Japan's largest retailer, Aeon Co. Ltd., announced on 24 September that it will make Kobe-based supermarket operator Daiei Inc., of which it holds a 44.15 percent share, into a fully owned subsidiary by year’s end.
Aeon, based in Chiba, will obtain Daiei’s remaining stock through a stock swap at a ratio of 0.115 Aeon shares per Daiei share. Daiei will be delisted from the Tokyo Stock Exchange, where it trades under ticker number 8263.
Ninety percent of Daiei’s stores are in the Kanto area around Tokyo, and in the Kansai area including Osaka, Kobe and Kyoto. There, Daiei’s stores will be rebranded as “Aeon Food Style Store,” while shops in other areas will be closed or carry the Aeon banner.
The product mix will be altered to stress cooked and prepared foods. Currently, the first floor of most Daiei stores sells typical supermarket foods while the second floor offers housewares, cleaning supplies and clothing. Most Daiei stores are located near train stations in urban areas and usually have very limited parking. This worked well when housewives shopped locally on foot or by bicycle. Working women now prefer to shop for food ingredients by car on the weekends at megastores and malls, while they are also more receptive to buying take-out and prepared foods locally on the way home for dinner.
This corresponds with a trend in Japan’s seafood industry, which has seen a decline in consumption due to busy modern women not wanting to take time to clean and prepare fish, while children object to the difficulty of removing bones. Easy-to-prepare and easy-to-eat seafood products are attracting attention in the market and Daiei’s shifting focus will create a major new outlet for such foods.
Aeon acquired Daiei shares when it helped rescue its rival in 2007, then increased its holding and consolidated the company on its books in August 2013. Aeon has already moved to bolster Daiei's operations by renovating aging stores and focusing more on food sales, but the unit has suffered losses for six consecutive years. Since Daiei was consolidated into Aeon's results it has been a drag on earnings. Aeon’s profits fell by 90 percent in the first fiscal quarter of this year to just USD 12 million (JPY 1.3 billion; EUR 9.5 million), also in part due to aggressive competition from convenience stores such as Seven and I Holdings Company’s 7-Eleven.
The deal combines Japan’s largest and fourth-largest retailers. Both are also among just four major supermarkets that sell Marine Stewardship Council-certified (MSC) seafood. Aeon is the largest operator selling MSC products, while Daiei is third. The second and fourth spots are held by Co-op and Walmart subsidiary Seiyu respectively.
Aeon was the first retailer to get on board, launching 10 products in November 2006. It currently offers 15 Topvalu brand products of 13 fish species with the MSC label. The Japan Consumer Co-operative Union, which operates the Co-op chain, was second, launching 17 products in October 2007.
Aeon also announced in February this year that it would offer Aquaculture
Stewardship Council(ASC)-certified raw Atlantic salmon from Norway in sashimi, sashimi block and fillet form beginning 1 March. This is the first ASC product to be offered in Japan. Six fish species are scheduled to be introduced with ASC certification by 2016.
While packaged products with such certifications can be sold widely, repackaging MSC and ASC products requires expensive chain-of-custody certification that makes it unattractive for smaller retailers.
The most likely negative aspect of the merger for seafood suppliers is the concentration of purchasing power, which will reduce their bargaining power. Large chains are increasingly dealing directly with suppliers to strike bargains based on large volumes, bypassing the traditional auctions.
