<figure id="attachment_313926" aria-describedby="caption-attachment-313926" style="width: 2500px" class="wp-caption alignnone"><a href="#" data-ident_hash="1b3b3eb7"><img src="https://res.cloudinary.com/fridaydigital/image/private/t_article_image/wpmedia/2023/05/KIN_0340.jpg" alt=""></a><figcaption id="caption-attachment-313926" class="wp-caption-text">Wellesia has risen to the No. 1 position in the industry by absorbing a series of small and medium-sized drugstore chains. Increasing the number of stores in central Tokyo.</figcaption></figure>
<p> A daikon radish costs 150 yen a piece, and a pack of pork belly is 198 yen &#8230;&#8230;.</p>
<p> When this reporter visited a suburban Kanto store of Wellesia, the industry&#8217;s No. 1 drugstore chain in terms of sales, on a Saturday afternoon, the fresh food section dominated the sales floor. Shoppers were examining the vegetables and meats on display and picking up items in their shopping baskets. Some shoppers filled their baskets with specials on kitchen paper and detergent, and fewer seemed to be shopping for medicines. Wellsia is now transforming itself into a &#8220;supermarket where you can also buy medicines.</p>
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<p> According to the Japan Chain Drug Stores Association, the drugstore market is worth approximately 8.7 trillion yen (in 2010). It is growing at a rate that threatens the convenience store industry. The next-generation &#8220;king of retailers&#8221; is rapidly expanding its influence, driven by special demand for sanitary products such as masks and disinfectants due to inbound travel and the COVID-19 crisis.</p>
<p><strong> There is still room for growth in the drugstore industry. In addition to the expected influx of customers from food supermarkets, if we can capture customers from small-scale dispensing pharmacies located in front of hospitals, known as &#8220;gate-front pharmacies,&#8221; we will be able to further expand our market share. There is no doubt that the market size will surpass 10 trillion yen,&#8221; said distribution journalist Tadako Ishibashi.</strong></p>
<p> The strength of drugstores is their overwhelming discounting power. In particular, confectioneries and beverages are 20-30% cheaper than those sold in general supermarkets. How are they able to generate profits with this pricing? Distribution journalist Hiroaki Watanabe explains.</p>
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<p><strong> One reason is that the gross profit margin on OTC drugs, which can be purchased without a prescription, exceeds 50%. The current mainstream business model of drugstore chains is to attract customers with special sales of fresh food and daily necessities, and then have them buy pharmaceuticals with high gross profit margins. In the suburbs, there is high demand for &#8220;one-stop shopping&#8221; type stores where all shopping can be done in one store. Each chain is designing its stores in a way to adjust to this demand.</strong></p>
<p> A former drugstore employee with a pharmacist license continues.</p>
<p><strong> The penetration of private brand (PB) drugs has also contributed to the rapid expansion of the chain stores. The fact that &#8216;you can buy medicines at low prices&#8217; is an attraction that has never existed before. From the drugstore&#8217;s point of view, it is a profitable product with high profit margins.</strong></p>
<div data-friday-nextpage-lead=" Headhunting for Pharmacists"></div>
<h2>Headhunting for Pharmacists</h2>
<p> Leading the industry with a &#8220;three-tier strategy&#8221; of dispensing pharmacies, fresh produce, daily necessities, and pharmaceuticals are the aforementioned Wellcia and the industry&#8217;s second largest drugstore by sales, Turuha Drug. Both drugstore chains have continued to grow to giant size through repeated M&amp;A of medium-sized regional drugstore chains. A major influence on the management of these two companies has been retail industry guru Aeon. Aeon made Wellcia a consolidated subsidiary in 2002. It also holds about 13% of the shares of Tsuruha.</p>
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<p> Aeon is also the largest shareholder in the industry&#8217;s ninth largest drugstore, Kusuri no Aoki, and operates its own Aeon Pharmacy. Utilizing Aeon&#8217;s logistics system, reasonably priced Top Value private-brand products are also displayed in Wellesia and Tsuruha stores.</p>
<p> This allied force has become a monolith and continues to run alone, but in fact there is a battle for the pie within the group. In particular, the two groups, No. 1 in terms of sales, Wellucia and Turuha, have begun to show a clear difference. According to an industry insider.</p>
<p><strong> In the fiscal year ended May 2010, Tsuruha&#8217;s sales and profits declined, and the number of customers fell compared to other chains. The rapid M&amp;A offensive has resulted in a lack of store strategy, and there have been cases of Turuha competing with each other for customers. Although drugstore chains are cheaply priced, they have no other ″variety″ that appeals to customers, so there could be a case where growth suddenly stops. Wellesia is no stranger to this.&#8221;</strong></p>
<p> Recruitment of pharmacists, which is indispensable for the development of drugstores, is also becoming increasingly intense. A pharmacist who worked as a store manager for a major chain said, &#8220;If you only look at the number of pharmacists, there are more than enough pharmacists.</p>
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<p><strong> If you look at the number of pharmacists, there is a surplus, but the rapid increase in the number of dispensing pharmacies has not kept pace with the number of job openings, and there is a shortage of personnel. There are an increasing number of cases of headhunting pharmacists from other chains. Drugstore clerks do hard work, such as unloading heavy items and working late at night. Many pharmacists then move to dispensing pharmacies, where they can make good use of their qualifications and earn more money.&#8221;</strong></p>
<p> In hot pursuit of Wellcia and Tsuruha is Cosmos Yakuhin, the third largest company in the industry. The chain, which has built a solid foundation in Kyushu, achieved 31 consecutive quarters of sales growth in the fiscal year ended May 31, 2010. It has expanded into the Chugoku and Shikoku regions, stealing customers from local supermarkets and exerting enough influence to prompt a reorganization of local retail chains.</p>
<p> In response, Wellucia established a joint venture, AEON Wellucia Kyushu, and opened its first store in April this year. In response, Wellucia established a joint venture company, AEON Wellucia Kyushu, and opened its first store in April of this year, while Turuha has gone head-to-head with JR Kyushu-owned Drug Eleven by making it a wholly owned subsidiary.</p>
<p><strong> Cosmos&#8217; strengths lie in its ability to sell food products at low prices and the strong distribution network it has built in Kyushu. Other chains have expanded through acquisitions, so many of their stores are located in &#8220;enclaves,&#8221; and they have not fully developed their logistics networks. Cosmos is gradually expanding its logistics bases by investing its stable earnings. Currently, Cosmos is focusing on expanding into the Chukyo area, but will eventually expand eastward to the Kanto and Tohoku regions,&#8221; said retail and distribution analyst Akihito Nakai.</strong></p>
<figure id="attachment_313923" aria-describedby="caption-attachment-313923" style="width: 2500px" class="wp-caption alignnone"><a href="#" data-ident_hash="e11ed558"><img src="https://res.cloudinary.com/fridaydigital/image/private/t_article_image/wpmedia/2023/05/10000000000000157056_20230522184433062744_P211109000589.jpg" alt=""></a><figcaption id="caption-attachment-313923" class="wp-caption-text"> Wellucia sells fresh produce such as meat and vegetables. The product lineup is comparable to that of supermarkets, and the strength of Wellucia is that a day&#8217;s shopping can be done in the store.</figcaption></figure>
<figure id="attachment_313925" aria-describedby="caption-attachment-313925" style="width: 2500px" class="wp-caption alignnone"><a href="#" data-ident_hash="c415d701"><img src="https://res.cloudinary.com/fridaydigital/image/private/t_article_image/wpmedia/2023/05/KIN_0275.jpg" alt=""></a><figcaption id="caption-attachment-313925" class="wp-caption-text"> In 1995, Tsuruha formed a business and capital alliance with Aeon (then Jusco). One step closer to the goal of 1 trillion yen in sales</figcaption></figure>
<div data-friday-nextpage-lead=" The challenge of opening stores in urban centers"></div>
<h2>The Challenge of Opening Stores in Urban Centers</h2>
<p> Sandrag, ranked sixth in terms of sales, and Sugi Pharmacy, ranked fifth in terms of sales and based in Aichi Prefecture, are also facing the challenge of expanding into urban areas. Roadside stores in the suburbs will not be spared from the effects of a declining and aging population, and if they continue to rely on &#8220;one-stop shopping,&#8221; they are certain to taper off.</p>
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<p> Each chain is working hard to open urban stores, but labor costs and rising rents are becoming a bottleneck. In the Tokyo-Osaka area, where the top chains are struggling to expand, Matsumotokiyoshi, the industry&#8217;s fourth largest retailer with over 3,000 stores nationwide, is the dominant player (it merged with Kokokara Fine in 2009 and changed its name to Matsumotokiyoko Kokokara &amp; Company). The former industry leader is trying to regain its footing with the resurgence of inbound sales.</p>
<p> The Matsumatsukiyo store facing &#8220;Sunshine 60 Street&#8221; in Ikebukuro (Toshima-ku, Tokyo) underwent a major renovation in 2007. The store offers cosmetics, cold remedies, supplements, and other products popular among foreign tourists.</p>
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<p> During this year&#8217;s GW (Golden Week), when the city center was crowded with foreign tourists, this reporter went to the Matsukiyo store in question. Instead of a cluttered display of products like you would find in a typical drugstore, the shelves had a luxurious feel like those in an airport duty-free store, with products such as facial creams and mascaras lined up in rows. Foreign tourists carrying large shopping bags formed a long line at the cash register, and the clerk who handled them had a nametag indicating that he or she could speak English and Chinese. The image of Matsumotokiyoshi as &#8220;the best drugstore in Japan&#8221; seems to be gaining ground among foreign tourists.</p>
<p> Matsumotokiyoshi has maintained its brand by specializing in urban areas, mainly for inbound customers, without daring to get involved in the fresh food business, which is expanding in the industry. Shigeki Unozawa, a securities analyst, says, &#8220;Matsumotokiyoshi has been a major player in the online medical market.</p>
<p><strong> Matsumoto is focusing on digital strategies, such as online ordering of pharmaceuticals, in preparation for the full-fledged introduction of online medical services. The company is ahead of its competitors in home delivery services, and in this area, Matsukiyo may have an advantage in the medium to long term.</strong></p>
<p> It is no longer certain how long the &#8220;Aeon Allied Forces&#8221; will remain in power. There is a good possibility that Cosmos, which is steadily expanding its &#8220;territory,&#8221; and Matsukiyo, which has taken a step forward into next-generation pharmaceutical sales, will turn the industry map upside down.</p>
<p> The business model of this industry depends largely on the ability to sell pharmaceuticals with a half vested interest. A senior executive of a drugstore chain expressed his concern, saying, &#8220;If convenience stores and supermarkets are deregulated, Matsumoto will be the first to take over.</p>
<p><strong> If deregulation allows convenience stores and supermarkets to sell pharmaceuticals freely, we will lose our advantage. Also, Amazon is considering entering the online prescription drug market. I don&#8217;t see any drugstore chain that can compete with Amazon&#8217;s powerful delivery network. The very structure of the industry itself will change.&#8221;</strong></p>
<p> Chains that can see several moves ahead will be the allies of the &#8220;king of retail.</p>
<figure id="attachment_313927" aria-describedby="caption-attachment-313927" style="width: 1562px" class="wp-caption alignnone"><a href="#" data-ident_hash="1549e4f1"><img src="https://res.cloudinary.com/fridaydigital/image/private/t_article_image/wpmedia/2023/05/KIN_0515.jpg" alt=""></a><figcaption id="caption-attachment-313927" class="wp-caption-text"> Matsumotokiyoshi store along Sunshine 60 Street in Ikebukuro, Tokyo, is crowded with foreign tourists. Many customers were seen shopping.</figcaption></figure>
<figure id="attachment_313924" aria-describedby="caption-attachment-313924" style="width: 1907px" class="wp-caption alignnone"><a href="#" data-ident_hash="36546748"><img src="https://res.cloudinary.com/fridaydigital/image/private/t_article_image/wpmedia/2023/05/KIN_0006.jpg" alt=""></a><figcaption id="caption-attachment-313924" class="wp-caption-text"> The number of dispensing pharmacies that accept prescriptions continues to increase. Aiming to increase market share by integrating front-door pharmacies near hospitals.</figcaption></figure>
<p><a href="#" data-ident_hash="396ba0ef"><img src="https://res.cloudinary.com/fridaydigital/image/private/t_article_image/wpmedia/2023/05/WF0609_P059.jpg" alt=""></a></p>
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<p> From the June 9, 2023 issue of FRIDAY</p>


 Takeshi Kinugawa, Asahi Shimbun

 The drugstore market is growing at a pace that threatens the convenience store industry! The next generation of "kings of retail" are rapidly expanding their power... What is the strategy of each chain...? Which pharmacy will unify the world?

 Who will stop the "Aeon Alliance" of Wellsia and Tsuruha? Cosmos Pharmaceutical, the third largest drugstore chain, is in hot pursuit, and what will happen to Matsukiyo with the resurgence of inbound sales?

The “King of Retail,” Stronger than Convenience Stores: Fierce Competition in the Drugstore Industry

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