Annual Report 2009 Perfecting Our Formula for Success FamilyMart Basic Principles Our Slogan “FamilyMart, Where You Are One of the Family” Our mission is to always be close to our customers’ hearts, and an indispensable part of their lives. FamilyMart’s Goal We aim to make our customers’ lives more comfortable and enjoyable, primarily by displaying hospitality in everything we do, and by ensuring a shopping experience characterized by convenience, friendliness and fun. FamilyMart’s Basic Management Policies We will continue to provide innovative, high-quality products and services that make a positive, lasting impression on our customers and warm their hearts. We are working to raise enterprise value through our business activities in line with the spirit of “Co-Growing,” by which we mean realizing mutually beneficial relationships with our franchisees, business partners, and employees, and thereby fulfilling our responsibilities to all our stakeholders. We aim to win the highest trust of the general public by observing all laws and ethical norms, raising the level of transparency in our business activities, and always upholding the principles of fair competition. In consideration of the overriding need for environmental preservation, we will enthusiastically contribute to the welfare of the local communities in which we operate and society as a whole, providing reliable and safe products and services to help realize a future full of new possibilities. We encourage our colleagues to create a vibrant corporate culture by keeping abreast of social trends and showing an interest in a wide range of subjects. In this way, we are confident that our staff will hit upon good ideas and then act on them. FamilyMart’s Action Guidelines “Famimaship” “Listen, Decide, Act” “Wholehearted Hospitality” Exceeding customers’ expectations Growing together, through mutual trust Cultivating esthetic sensitivity Enjoying new challenges Acting with integrity FamilyMart Annual Report 2009 1 Contents 3 Performance and Strategy 3 FamilyMart at a Glance 6 Consolidated Financial Highlights 8 Interview with the President Faced with an increasingly challenging business environment, we are perfecting our formula for success 16 Special Feature: Ways of Cultivating Customer Loyalty The “FamilyMart Feel” Campaign Strengthening brand identity and implementing organizational reforms 22 Review of Operations 23 Store Operation 27 Store Opening Strategy 24 Products 28 Overseas Operations (The Pan-Pacific Plan) 26 Services 29 Area Franchisers 32 Corporate Social Responsibility 32 Environmental Preservation 32 Contributing to the Community 34 Corporate Governance and Internal Control System 37 Board of Directors, Executive Officers, and Corporate Auditors 38 Organization 39 Data and Financial Section Cautionary Statement: This report contains forward-looking state- 40 Fact Sheets ments, including the Company’s strategies, future business plans, and projections. Such 46 Consolidated Nine-Year Summary forward-looking statements are not based 48 Management’s Discussion and Analysis on historical facts and involve known and unknown risks and uncertainties that relate to, 53 Operational and Other Risks but are not necessarily confined to, such areas 54 Consolidated Financial Statements as economic trends and consumer preferences in Japan and abrupt changes in the market environment. Accordingly, the actual business 73 Corporate History performance of the Company may substantially 74 Investor Information differ from the forward-looking statements in this report. 2 FamilyMart Annual Report 2009 Performance and Strategy FamilyMart at a Glance The FamilyMart Group operates a convenience store chain through the franchise system in Japan and the Asia-Pacific region, in addition to an e-commerce business, accounting services for franchisees, and credit card services. In this section, we describe our main convenience store chain operations, the Japanese retail market and the convenience store industry. FamilyMart’s Franchise System Aiming at growth together with our franchisees The Franchiser The Franchisees FamilyMart Co., Ltd., as the franchiser, collaborates closely with (FamilyMart Head Office) (Franchised stores) all its franchisees to foster mutual trust and a collaborative relationship so that both parties may achieve business growth. Our franchisees are responsible for store management, includ- ing the ordering of their own inventories, the arranging of their product displays and the training of their staff. For our part, we Store Support Store Management supply not only our brand name and logo, but also full store management support services, including store operation know- Provision of brand logo, Inventory ordering, selling store operation know-how, Product display design how and the shared use of data management and logistics sys- data management and logistics systems Hiring and training of store staff tems. In return for this support, the Company receives royalty Development and supply of products income consisting of a certain percentage of each franchisee’s Staff training service Advertising and sales promotion gross margin. The rate differs according to the type of franchise contract. * Please refer to page 43 for details of franchise contracts. FamilyMart’s Stores Serving as a vital element in the local community infrastructure FamilyMart’s clean, well-lit stores — open around the clock every Sales by Product Category day of the year — have an average floor space of 115 square (non-consolidated) meters and contain around 2,600 separate items covering every- E-commerce 4.4% thing from food to sundry goods. Food products, including bento Merchandise Fast food Services 2.3% 3.8% take-out meals, together with beverages account for around Financial services 64% of total sales. In recent years we have been making the General services Daily food Non-food 31.0% most of the nationwide optical fiber network that connects all 29.6% Food total our stores to offer financial and general services supplementing 63.7% the sale of goods. These services include the provision of bank ATMs as well as the acceptance of payments for public utility and A linchpin of A support Processed food local life in emergencies other bills, and customers can also use the multimedia terminals 28.9% installed in FamilyMart stores to purchase tickets for cinemas, (Fiscal 2008) sports events, concerts, and so on. In these ways, we have been expanding the social role of our stores, which are assuming a growing importance in the local community infrastructure. FamilyMart Annual Report 2009 3 The position of the convenience store industry within the overall retail sector Market Scale and Share Japan’s The scale of Japan’s retail market in fiscal 2008 was approxi- Retail Market mately ¥134 trillion, of which the convenience store industry ¥134 trillion Others Seven-Eleven Japan 34.3% accounted for around ¥8 trillion, or 6%. (Fiscal 2008) 20.4% The top four convenience store operators account for roughly 80% of aggregate industry sales, and their grip on 6% the market is increasing as the smaller operators are being Convenience Store squeezed out. FamilyMart is currently No. 3 in the industry. Circle K Sunkus Industry 11.1% ¥8 trillion (Fiscal 2008) Trends in Japan’s Retail Sector FamilyMart Lawson Since hitting a peak of approximately ¥148 trillion in fiscal 15.5% 18.7% 1996, total sales of Japan’s retail sector have decreased con- tinually amid a prolonged weak trend in personal consump- tion. A recovery was seen in fiscal 2003, but the trend has been flat over the past few years, largely owing to the aging of the country’s population combined with a low birthrate. Retail Sales Amid these circumstances, supermarkets and depart- (¥ trillion) (¥ trillion) ment stores are fighting for survival, and both these retail 145 14 categories are undergoing a rapid winnowing-out process due to fierce competition. 140 12 In contrast, the convenience store industry is still in good health. Following the opening of Japan’s first convenience 135 10 stores about 35 years ago, the industry grew strongly up to the 1990s by offering consumers the sort of convenient 130 8 service that met their needs. The growth pace slowed some- what after the turn of the century, but sales posted a sharp 125 6 rise in fiscal 2008 thanks to the introduction of the taspo age-verification system for cigarette purchases at vend- 120 4 99 00 01 02 03 04 05 06 07 08 (FY) ing machines. (See note on page 5.) In fiscal 2008, for the Retail (left scale) Convenience stores (right scale) first time ever, total sales by convenience store operators Supermarkets exceeded those of the nation’s department stores, which are Department stores suffering from poor clothing sales in particular. Trends in the Convenience Store Industry Although the scale of the convenience store industry is still In this highly competitive environment, the only con- growing thanks to the opening of new stores, sales on an venience store chains that will be able to continue growing existing store basis are sluggish. This is the result of severe are the major operators, who have achieved the required competition between convenience store operators, of which “critical mass” in terms of the number of stores, and a related the major companies are continuing to expand their store soundness of financial position. The industry is in the process chains, as well as between these operators and other forms of a significant realignment in which the medium-sized and of retail outlet such