Investor's Business Daily, June 15th, 2007
When Shiro Inoue opened the first Famima store in West Hollywood, Calif., in 2005, he was on a mission.
He wanted to change the U.S. image of convenience stores from "a place to stop by if you had to" to "a place where locals want to stop by every day."
Inoue -- the chief executive of Famima, a subsidiary of No. 3 Japanese convenience store chain FamilyMart -- introduced a new shopping concept to Americans: a health-conscious and ritzy convenience store with a unique Japanese flavor. The experiment is offering a case study in how to adapt successful Japanese marketing and managing techniques to the U.S. retail market.
Unlike in Tokyo, where convenience stores compete at every street corner with an ever-changing product array, many U.S. convenience outlets have fixed images as "cigarette, hot-dog and beer" stores, Inoue said.
"Nobody talks about shopping at 7-Eleven in the U.S.," he said, noting that the shopping experience there isn't what one would call memorable.
Hip Image
To make the experience stick, Famima focused on nurturing a niche clientele -- mainly female customers and upper-middle-class shoppers who don't shop often at 7-Eleven. Famima features an urban hip design.
The tack seems to be working. Famima customer Brooke Iskra bought a Papyrus brand birthday card for $3.95, saying, "I would never buy a card at 7-Eleven, but I do here."
Typical Famima stores in the U.S. have wooden floors and bright-green-colored walls with backlighting.
Deli foods such as spicy tuna rolls sell for $5.20, a dim sum combo goes for $5.98, and the pesto chicken panini is $5.75. All are placed in a six-foot chilled display gondola near the front door.
All deli products are made at four commissaries in Los Angeles, using specific FamilyMart ingredients and manufacturing methods.
Famima sells 30 different kinds of bottled water, including Voss brand water. At the front counter, customers can find steamed Japanese buns called nikuman, or pork-filled buns.
Customers love Famima's different beat. "It's like a convenience version of (upscale U.S. grocer) Trader Joe's," said Ashley Greene, a 17-year-old student and frequent customer. Growing up eating mostly organic foods and avoiding junk foods, she thinks health-conscious foods are the biggest attraction.
Famima has opened 12 stores in Southern California since 2005. It's aiming to have 30 in the Los Angeles area by the end of the year and 250 stores nationwide by 2009.
Japan's FamilyMart boasts 13,122 stores worldwide, including 6,971 stores in Japan. It posted fiscal 2007 operating revenue of $2.5 billion.
Diversity Is Good
Analyst Adam Sindler of Morgan Keegan says Famima's choice of locations in California was wise.
"L.A. is more like an international city than an American city," Sindler said. "Los Angeles has a very diverse population and they (Famima) are serving a very distinctive market which has been underserved."
Sindler says it would be tough for Famima to compete in less-diverse regions like the Midwest. Its big appeal is in urban centers that have cosmopolitan tastes.
Famima's also finding that expanding in the U.S. isn't easy. Inoue says it takes three times as long to open a store in the U.S., for various reasons, compared with Japan, where it usually takes only 3 months to open an outlet.
Analyst Robert Gregory of Planet Retail says Famima may have a hard time meeting its goals: "They are very slow, and maybe they won't be able to achieve the target (of 250 U.S. stores) by 2009."
But Famima has a lot going for it. One of its secret weapons is Japanese-style customer service.
"We instruct store managers and staff to greet customers saying 'Good morning' or 'Good afternoon' each time they come into the store," Inoue said.
Such greetings are an integral part of running retail stores in Japan. But it's still relatively rare at U.S. convenience stores, which sometimes have bulletproof glass separating customers from clerks and store managers.
Being helpful is also par for the course at Famima. When Inoue sees a customer struggling to open a package of sushi, he dashes over to help open it.
Famima believes customers should be helped in specific ways. It trains store manager candidates intensively for 30 days to teach them how to interact -- part of a "customer-first" approach, Inoue said. Customer-first service includes filling up empty spaces with products as soon as possible. That's how stores in Japan do it.
Junko Cox, a 61-year-old Famima employee, says she often asks customers what they're looking for, which items they liked, and what kind of products they wish to find in the store.
Famima's prices are higher than those at supermarkets, but no more than Trader Joe's and Whole Foods Market WFMI, Inoue says. The average customer spends $5-$6.
It adds up. Famima's Santa Monica, Calif., store sees more than 1,000 customers walk through its doors a day.
Jason Rinka, a Famima regular, spends an average of $15 per visit. He goes to the store three times a week. He says he doesn't cook at home, so he buys sushi, curry bread and imported snacks. "It's a little expensive, but it's worth it," Rinka said.
Famima lays out its products carefully to attract customers, using product placement as a marketing tool.
As Hidenari Sato, vice president of Famima, puts it: "You see familiar beef jerky at your eye-level on this shelf, and if you look just below that, you'll find some new Japanese snacks you might want to try."
Not everything that works in Japan works here. Convenience stores in Japan compete by quickly culling less popular items and replacing them with new ones. But Inoue found that U.S. shoppers don't like switches.
"In terms of food choices," Inoue said, "I realized American consumers tend to be more conservative than typical Japanese customers. So here, we keep regular items much longer than we do in Japan."
Famima also sells Japanese-language fashion magazines. These are meant to catch the eye of trend-savvy Americans, not just Japanese customers.
"We take advantage of the current 'Japan boom,' as Japanese fashion, animation and movies increasingly gain popularity in the U.S," Inoue said.
Famima's goal is to expand its franchising in the U.S. and be recognized as a neighborhood store, not just as an ethnic food store. Inoue's current challenge is finding corporate partners for franchising.
"Franchise stores always perform better than company-owned stores," said Gregory, of Planet Retail. "It's good that Famima is looking into franchising, because it will allow them to expand much more rapidly."
