage broad appeal to ordinary people. their single child and make the utmost of superior quality. It can produce such Accordingly, Shanghai Lawson began effort to keep the child safe. The chil- high quality because of the know-how actively offering the products sold in dren born under this policy are already built up from operating in Japan for 30 local supermarkets. But around that becoming adults now. Consumers who years. The third point is that Shanghai time, local supermarkets were already have lived under this environment are Lawson has achieved a certain scale. At engaged in price competition and prod- economically well off and want to buy the end of December 2005, it operated uct prices in convenience stores had good quality products, even at slightly 283 outlets, and overall, the chain was become a little higher than in supermar- higher prices. The policy of security large enough to stay in the black. Its kets. and safety followed by Lawson in fourth strength is its brand power. On the other hand, in Shanghai, TV Shanghai was well matched to China’s Because of its hygiene management and and magazines were featuring a torrent consumer market. well-organized services, Lawson enjoys of information about Japan, Taiwan and Since 2000, Shanghai Lawson has an established image and this has helped Hong Kong. Due partly to this, young enjoyed a tail wind. This has come to enhance its brand power. As a result, people saw convenience stores as trend- from SARS (the Severe Acute daily store sales are 1.5 times those of setting places. For example, oden Respiratory Syndrome) that spread from other local chains. Shanghai Lawson became trendy. Young people strolled Southeast Asia to East Asia. Awareness maintains high daily sales because of a around town eating skewered oden from of hygiene management in the region confluence of various factors, including a cup containing soup. At one time, has grown and led to an increase in the product strength, hygiene management this became popular as a kind of fashion number of customers patronizing and brand power. statement for them, and later became Shanghai Lawson stores, which have The future of Shanghai Lawson looks widely accepted. maintained a steady focus on hygiene bright. Overall, China is maintaining a In addition, because Japanese-style management. high economic growth rate of over 7%. hygiene management was practiced, While the stores’ base has continued As a market, it appears quite promising. Shanghai Lawson stores enjoyed a sani- to firm, the number of Lawson stores On the other hand, convenience stores, tary image. They could not beat super- had not increased much by the end of which have been growing rapidly in markets on price, but on cleanliness and the 1990’s. The reasons were the Shanghai since 2000, have already brand appeal. In addition to even better upsurge in real estate prices and more reached the stage where some natural product management, one way to intense competition to secure property. weeding out is inevitable. Comparing accomplish this was by taking photos of Meanwhile, the number of local state- 2004 with 2005, the number of conve- bento factories, bakeries, and other funded convenience stores increased nience store outlets in Shanghai fell by places where the food was produced, dramatically. Purely in terms of store about 5%. But even in such a situation, and displaying photo panels in the numbers, they were way out in front. a chain offering a strong base of quality, stores. Through these activities, Having said this, however, Lawson’s service, and hygiene will survive. In Shanghai Lawson stores emphasized the position in the Shanghai market has not 2005 when all the chains saw a reduc- security and safety they could offer cus- changed. It continues to enjoy strong tion in outlets, Shanghai Lawson man- tomers. customer confidence. aged to add 75 new stores. While there Although people tend to think that For these reasons, Lawson has put will be some fall off, from 2006 the Chinese do not have much affinity with down strong roots in Shanghai and is number of outlets is expected to steadily hygiene, security or safety, in fact the supported mainly by customers in their increase. Shanghai Lawson will contin- opposite is true. Because China is such 30s or below. Since the introduction of uously work to offer higher levels of a large country, it lacks a properly devel- the single-child policy, young people quality, service, and hygiene, and oper- oped distribution network. As a result, have been better off economically and ate stores that meet the needs of local careful temperature-controlled trans- are willing to shop at “trendy Lawson” people.* portation of foodstuffs is not possible. even if the price is a little higher. This is why most people buy their din- Shanghai Lawson’s strength is, first, Niinami Takeshi is the President & CEO of ner live and take it home to cook. that it formed a good relationship with Lawson, Inc. There is nothing fresher that what is still its joint partner. The BaiLian Group is

*Note : This column was translated from Japanese. JAPAN SPOTLIGHT • July / August 2006 27