Major retailer FamilyMart Uny Holdings Co. said Thursday it will make discount store operator Don Quijote Holdings Co. its affiliate, in a deeper capital tie-up amid intensifying competition in the shrinking domestic retail market.
FamilyMart Uny will acquire a stake of up to 20.17 percent in Don Quijote through a takeover bid of ¥6,600 a share from early November for a total of ¥211.9 billion ($1.89 billion), the two retailers said.
As part of the deal, FamilyMart Uny will also sell its entire stake in struggling supermarket unit Uny Co. to the discount operator, which currently owns 40 percent of shares under a capital alliance formed last year, they said.
The latest deal will allow FamilyMart Uny to focus on its convenience store operations, the second-largest in size in Japan, while capitalizing on the know-how of Don Quijote over attractive store operations in the face of fierce competition with the rise of online retailers, discount stores and drugstores.
“The environment surrounding general supermarkets is becoming severe and … the competition has become tougher than I expected. I judged that this is the right timing,” said FamilyMart Uny President Koji Takayanagi at a joint news conference with Don Quijote chief Koji Ohara.
Don Quijote is known for its chaotically laid out “Donki” stores in which cluttered and maze-like alleys and floor-to-ceiling shelves are filled with a wide variety of products, including electrical appliances, food, cosmetics and clothing.
Unlike its rival retailers who have turned to online commerce amid the era of digitalization, Don Quijote focuses on amusing its visitors with quirks such as having its theme song played endlessly in its stores.
“We will provide Uny stores with our know-how on operating stores where visitors enjoy passing time shopping,” Ohara said.
Ohara also expressed hopes to expand overseas through cooperation with FamilyMart’s parent, trading house Itochu Corp. Don Quijote currently operates 39 stores overseas in Hawaii, California and Singapore.
“We will not restrict ourselves to the domestic market but seek to open community-based and competitive outlets,” he said.
Experts said the deal was a win-win for both parties.
“This is exactly what Donki dreamed of. They (have) now become a trillion yen company,” said Michael Jon Allen, an analyst with Jefferies in Tokyo, in a phone interview, using a nickname for Don Quijote. “They (have) become the fourth largest retailer in Japan. And I think they can become the third largest in a few years because the sales at Uny can grow rapidly.”
Allen said the sale would also benefit FamilyMart because it could rid the company of the parts of Uny’s business it was never thrilled to acquire.
FamilyMart and Don Quijote have launched six joint outlets with Don Quijote-style product displays in front of cash registers and in storefronts, and these have proven to be successful, according to FamilyMart.
Don Quijote said in a separate statement it would change its name to Pan Pacific International Holdings Corp. as of Feb. 1. “We are at a time where we can accelerate our entry into overseas operations,” it said in the statement.