As is well known, Japan's capital region is home to a highly competitive supermarket scene. Since 2000, with the growth of specialized chain stores, department stores and general merchandise supermarkets have seemed somewhat outdated. As an industry leader, AEON naturally sensed the changing winds. In 2005, AEON opened its first food supermarket of a scale similar to a convenience store, named "まいばすけっと," also known as "My Basket" or "My Shopping Basket." As of the end of February 2024, this chain had deployed nearly 1,200 stores in the bustling Tokyo metropolitan area, making it the only supermarket of its kind to achieve such a feat. Notably, in fiscal year 2023, My Basket's total sales reached 12.57 billion yuan (converted to RMB, same below), equivalent to an average annual sales of 11.21 million yuan per store and daily sales of 30,700 yuan per store. Although this still lags behind the convenience store leader 7-ELEVEn's average daily sales of 33,700 yuan, it has surpassed FamilyMart's 27,300 yuan and Lawson's 27,100 yuan.

Wherever a convenience store withdraws, My Basket appears

For the fiscal year ending February 2024, My Basket's sales reached 257.8 billion yen, equivalent to 12.57 billion yuan, up 15.7% year-on-year; operating profit was 360 million yuan, about four times the previous fiscal year; and the number of stores reached 1,119. Before we knew it, it had grown into one of the significant players in Japan's food supermarket sector. In the recent fiscal year, AEON's operating profit hit a record high, increasing by 34.8 billion yen, or 1.69 billion yuan. Looking at the contribution of each division to operating profit growth, the "food supermarket" division contributed 930 million yuan, accounting for more than half. Among them, My Basket contributed 268 million yuan, showing its significant contribution.

Although My Basket's store size is comparable to a convenience store, at about 200 to 270 square meters, as a food supermarket, it offers a wide variety of products, including fresh produce and prepared foods. In densely populated areas such as Tokyo's 23 wards, Kawasaki, and Yokohama, where there were originally many convenience stores, the trend is now "wherever a convenience store withdraws, My Basket appears," and the number of stores is rapidly increasing. Compared with convenience stores, which have a fixed-price image, My Basket adopts supermarket pricing, so a considerable number of customers who originally intended to go to convenience stores have shifted to it. Its convenience and low-price advantage are gradually gaining traction.

But why haven't other brands achieved such scale in the bustling urban areas? Generally, food supermarkets have a unique operating model, with operations concentrated in the back area of the store, such as packaging and final processing of fresh food and prepared foods. Therefore, to open a store in a convenience-store-sized space, about one-third of the area must be used for the back area. As a result, only about two-thirds of the area can be used as the sales floor, and staff must be arranged for processing work, making it difficult to achieve profitability. Especially in high-rent areas like the 23 wards and Keihin, costs are even higher.

My Basket is different; it relies on the AEON Group, which has a strong supply infrastructure. In other words, it can leverage its parent company's resources to complete product packaging at processing centers and then deliver products to stores, where staff only need to display them. Therefore, even if the back area is small, it doesn't matter, and most of the store space can be used as the sales floor. My Basket supermarkets are mainly concentrated in the central area of the capital region, which is of course due to the market potential of densely populated areas, but more importantly, it is to achieve efficient distribution from distribution centers, and this distribution is formed from the perspective of logistics efficiency.

Implementing standardized operations and pursuing an ultra-low-cost operating model

In addition to relying on the strong AEON Group, My Basket also has an extremely low-cost operating model. For example, the handling of fresh food. Traditionally, in food supermarkets, even the same fresh food is organized "vertically" by departments such as the produce department and the meat department. While this achieves specialized product displays, it requires a lot of manpower, including product management, making it a difficult department to profit from. My Basket promotes thorough standardization. For example, for the vegetables just mentioned, the operation manual clearly specifies things like "when it turns this color, it should be discarded." Even novices can quickly master the management of fresh products. The display order of products is also decided by headquarters, and on-site staff only need to use tablets to follow the operation manual. In addition, by not conducting special sales, or by deliberately opening competing stores near high-sales stores to disperse customers, they suppress fluctuations in volume and customer flow, thereby building a system where each store can operate with only 2-3 people at all times.

Undoubtedly, the strategy of concentrated store openings has contributed to low-cost operations. In addition to improving logistics efficiency and reducing advertising costs by increasing brand awareness, this strategy also allows for flexible personnel allocation. Store managers, who are regular employees, typically oversee two stores. They have also introduced a system that allows part-time employees to use smartphones to fill shifts at other stores outside their main workplace. The concentrated store opening strategy can be said to be a patented tactic of convenience stores. However, for convenience stores, it is difficult to extend this to flexible personnel allocation. This is because convenience stores are based on independent franchise contracts for each store. Each franchisee independently hires store staff. Fundamentally, in the franchise business, practices like "deliberately opening competing stores" are absolutely not allowed because ensuring the profit of each franchisee is the foundation of the business. Compared with convenience stores, it can be said that My Basket is pursuing efficient operations that only directly managed stores can achieve. Their store opening strategy often uses existing stores vacated by other companies to minimize opening costs. Although this results in varying store sizes and shapes, the basic sales floor layout is consistent across all stores, allowing employees to start work immediately at any store. Furthermore, as mentioned earlier, compared with ordinary supermarkets where the stockroom and back-office area typically account for nearly 30% of the store area, My Basket keeps this ratio at 10-20%.

Increasing the share of private brands and achieving rapid expansion in suburban areas

My Basket supermarkets have established a system of 1,000 stores in the 23 wards plus the Keihin area, and through economies of scale, they have almost successfully built a solid profit base. The recent inflationary environment has further driven this trend. Break-even sales = fixed costs / (1 - variable cost ratio). This article estimates this by calculating the ratio of selling, general, and administrative expenses to the gross profit margin. Although the break-even point has been slightly rising due to the gradual expansion of store scale, actual sales per store have been steadily increasing, especially in fiscal year 2023, with significant growth. The reason behind this is that real wages have been negative for about two consecutive years, and consumers' price preference awareness has increased. Among consumers who originally shopped at convenience stores, the number of those choosing to visit My Basket, which has prices comparable to supermarkets, is also increasing. Additionally, consumers are increasingly inclined to replace well-known brand products with low-priced private brands of the same quality. The AEON Group announced "prices remain unchanged" and vigorously promoted it. Sales of its private brand TopValu grew by more than 10%. Currently, about 25% of products in My Basket supermarkets are TopValu brand, which is rapidly increasing its support. My Basket supermarkets are confident and preparing for further expansion. They opened an experimental store in the suburbs of Yokohama, increasing the proportion of TopValu products to about 50%, to verify its effectiveness. What does this mean? It means that if they can increase sales of the private brand TopValu, which has higher profit margins than well-known brands, they can further improve the gross profit margin, thereby lowering the break-even point. Lowering the break-even point means that even with lower sales, they can maintain operations, which makes it possible to open stores on a large scale in more suburban areas. If this experiment succeeds, My Basket could rapidly expand to the suburbs of the capital region. Based on this situation, My Basket is advancing the expansion of its store opening areas. As can be seen from the brand's official website, in addition to strengthening existing store opening areas, they also plan to continue opening new stores in adjacent areas and in the area inside National Route 16. Currently, My Basket's sales have exceeded 12 billion yuan, and if it expands to these areas, it is expected to grow to 24-29 billion yuan. This is equivalent to the scale of the current mainstream food supermarkets Yaoko or OK Store. This means that the AEON Group, combined with the strength of the supermarket group USMH (with sales at the 34 billion yuan level), will establish an overwhelming market presence in the capital region. Undoubtedly, My Basket's contribution will become increasingly important.

In conclusion

As seen in the charts above, although My Basket suffered a significant impact during 2022-2023, after returning to normalcy, it quickly recovered its good development momentum and issued a "warning" to the convenience store industry. Behind this is a trend that cannot be ignored: the rapid growth of the elderly population has led to an increase in the number of "shopping refugees" (elderly people who have difficulty going out or cannot go out). My Basket is seen as a "breakthrough" to solve the shopping difficulties in the capital region. Currently, My Basket aims to open 2,000 stores, which is about half the number of Lawson stores in the one prefecture and three prefectures (Tokyo metropolitan area). In this regard, President Kinya Iwashita said: "Compared with the more than 15,000 stores of the three major convenience store chains in the one prefecture and three prefectures, we are far from saturation." This momentum seems likely to continue for some time. In addition, with the market becoming saturated, the convenience store industry is also racking its brains to increase sales per store and develop new business formats. As a result, the industry leader 7-11 opened a new format "SIP store" in the first quarter of this year, focusing on fresh food, and is already preparing for a second store; MINI STOP also announced strengthening the supply of related products. In the future, the boundary between convenience stores and small food supermarkets may gradually converge.

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