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Daiei Inc., Japan’s ailing supermarket operator, is ready to make its third — and final — attempt at rehabilitation. On Monday, the state-run Industrial Revitalization Corp. of Japan (IRCJ) formally selected trading house Marubeni Corp. and investment fund Advantage Partners as Daiei’s business sponsors. The revival plan has the support of major creditor banks.

The “scrap and build” plan calls for closing unprofitable stores throughout the country and opening small and medium-size stores in the greater Tokyo and western Kinki regions. This means that Daiei has abandoned its broad policy of running general-merchandise stores and has adopted a narrower strategy focused on food supermarkets.

By contrast, other supermarkets are trying to expand their networks of one-stop centers. With Japanese society aging at an accelerating pace, the supermarkets are targeting elderly consumers who prefer to shop at stores that offer a full range of products. Thus Daiei’s “food-only” policy marks a complete departure from the all-inclusive strategy.

As a Daiei partner, Marubeni can expect to expand its operations in the food-distribution industry. The trading conglomerate is a major shareholder in the Daiei-affiliated food-supermarket operator Maruetsu and Tobu Stores, both of which maintain an extensive network in Tokyo and its suburbs. Daiei, for its part, can expect to cut costs by using Marubeni’s efficient purchasing channels and thereby turn its high-sales but low-profit food retail business into a solid moneymaker.

The operation of food-only supermarkets is hardly a new strategy. As IRCJ President Atsushi Saito puts it, “Some unique business model is required for a corporate turnaround.” So, to lure customers, Daiei reportedly plans to rent surplus floor areas to other well-known retailers that sell clothing, home appliances, drugs and other daily goods.

Keeping or winning back its erstwhile customers while attracting new ones will require that Daiei offer not only lower prices but also better products and a unique “joy of shopping” experience. For that, the company will need to develop a unique merchandising strategy.

The latest revival plan differs from previous ones in that it is sponsored by a trading house and an investment fund, not creditor banks. This means that close cooperation between IRCJ and Marubeni, the main sponsor, is essential. To ensure that its “last mission” is accomplished, the turnaround agency plans to send its ranking official to Daiei’s board of directors.

At present, though, a sense of unity appears to be lacking between IRCJ and Marubeni. Symbolic of this is the fact that the born-again Daiei is still headless because of disagreement over the selection of the chief executive officer. Reportedly the agency has withheld its approval of a candidate named by the trading company.

The Daiei bailout comes at a time of sluggish sales at major supermarket chains. Aeon and Ito-Yokado have revised downward their earnings figures for the business year that ended in February. As a means of attracting customers, Ito-Yokado is expanding direct deals with producers to bring more fresh products to consumers. It is also developing product designs tailored to new lifestyles. These efforts, however, have yet to produce tangible results.

Internet shopping, meanwhile, is showing rapid growth. Rakuten, for example, registered a 72 percent year-on-year increase in Internet sales for 2004. This clearly shows that an increasing number of consumers prefer time-saving online shopping to the onus of visiting supermarkets and other stores.

The growth in Internet sales also reflects, it seems, the relative lack of attractive products at supermarkets. These stores once offered almost everything consumers needed, and they still do. The difference now is that they seem to offer few products that are considered really attractive. The existence of convenience stores and discount shops also seems to have reduced the value of supermarkets.

Daiei became the nation’s largest retailer in 1972, surpassing Mitsukoshi department stores. Regaining its brand power and consumer confidence in an increasingly competitive industry will be no easy task. Daiei, which once owed nearly 2 trillion yen in interest-bearing debts, was called “Japan’s largest bad debtor.” Banks, however, kept it afloat, with the government’s tacit approval, because it was considered “too big to fail.”

Now, after two failed attempts at reconstruction, Daiei has its last chance of survival — partly through the use of taxpayer money. A third failure is out of the question.

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