Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/metro-ag" target="_blank" data-smartkarma-citation="entities:21673:1" rel="noopener">METRO AG (MEO GR)</a> will close its Japan operations at the end of October. It follows <a href="https://www.smartkarma.com/entities/carrefour-sa" target="_blank" data-smartkarma-citation="entities:21409:1" rel="noopener">Carrefour SA (CA FP)</a>, <a href="https://www.smartkarma.com/entities/tesco-plc" target="_blank" data-smartkarma-citation="entities:22187:1" rel="noopener">Tesco PLC (TSCO LN)</a> and <a href="https://www.smartkarma.com/entities/walmart-inc" target="_blank" data-smartkarma-citation="entities:11134:1" rel="noopener">Walmart (WMT US)</a> as the latest major international player to try and fail in the Japanese market and leaves Costco as the only international chain retailer – but a clearly successful one at least.

METRO AG (MEO GR) will close its Japan operations at the end of October. It follows Carrefour SA (CA FP), Tesco PLC (TSCO LN) and Walmart (WMT US) as the latest major international player to try and fail in the Japanese market and leaves Costco as the only international chain retailer – but a clearly successful one at least. 

President, Vision Research

Robert C Prather Jr

President

Vision Research

Vision Research was formed in 2004 with the vision of generating the best possible fundamental analysis and investment research for smid cap US equities. In 2008, we broadened our coverage to include mid/large cap US stocks.  After researching a  few ideas outside the US each year for a number of years, we launched a dedicated non-US equity product at the end of 2015.  This was followed by the introduction of a product focused on IPOs in mid-2017.

Fundamental Insight

This Belgian grocer faces difficult comparisons from Covid tailwinds and increasing competitive pressures from newer and established peers.  Weak cash flow generation and a premium valuation are also of interest.

This Belgian grocer faces difficult comparisons from Covid tailwinds and increasing competitive pressures from newer and established peers.  Weak cash flow generation and a premium valuation are also of interest.

Colruyt (COLR BB) : The Downside Risks Abound in the Shopping Cart

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<a href="https://www.smartkarma.com/entities/carrefour-sa" target="_blank" data-smartkarma-citation="entities:21409:1" rel="noopener">Carrefour SA (CA FP)</a> 's shares have fallen this Thursday, 14 January, after the French government yesterday showed its opposition to a possible merger with the Canadian company <a href="https://www.smartkarma.com/entities/alimentation-couche-tard-inc-544efbde-b153-4672-afd6-c4979a9734ee" target="_blank" data-smartkarma-citation="entities:25108:1" rel="noopener">Alimentation Couche-Tard (ATD/B CN)</a>.
<ul class="">
<li>Shares of Carrefour chain began the session with a fall of over 6.8% in the first 10 minutes of trading and closed 2.5% lower at €17.10.</li>
<li>The French Government, inclined to veto purchases of local companies by foreign firms, said yesterday, through its finance minister, that "a priori" it opposes the takeover.</li>
</ul>
Following a Bloomberg <a href="https://www.bloomberg.com/news/articles/2021-01-12/circle-k-owner-couche-tard-said-to-explore-purchase-of-carrefour" target="_blank" rel="noopener">report</a>, on 13 January Alimentation Couche-Tard confirmed that it had been discussing a friendly transaction to acquire Carrefour for €16.4 bn. Under the terms, the offer per share will be €20 per Carrefour share, expected to be mostly in cash. The terms of the transaction are under discussion and remain subject to due diligence.
The Canadian group of convenience stores seeks to acquire the French supermarket company to forge the third largest group worldwide by turnover, with €120 bn.
The unexpected move by Couche-Tard, which Carrefour described as “friendly” but “very preliminary”, comes at a time of price wars due to the rise of super discount chains; transformation of the business due to the strength of online commerce giants such as Amazon; and the pandemic driven difficulties, which have spurred the online channel to the detriment of physical stores.
<ul class="">
<li>Couche-Tard and Carrefour would create a giant with very different formats and complementary at a geographical level, but with little margin for synergies and cost savings.</li>
<li>If approved, the transaction would be by far and large the largest in the relatively short history of Couche-Tard, with non-negligible execution risk.</li>
<li>The move by the Canadian company is opportunistic and lacks any obvious synergies and strategic merit, in my view. The interest of Couche-Tard is mainly because of the low valuation of Carrefour (€15.46 per share prior to the disclosure).</li>
</ul>
If anything, the news highlight the lowly valuation Carrefour had before the disclosure, at c. 6.2x EV/Fwd EBITDA vs. median of comparables at c. 7.4x and Couche-Tard at at c. 8.5x (Capital IQ consensus) despite strong improvements in the business over the past two years.
I value Carrefour using a DCF based approach (FCF Capital IQ consensus estimates, 7.3% WACC and 1.5% terminal growth) with a PT of €17.8 (vs. a €19 median of Capital IQ consensus).
<ul>
<li>On this basis, I recommend LONG CA FP.</li>
<li>The approach highlights the sector's strong cash generation and relatively low valuation on fundamentals.</li>
</ul>

Carrefour SA (CA FP) 's shares have fallen this Thursday, 14 January, after the French government yesterday showed its opposition to a possible merger with the Canadian company Alimentation Couche-Tard (ATD/B CN).

Shares of Carrefour chain began the session with a fall of over 6.8% in the first 10 minutes of trading and closed 2.5% lower at €17.10.
The French Government, inclined to veto purchases of local companies by foreign firms, said yesterday, through its finance minister, that "a priori" it opposes the takeover.

Following a Bloomberg report, on 13 January Alimentation Couche-Tard confirmed that it had been discussing a friendly transaction to acquire Carrefour for €16.4 bn. Under the terms, the offer per share will be €20 per Carrefour share, expected to be mostly in cash. The terms of the transaction are under discussion and remain subject to due diligence.
The Canadian group of convenience stores seeks to acquire the French supermarket company to forge the third largest group worldwide by turnover, with €120 bn.
The unexpected move by Couche-Tard, which Carrefour described as “friendly” but “very preliminary”, comes at a time of price wars due to the rise of super discount chains; transformation of the business due to the strength of online commerce giants such as Amazon; and the pandemic driven difficulties, which have spurred the online channel to the detriment of physical stores.

Couche-Tard and Carrefour would create a giant with very different formats and complementary at a geographical level, but with little margin for synergies and cost savings.
If approved, the transaction would be by far and large the largest in the relatively short history of Couche-Tard, with non-negligible execution risk.
The move by the Canadian company is opportunistic and lacks any obvious synergies and strategic merit, in my view. The interest of Couche-Tard is mainly because of the low valuation of Carrefour (€15.46 per share prior to the disclosure).

If anything, the news highlight the lowly valuation Carrefour had before the disclosure, at c. 6.2x EV/Fwd EBITDA vs. median of comparables at c. 7.4x and Couche-Tard at at c. 8.5x (Capital IQ consensus) despite strong improvements in the business over the past two years.
I value Carrefour using a DCF based approach (FCF Capital IQ consensus estimates, 7.3% WACC and 1.5% terminal growth) with a PT of €17.8 (vs. a €19 median of Capital IQ consensus).

On this basis, I recommend LONG CA FP.
The approach highlights the sector's strong cash generation and relatively low valuation on fundamentals.


Carrefour - Alimentation Couche-Tard Non-Binding Offer

Walmart’s 18-year attempt to build a business in Japan ended last month when the US retailer announced it would sell 85% of its stake in Seiyu to KKR and Rakuten.Seiyu has been transformed under Walmart’s leadership although it is much smaller than when Walmart arrived.Now, with <a href="https://www.smartkarma.com/entities/kkr-co-inc" target="_blank" data-smartkarma-citation="entities:27333:1" rel="noopener">KKR &amp; Co Inc (KKR US)</a> and <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten Inc (4755 JP)</a> taking over, the hope is Seiyu could re-emerge as a leader in food e-commerce under Rakuten.The Seiyu chain could transform Rakuten’s logistics capability, allowing it to offer a comprehensive click &amp; collect service as well as use redundant store space for dark store fulfilment.What the new partners cannot afford to do is dither. Japan may well have room for more than one major online food retailer but just a couple of leaders will command the lion’s share.  <a href="https://www.smartkarma.com/entities/amazon-com-inc" target="_blank" data-smartkarma-citation="entities:409:1" rel="noopener">Amazon.com Inc (AMZN US)</a>’s partnership with <a href="https://www.smartkarma.com/entities/life-corp" target="_blank" data-smartkarma-citation="entities:1743:1" rel="noopener">Life Corp (8194 JP)</a>, <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a>’s Lohaco, <a href="https://www.smartkarma.com/entities/oisix-ra-daichi-inc" target="_blank" data-smartkarma-citation="entities:10145:1" rel="noopener">Oisix ra daichi (3182 JP)</a>, and, at some point, <a href="https://www.smartkarma.com/entities/aeon-co-ltd" target="_blank" data-smartkarma-citation="entities:3:1" rel="noopener">Aeon Co Ltd (8267 JP)/</a><a href="https://www.smartkarma.com/entities/ocado-group-plc" target="_blank" data-smartkarma-citation="entities:22067:1" rel="noopener">Ocado Group PLC (OCDO LN)</a> are the ones to beat.Already the deal is causing a significant upset in supermarket and GMS retailing.

Walmart’s 18-year attempt to build a business in Japan ended last month when the US retailer announced it would sell 85% of its stake in Seiyu to KKR and Rakuten.Seiyu has been transformed under Walmart’s leadership although it is much smaller than when Walmart arrived.Now, with KKR &amp; Co Inc (KKR US) and Rakuten Inc (4755 JP) taking over, the hope is Seiyu could re-emerge as a leader in food e-commerce under Rakuten.The Seiyu chain could transform Rakuten’s logistics capability, allowing it to offer a comprehensive click &amp; collect service as well as use redundant store space for dark store fulfilment.What the new partners cannot afford to do is dither. Japan may well have room for more than one major online food retailer but just a couple of leaders will command the lion’s share.  Amazon.com Inc (AMZN US)’s partnership with Life Corp (8194 JP), Z Holdings (4689 JP)’s Lohaco, Oisix ra daichi (3182 JP), and, at some point, Aeon Co Ltd (8267 JP)/Ocado Group PLC (OCDO LN) are the ones to beat.Already the deal is causing a significant upset in supermarket and GMS retailing.

KKR & Rakuten Ignite Online Food Battle with Seiyu Purchase

<div>
<a href="https://www.smartkarma.com/entities/wal-mart-stores-inc" target="_blank" data-smartkarma-citation="entities:11134:1" rel="noopener">Wal Mart Stores (WMT US)</a> will sell 85% of its stake in Seiyu, the Japanese general merchandise store (GMS) chain to <a href="https://www.smartkarma.com/entities/kkr-co-inc" target="_blank" data-smartkarma-citation="entities:27333:1" rel="noopener">KKR &amp; Co Inc (KKR US)</a> and <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten Inc (4755 JP). </a>
This ends Walmart's original plans to relist its Japanese business and confirming widespread speculation that it has been trying to sell off its 330-store Japanese operation after 17 years of trying to turn the business around. The purchase price is a reported ¥172.5 billion, considerably less than the ¥441 billion Walmart paid for the business in 2007.
The deal is a win for KKR of course, but much more interestingly, is a huge win for Rakuten. We previously suggested <a href="https://www.smartkarma.com/insights/walmart-will-relist-japan-unit-soon-and-at-last-has-potential-to-grow-but-only-online" target="_blank" rel="noopener">in this Insight</a> that should the Walmart/Rakuten deal not grow fast enough, Rakuten would be a natural acquirer of the Seiyu business and this has turned out to be true – and for good strategic reasons.
</div><div>
As described before <a href="https://www.smartkarma.com/insights/online-food-demand-brings-new-ideas-and-innovations" target="_blank" rel="noopener">here</a> and <a href="https://www.smartkarma.com/insights/online-food-boom-rakuten-walmart-alliance-goes-live" target="_blank" rel="noopener">here</a>, the Japanese online food market is only just beginning to boom (penetration of food retail by online is still less than 3%) and many of the key players are jockeying for position, led by <a href="https://www.smartkarma.com/entities/amazon-com-inc" target="_blank" data-smartkarma-citation="entities:409:1" rel="noopener">Amazon.com Inc (AMZN US)</a> in a joint venture with <a href="https://www.smartkarma.com/entities/life-corp" target="_blank" data-smartkarma-citation="entities:1743:1" rel="noopener">Life Corp (8194 JP).</a> 
If Rakuten can begin to properly exploit Seiyu's physical store presence to quickly build out a nationwide online food delivery business, it should rapidly become one of the leaders in this fast-expanding market. And given how important the food/FMCG category is, leadership in food e-commerce equals leadership in BtoC e-commerce overall.
</div>


Wal Mart Stores (WMT US) will sell 85% of its stake in Seiyu, the Japanese general merchandise store (GMS) chain to KKR &amp; Co Inc (KKR US) and Rakuten Inc (4755 JP). 
This ends Walmart's original plans to relist its Japanese business and confirming widespread speculation that it has been trying to sell off its 330-store Japanese operation after 17 years of trying to turn the business around. The purchase price is a reported ¥172.5 billion, considerably less than the ¥441 billion Walmart paid for the business in 2007.
The deal is a win for KKR of course, but much more interestingly, is a huge win for Rakuten. We previously suggested in this Insight that should the Walmart/Rakuten deal not grow fast enough, Rakuten would be a natural acquirer of the Seiyu business and this has turned out to be true – and for good strategic reasons.

As described before here and here, the Japanese online food market is only just beginning to boom (penetration of food retail by online is still less than 3%) and many of the key players are jockeying for position, led by Amazon.com Inc (AMZN US) in a joint venture with Life Corp (8194 JP). 
If Rakuten can begin to properly exploit Seiyu's physical store presence to quickly build out a nationwide online food delivery business, it should rapidly become one of the leaders in this fast-expanding market. And given how important the food/FMCG category is, leadership in food e-commerce equals leadership in BtoC e-commerce overall.


The Walmart Japan Sell Off: A Huge Gain for Rakuten

France

Carrefour SA operates chains of supermarkets, hypermarkets, discount, cash and carry, and frozen food stores in Europe, the Americas, and Asia.

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Carrefour SA (CA FP)

Metro Cash and Carry to Exit Japan

One of the few foreign players in Japan's food market has confirmed it will quit the market. Only Costco remains although Amazon is expanding its...

Michael Causton

Colruyt (COLR BB) : The Downside Risks Abound in the Shopping Cart

Belgium's grocery market share leader looks expensive when considering elevated competition that is only increasing and the unwinding of COVID...

Robert C Prather Jr

Carrefour - Alimentation Couche-Tard Non-Binding Offer

The move by ATD is opportunistic and lacks any obvious synergies and strategic merit, in my view, and lies in the low valuation of Carrefour....

Jesus Rodriguez Aguilar

KKR & Rakuten Ignite Online Food Battle with Seiyu Purchase

E-commerce has less than 3% share of Japanese food retailing. This will change dramatically in the next 3 years, led by Amazon but also by Rakuten...

Michael Causton

The Walmart Japan Sell Off: A Huge Gain for Rakuten

We predicted the sale of Seiyu by Walmart to Rakuten and this is now happening (with KKR funding). It is a huge step for Rakuten in the war for...

Michael Causton

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