Lawson's target market keeps chain's expansion slow

A long line of office workers clutching milk, sushi and bread stretches back from the counter at a Lawson outlet on Shanghai's Huaihai Road at 8:45 am.

"Grab-and-go breakfast is all the rage in this cosmopolitan city and Lawson caters to my fast-paced lifestyle," said Liang Pan, who works for an American consulting firm a 10-minute walk away.

The 29-year-old said he picks up some white bread and a bag of soymilk here almost every workday.

Lawson, a Japanese convenience store chain targets people such Liang, who's young and has plenty of disposable income but little leisure time to spend it.

The company is playing catching up to domestic convenience chains such as Kedi and Alldays (both part of Shanghai-based Bright Foods Group) and Quick (part of Brilliance Group), which have a 34.8 percent combined market share according to research agency Euromonitor International. Lawson has just 1.9 percent.

The first Lawson in Shanghai opened 13 years ago and the company currently manages 300 of the city's estimated 5,000 convenience stores. The company only opened 13 stores in 2008 and has yet to expand beyond Shanghai. Its sales revenue was 650 million yuan in 2007.

Quick, by contrast, runs 1,300 outlets in the city and a further 700 across the country. Wen Yujie, Quick's general manager, said earlier that the company opens 200 outlets a year on average.

"Lawson is picky about outlet locations because of its mid and high-end market positioning. It needs places with concentrated visitor and traffic flows," said Zhang Yan, an analyst with Guojin Securities.

"That's why its expansion is so slow compared to other convenience store chains," said Zhang.

Lawson would not talk to China Daily about its slow expansion and whether it will set up out outlets in other cities in the near future.

The chain's customers are solidly white-collar, according to the store's staff.

"Those who work in high-end office buildings nearby are the most frequent customers in this store. During breakfast and lunch time we usually get over 300 patrons," an assistant at the Huaihai Road Lawson said.

The box lunch is the store's best-selling product, added the assistant. "We only keep it on the shelf for 24 hours, to guarantee quality. But usually they almost sell out before the time limit."

"Lawson has more spacious passageways for customers and their products are displayed in a consumer-friendly way so I can easily find what I want," said Zhu Shuzhe, a 25-year-old who works for a Hong Kong publishing company. "The self-made sushi and lunch sets are my favorites."

"But some of the stuff here is 10 to 20 percent pricier than at other local stores," said Zhu.

The price of a Japanese-made Nissin Cup Noodle in Lawson, for instance, is more than 15 yuan. Domestic brands such as Master Kong are around 4.5 yuan.

"I'm not that worried about price, quality and convenience are foremost for me when choosing where to shop," said Liang, the American consultant firm employee.

But a saturated Shanghai market appears and a global economic slowdown might force the Japanese store to change its business strategy and expand outside the city.

Figures from Shanghai Chain Enterprises Association shows the growth rate of sales revenue for convenience stores in the city grew 4.3 percent in 2008, down 10 percentage points from the previous year.

"Lawson needs to extend its reach to other cities to sustain growth," said Tian Huilan, a retail researcher at First Capital Securities.

(China Daily 03/16/2009 page9)