Japan's supermarket chains are under growing pressure to respond to the move by the U.S. e-commerce giant, which boasts a powerful logistics platform to expand its reach into a grocery market still dominated by physical stores.
Seven & i Holdings, which operates nationwide convenience store and supermarket chains, has responded to the challenge by joining hands with online office-supply company Askul.
The partnership came out of talks between Seven & i Holdings President Ryuichi Isaka and Askul President Shoichiro Iwata in March.
During their talks, Isaka offered help for Askul's efforts to recover from serious disruptions in its operations caused by a large-scale fire that broke out at one of its distribution centers in February.
But Iwata said his company could provide logistics support to Seven & i, which is facing a threat from surging e-commerce sales in Japan.
Seven & i's own online business, launched more than a decade ago, has failed to make a dent in the market. The group's online sales amount to less than 100 billion yen ($US 900 million), accounting for less than 1% of its overall sales.
The group's online supermarket services have failed to attract many customers due mainly to logistics problems. When orders flood in, items often run out of stock, while delivery is delayed.
Customers have also complained of frequently delayed deliveries on rainy days.
E-commerce giant using physical stores like warehouses to expand fresh food operations
The nation's leading retailer has been struggling to play catch-up in internet shopping due to problems Askul can help solve.
Askul has built its own, highly efficient distribution network that allows the company to deliver orders in designated hours to customers in large cities.
Seven & i and Askul on July 6 announced a business tie-up to jointly launch a fresh-food delivery service in November.
In announcing the deal, Isaka said his company will make a "fundamental review" of its delivery system, indicating an upcoming radical reform of its business model with the help of Askul.
Seven & i's move to team up with Askul was prompted by rapid growth of Amazon's presence in the nation's retail sector.
Amazon's online sales in Japan have surpassed 1 trillion yen. Even more threatening to Seven & i is the company's grocery delivery service, Amazon Fresh, which was rolled out in Japan in April.
Amazon's announcement in June of its Whole Foods deal, which will instantly turn the pioneer in online shopping into a grocery merchant with physical outposts in neighborhoods across America, is certain to beef up the company's competitiveness in the grocery business.
Amazon has been moving aggressively into the traditional business of brick-and-mortar retail in recent years. But its approach to using physical stores is unconventional.
The company plans to use the 460 Whole Foods stores it acquired for $US 13.7 billion as if they were warehouses.
The business of selling groceries is complicated, with hard-to-manage inventory. Unlike books or clothing, perishable foods cannot be stored for long periods in large warehouses.
This challenge can be solved by using physical stores as if they were refrigerated warehouses.
Amazon's inroads into the grocery market will have implications that go far beyond distribution, possibly impacting consumer behavior and even working systems.
U.S. on-demand delivery startup Instacart, a partner of Whole Foods, offers a service that can catalyze significant changes in the ways people buy groceries and manage their shopping time. Under the service, Instacart employees gather items ordered by consumers via smartphones by walking around stores so that busy consumers can pick them up on their way home from work.
The service also involves hiring consumers with much leisure time to help stores with a manpower shortage deliver orders to the homes of other consumers who don't have time for shopping at physical stores.
Such sharing services offer benefits for both stores and consumers. If Amazon devises new types of grocery services by using Whole Foods stores as warehouses, it could lead to changes in the ways people work and shop.
The history of the retail industry has been marked by many reshufflings of the pecking order.
In the U.S., Macy's was once the king of retail during the era of department stores. But it was dethroned by supermarket chains with many large stores offering goods at low prices.
In Japan, the leader in the industry has been changing from Mitsukoshi, a department store chain, to Daiei, a supermarket operator, and then to a convenience store such as Seven & i's 7-Eleven chain.
Now, global expansion of e-retail is threatening to upend the industry again.
In the July 6 press conference to announce his company's partnership with Seven & i, Askul's Iwata said, "Amazon is an excellent company, but a world where consumers only have Amazon as an option is not comfortable for consumers." Isaka concurred.
But a battle with Amazon requires a great deal of strategic prowess. Seven & i needs to develop an innovative new business model that combines the advantages of physical and online shopping in a competitive way.
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