Very informative article, learned a lot about the company and the industry as a whole.
One question I had is that you mentioned their market share is 3.5%, and 1.2% if we include food retail from convenience stores/similar. Taking market share is easy when there are no restrictions on scale. i.e. Make an online product that is superior to the rest and switching costs are low. The thing that limits market share expansion in grocery stores is opening new stores. You don't want to open up side by side to a competitor.
Are there any metrics like population/grocery store or population/(grocerystore and convenience store) that tell us which cities have more store expansion potential. Because if all the cities are completely saturated with enough grocery stores, how will Kobe Bussan continue to grab market share?
Other questions:
-do they have any loyalty program with points
-do they have an app where ppl can see deals
-Do the food delivery apps offer grocery pickup at Kobe Bussan locations?
Thanks for your comment - it's greatly appreciated.
On market share and industry saturation: Japan has absolutely no shortage of grocery stores overall. Fortunately, Gyomu is highly differentiated, being cheaper and more popular than other supermarkets. This means they can open new stores even right next door to competitors, and still be very successful. That's tough luck for the competitors, which probably lose some sales to Gyomu and might have to consider closing if they become unprofitable.
For evidence, I suggest to read Reddit threads discussing Gyomu and other supermarkets in Japan. Many people comment that they wish they had a Gyomu near them.
Good question about the loyalty program and app. The answer to both is yes: they have a loyalty and payment app called Gyomuca. This first launched in 2022 on a trial basis, and has now expanded to over 400 stores (so still less than half the total).
Gyomuca allows payment by smartphone app, and provides a bonus worth 0.5% of all money loaded onto it, as well as additional bonuses triggered by the purchase of specific promotional items. The app also contains the flyer showing the latest deals. The website with details is below.
As far as I know, no delivery app offers pickup from Gyomu. Since Gyomu is extremely cheap, and since delivery is a luxury / premium service, then the fit would probably not be good for such a partnership.
Thanks for the great research. I hold Kobe Busssan shares and I randomly walked into a Trial (141A.T) Mega Center yesterday at Utsunomiya and was supprised to see many of the products are quite competitive in price and quality.
I wonder if anyone reading this article have any insights on Trial.
Hello, thanks for reading and commenting -- greatly appreciated. Do you live near the Trial? Will you make it your main shop from now on?
Trial looks like an interesting new IPO, and a supermarket to include on the long-list of discount competitors with different approaches.
From a quick read of their materials I note the following:
* Not a hard discounter, but a large-format EDLP discounter.
* 315 stores and Y702bn trailing 12m sales, for about Y2.4bn sales per store, far higher than Gyomu Super average Y0.5bn sales per store.
* Their main format is Super Center with large c 4,000 sqm stores, 60-70k SKUs. Mega Centers like the one you visited are even bigger.
* They have struggled with small stores / smart stores which would be directly competitive to Gyomu Super. Not yet got the format right / still experimenting.
* Sales mix includes 25% from non-food and general merchandise, and 25% from fresh produce and ready meals. This indicates a reduced overlap with Gyomu Super, which doesn't play in these categories.
* Trial is a regional player, dominant in Kyushu and growing in Hokkaido and Tohoku. They have struggled in Kanto where they are closing unprofitable Smart format stores. Limited presence in Kansai.
* Low profitability of 2-3% OPM limits their ability to self-fund expansion. They only opened a net twenty stores combined during FY22 and FY23, and still spent 73% of their operating cash flow on capex to do so. IPO proceeds are now funding an accelerated opening programme.
* Recent SSSG of +6% in FY23 and also +6% in 9MFY24 is respectable. But would be good to see a longer term track record.
* Stock trades on 21x Jun'25E P/E for an expected mid-to-high-teens earnings CAGR, from 11% sales growth plus margin expansion. They need to build a track record of post-IPO execution for me.
* In Japan in particular, the IPO itself often drives huge publicity to consumer-facing brands which brings a short-term sales spike. This clearly happened for Trial which had above-average +10% SSSG in February and March, now possibly fading.
I am really happy to find this serious blog for discussion while I am thinking and reflecting my investment in Kobe Bussan recently.
I am just a traveller in Japan. It is true that it is not a hard discount like Gyomu but I can see myself doing a lot of groceries at that Trial supermarket instead of some of the smaller Gyumu (where fresh product can be really limited).
Gyomu is really great at Frozen foods, but asian really like fresh meat and vegetables. That's the only compalint I hear from my local friends about Gyomu.
It caugth my attention when I saw them selling private-label ¥88/pack toast. That was not on promotion, and after-sales-tax price. Any other toast I have bought in Japan for the last 20 days will be above 100 yen pre-tax.
Also interesting to point out that they don't accept any card. Cash or their own pre-paid card/mobile app payment system. There are a lot of companies doing membership and payment for no good reason. However, I can see what a everyday supermarket with big sales want to have their own payment system.
My guess is that Trial really let go more of the profit (< 3% OPM even for FY2024 forecast) to fuel the sales growth and nation-wide expansion at the moment. It would be interesting to see how they execute for a few more quarters.
Great piece of analysis. And completely agree. Will grow and grow. For discounters, I might add Cosmos Pharmaceutical and PPIH's Mega Donki format. Oh and Lopia.
I like Cosmos although of course it is a drugstore-discounter. I also like Genky Drugstores (9267 JP). The latter is likely to expand supra-regionally going forward. Ditto for OK Super and Lopia but unlisted for now. One of the best supermarket operators is Yaoko and it has just launched a discount format; early days but its record on full price supermarkets should mean success in discount.
Very informative article, learned a lot about the company and the industry as a whole.
One question I had is that you mentioned their market share is 3.5%, and 1.2% if we include food retail from convenience stores/similar. Taking market share is easy when there are no restrictions on scale. i.e. Make an online product that is superior to the rest and switching costs are low. The thing that limits market share expansion in grocery stores is opening new stores. You don't want to open up side by side to a competitor.
Are there any metrics like population/grocery store or population/(grocerystore and convenience store) that tell us which cities have more store expansion potential. Because if all the cities are completely saturated with enough grocery stores, how will Kobe Bussan continue to grab market share?
Other questions:
-do they have any loyalty program with points
-do they have an app where ppl can see deals
-Do the food delivery apps offer grocery pickup at Kobe Bussan locations?
Thanks for your comment - it's greatly appreciated.
On market share and industry saturation: Japan has absolutely no shortage of grocery stores overall. Fortunately, Gyomu is highly differentiated, being cheaper and more popular than other supermarkets. This means they can open new stores even right next door to competitors, and still be very successful. That's tough luck for the competitors, which probably lose some sales to Gyomu and might have to consider closing if they become unprofitable.
For evidence, I suggest to read Reddit threads discussing Gyomu and other supermarkets in Japan. Many people comment that they wish they had a Gyomu near them.
Good question about the loyalty program and app. The answer to both is yes: they have a loyalty and payment app called Gyomuca. This first launched in 2022 on a trial basis, and has now expanded to over 400 stores (so still less than half the total).
Gyomuca allows payment by smartphone app, and provides a bonus worth 0.5% of all money loaded onto it, as well as additional bonuses triggered by the purchase of specific promotional items. The app also contains the flyer showing the latest deals. The website with details is below.
https://gyomuca.gyomusuper.jp/
As far as I know, no delivery app offers pickup from Gyomu. Since Gyomu is extremely cheap, and since delivery is a luxury / premium service, then the fit would probably not be good for such a partnership.
Thanks for the great research. I hold Kobe Busssan shares and I randomly walked into a Trial (141A.T) Mega Center yesterday at Utsunomiya and was supprised to see many of the products are quite competitive in price and quality.
I wonder if anyone reading this article have any insights on Trial.
Hello, thanks for reading and commenting -- greatly appreciated. Do you live near the Trial? Will you make it your main shop from now on?
Trial looks like an interesting new IPO, and a supermarket to include on the long-list of discount competitors with different approaches.
From a quick read of their materials I note the following:
* Not a hard discounter, but a large-format EDLP discounter.
* 315 stores and Y702bn trailing 12m sales, for about Y2.4bn sales per store, far higher than Gyomu Super average Y0.5bn sales per store.
* Their main format is Super Center with large c 4,000 sqm stores, 60-70k SKUs. Mega Centers like the one you visited are even bigger.
* They have struggled with small stores / smart stores which would be directly competitive to Gyomu Super. Not yet got the format right / still experimenting.
* Sales mix includes 25% from non-food and general merchandise, and 25% from fresh produce and ready meals. This indicates a reduced overlap with Gyomu Super, which doesn't play in these categories.
* Trial is a regional player, dominant in Kyushu and growing in Hokkaido and Tohoku. They have struggled in Kanto where they are closing unprofitable Smart format stores. Limited presence in Kansai.
* Low profitability of 2-3% OPM limits their ability to self-fund expansion. They only opened a net twenty stores combined during FY22 and FY23, and still spent 73% of their operating cash flow on capex to do so. IPO proceeds are now funding an accelerated opening programme.
* Recent SSSG of +6% in FY23 and also +6% in 9MFY24 is respectable. But would be good to see a longer term track record.
* Stock trades on 21x Jun'25E P/E for an expected mid-to-high-teens earnings CAGR, from 11% sales growth plus margin expansion. They need to build a track record of post-IPO execution for me.
* In Japan in particular, the IPO itself often drives huge publicity to consumer-facing brands which brings a short-term sales spike. This clearly happened for Trial which had above-average +10% SSSG in February and March, now possibly fading.
I am really happy to find this serious blog for discussion while I am thinking and reflecting my investment in Kobe Bussan recently.
I am just a traveller in Japan. It is true that it is not a hard discount like Gyomu but I can see myself doing a lot of groceries at that Trial supermarket instead of some of the smaller Gyumu (where fresh product can be really limited).
Gyomu is really great at Frozen foods, but asian really like fresh meat and vegetables. That's the only compalint I hear from my local friends about Gyomu.
It caugth my attention when I saw them selling private-label ¥88/pack toast. That was not on promotion, and after-sales-tax price. Any other toast I have bought in Japan for the last 20 days will be above 100 yen pre-tax.
Also interesting to point out that they don't accept any card. Cash or their own pre-paid card/mobile app payment system. There are a lot of companies doing membership and payment for no good reason. However, I can see what a everyday supermarket with big sales want to have their own payment system.
My guess is that Trial really let go more of the profit (< 3% OPM even for FY2024 forecast) to fuel the sales growth and nation-wide expansion at the moment. It would be interesting to see how they execute for a few more quarters.
Since they do a portion in cash, how likely is it that franchisees underreport revenues to artificially target a certain OP margin?
Anyone have any insight into their POS system?
Great piece of analysis. And completely agree. Will grow and grow. For discounters, I might add Cosmos Pharmaceutical and PPIH's Mega Donki format. Oh and Lopia.
Thank you - your expert endorsement means a lot to me as a generalist.
Which one among all the other listed discounters has the most dependable growth path alongside KB?
I like Cosmos although of course it is a drugstore-discounter. I also like Genky Drugstores (9267 JP). The latter is likely to expand supra-regionally going forward. Ditto for OK Super and Lopia but unlisted for now. One of the best supermarket operators is Yaoko and it has just launched a discount format; early days but its record on full price supermarkets should mean success in discount.
Amazing write-up, learnt a lot