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The Honolulu Advertiser
Posted on: Sunday, March 5, 2006

Upscale convenience store tries U.S. market

By Juliet Chung
Los Angeles Times

LOS ANGELES — 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.

The Japanese 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 and 250 in the United States 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 a big challenge.

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 a few weeks ago 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. Analysts say the company also 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 on site. 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-colored walls and mango-hued signs add pop. Hand rolls are displayed on bamboo trays, and signs identify 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."

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 Association of Convenience Stores.