Japan’s FamilyMart Takes the Convenience Store Upscale

Imagine stopping by the neighborhood convenience store and picking up deodorant, toothpaste -- and a pickled apricot hand roll.

Tokyo-based FamilyMart Co. is betting that the U.S. convenience customer will adopt just such an unconventional shopping list.

Japan’s No. 3 convenience store chain is expanding aggressively after opening its first U.S. locations in West Hollywood and Westwood last year. It hopes to have as many as 30 of its upscale, Asian-inspired Famima shops in the Los Angeles area by the end of this year, including a Santa Monica store opening Tuesday, and 250 in the U.S. by 2009.

FamilyMart is wagering that it can carve out a profitable niche by going luxe, plucking liberally from the Asian pantry and serving customers in bright, sleek settings.

“They’re offering something no one else does in a convenience store format,” said Adam Sindler, an analyst at Morgan Keegan & Co.

“They’re really going beyond convenience stores’ core offerings: cigarettes, beer, hot dogs, coffee.”

FamilyMart stresses hospitality, with its one-on-one “smile training” for its employees in Japan and the two exclamation points in the Famima logo. (The name is a contraction of the corporate moniker.) The company will have to muster that kind of enthusiasm as it moves into an increasingly competitive market in which maintaining consumer loyalty is one of the biggest challenges.

Veterans such as segment leader 7-Eleven Inc. of Dallas and its Japanese parent continually retool offerings to woo customers. And new players are eager to enter: British supermarket giant Tesco announced this month that it would introduce convenience stores on the West Coast next year.

FamilyMart faces other challenges. Some customers have wrinkled their noses at the prices, pointing to such items as $25 canisters of tea bags. And analysts say the company must overcome obstacles that typically accompany entering a new market, such as a lack of name recognition and nuances in customer preference. That’s particularly significant for convenience stores, where limited inventory leaves little room for error.

FamilyMart’s formula appears to be winning converts. On a recent Friday afternoon, the Westwood Famima was humming with activity.

“It’s fabulous,” said Cassie English, 22, a legal assistant who had wandered into the store for the first time. Toting a basket filled with Kettle brand chips and Annie’s organic pasta shells, she said, “7-Eleven is convenient but, you know, this sort of combines convenience with gourmet food.”

Her roommate, student Evelynne Scholnick, also 22, likes the Asian food offerings. Eyeing a steamed chicken and mushroom bun, she said, “I’m excited because you can get it anytime and it’s not greasy, gross food.”

Famima does offer the obligatory convenience items, with cigarettes behind the counter and automated teller machines in corners. But it’s the upscale goods that take center stage: Think Voss bottled water instead of Aquafina and Seventh Generation tissue, not Kleenex.

In the market for safflower oil? Check near the ponzu sauce and sherry vinegar. Workhorses such as sushi and dim sum are offered too, as well as less familiar fare such as almond tofu and rice balls, Japan’s answer to the sandwich.

Another twist on the traditional convenience store model: modern design. Dark wood floors offset stainless-steel counters, and lime walls and mango-hued signs add pop. Hand rolls are displayed on bamboo trays, and signs explain unfamiliar items.

“You never see American people saying they would like to go out to a convenience store to buy things, but people in Japan do all the time,” said Hidenari Sato, chief operating officer of Famima Corp., the Torrance-based FamilyMart subsidiary responsible for U.S. expansion. “We thought this kind of concept could come to the U.S.”

Industry experts say differentiation makes sense in today’s market.

“It’s not enough anymore to have your best offer be ‘We’re in a great location’ or ‘We’re open extended hours’ or ‘We have a pretty good price,’ ” said Jeff Lenard, spokesman for the National Assn. of Convenience Stores. The industry -- with 2004 sales of $395 billion, about two-thirds of that from motor fuel -- “is increasingly looking to build loyalty beyond the traditional factors.”

One way Famima has attempted to stand out is through its Japanese products, an emphasis that branding expert Rob Frankel called promising.

“The Japanese have traditionally been very successful in appealing to American tastes,” he said.

Japanese products, marketing and design, Frankel said, “seem to engage faster and better with white, Anglo American markets than, for example, Middle Eastern culture, and certainly far more than African culture.”

FamilyMart is betting $10 million in capital this year that it will attract a mainstream audience. It is targeting high-traffic intersections in affluent neighborhoods as Famima sites.

Median household income last year in the first two areas the company selected, West Hollywood and Westwood, was $61,083 and $51,953, respectively. Those figures compared with $47,099 for Los Angeles County as a whole, according to market research company Claritas.

In addition to those locations and its new shop at Third Street Promenade in Santa Monica, the company plans to open in Torrance, Old Pasadena and downtown Los Angeles in the first half of the year.

As Famima grows, executive Sato said, he and his team are keeping a close eye on customer preferences by store. They have found that a blockbuster product in West Hollywood, such as Glaceau’s vitamin-fortified flavored waters, may play less well in Westwood.

Furthermore, Sato said, most items will stay in continuous rotation here, in contrast to FamilyMart’s 70% annual changeover in inventory in Japan.

“We’ve been finding that Americans are very conservative regarding the menus,” he said. “The customer expects to go to a certain place to find the things that he wants.”

For 24-year-old computer programmer Mike Zaimont, recently picking up lunch at the Westwood store, Famima’s steamed pork buns topped the menu.

“The nikuman are amazing. They’re really Japanese,” he said.

“But six bucks for a cereal box? That’s a little weird.”