Implementation

What role do additional forces (collaborators, content, competition) play on influencing your customers?

As AEON is mainly located in Japan and in Asia, these are the countries that could be influenced by the changes in the solution offered by AEON. However, similar solutions are offered in France for instance with the huge brand Leclerc. Indeed, they developed a machine/public phone that you could take at the entrance of the store, to scan all your products and gain some time. Nevertheless, it wasn’t well perceived by the customers, as they thought this solution was not that time efficient (sometimes the machine wasn’t working and you had to rescan everything) or not practical (too many things to hold), so they developed an application to scan the products directly on your own phone. It is still being worked on at the moment, since most of French customers keep doing grocery shopping without using it (as they didn’t do any advertising about this new option).

There are many additional forces that play a major role on influencing our customers. To better study these forces in the market, one could do analyse the 5 forces of Porter.

Internal competition (rivalry):

There are many competitors in the Japanese market, such as Seven&I Holdings, Fast Retailing, Isetan Mitsukoshi Holdings or Lawson. But on a more global scale, there are many competitors in Asia in the retail sector. As shown on the graph, the AEON group is ranked 3^rd, right after the Alibaba group and JD.com Incorporation. As a matter of fact, Amazon is only ranked 7^th in the Asian retail market, even though it has some strong innovations in the grocery sector. However, the current offer of AEON is not innovative enough, in comparison to its competitors. Even if it has qualitative products and services, these still need to change and follow the path of innovation in this sector. As a matter of fact, customers tend to be loyal to their own supermarket and it is difficult for them to change it. If the services offered by the supermarket are lower than the costs, the customers could choose to leave and find another supermarket offering better products/services at a lower price. This is the reason why the AEON group should implement our solutions, since it would help the group get a competitive advantage, keep their current customers but also attract new ones.

Threat of potential new entrants:

Entering the Japanese grocery market could be very costly; however, it is not that long to launch one. While the Japanese market is still mostly doing grocery shopping in an old-fashioned way, implementing innovative solutions will be rewarded in the future. Japanese people are looking for less costly solutions in terms of grocery, while getting specific advices in the store. This is something that Japanese customers are looking for. Supermarkets are a way to answer one of these needs, as these are budget-friendly way to shop rather than convenience stores. In the Japanese market, the barriers to entry as a grocery store can be really high, since it can be regulated by the government. Especially in terms of importation, the government has a right to allow or forbid any type of product (like meat coming from specific countries). It is thus hard to find a way to enter this market.

Customer bargaining power:

Based on the data shared by AEON, the group has approximately 46,13 million customers, of which 16,68 million are overseas customers. Considering the Japanese market, AEON has approximately 29,45 million customers. Since there are many stores in the mall, AEON shall try to find new solutions to be more attractive for its grocery sector.

By implementing our new application dedicated to the grocery shopping, customers will be able to shop in an easier way in comparison to many Japanese competitors, but will also make their revenues grow and be more competitive than others in the market. Moreover, the cost of changing one’s supermarket is high for customers. But by adding new and better features than customers (with the customized service on the application, the financial part and so on) the cost of changing would become lower. Customers are also price sensitive and looking for supermarkets with better products with lower prices.

Supplier bargaining power:

AEON has hundreds of suppliers in terms of grocery. In the Japanese grocery market, they don’t have as much strength as they could. Indeed, there are many substitute products that could easily replace this. However, as AEON is trying to find lower prices for their customers, it could be difficult for the group to find new products as cheap as before. With their new application, they would offer a unique service that is not present in the Japanese market yet (specific recommendations on the application, allergy-free similar products…)

Threat of substitutes:

At the time there are no real substitutes for such a service in the Japanese market. Many are offering online ordering and home delivery services, but such personalized and customized services such as the future AEON application do not exist yet. However, these services could be easily imitated in the market, so AEON needs to implement this solution as fast as possible, while still investing in Research & Development to further implement new options. For instance, with Amazon investing in the AI Vision to go grocery shopping, this could be a next step for the customer.

Furthermore, Japanese customers are not ready for such dramatical changes such as implementing directly AI vision in their stores. By implementing our solution first, it would already be a huge change for Japanese customers, while still being sufficient. Improving new solutions such as the AI vision are long-term solutions that need to be really studied especially for the Japanese market.

Following the model “Stairway to Digitalization”, 2nd step of implementation looks at the 4 areas: “Leadership”, “Strategy", “Innovation mindset”, and “Investment”. The analysis will be organized likewise per area

On Leadership 
It is fortunate for AEON to have all senior management members to be aligned for Digital Transformation. The importance, urgency and criticality of shifting and implementation of digital technology have been repeatedly mentioned across the public announcements like company profile, financial report, company integrated report, etc. We can see the realization of this commitment by the creation of favorable environment to support Digital Transformation as shown in below exhibit. Under direct supervision of CEO and Board of Directors, DX Promotion Department is tasked to organize and coordinate initiatives and implementation steps for the whole organization. In order to get involvement from all divisions, the Digital Promotion Department is created with participants from different divisions. One objective of this department is to adjust digital initiatives to the particular requirements of each department while still maintaining the overall direction. Additionally, Digital Council will serve as steering committee to ensure on progress and accountability of Digital Transformation strategy.

On Strategy 
The company is well aware of the rapid changing of the context due to many external factors such as changes in customers' behavior, demographics, concerns on sustainability, digital influence to life styles, and recently impact from Covid-19. In order to respond to those uncertainties, under the Medium-term Management Plan for 2021-2025, AEON has created the “Five Reforms”: accelerate and evolve the shift to digital, create unique value with a supply chain-focused outlook, evolve health and wellness, create "AEON Living Zones", and further accelerate the shift to Asian markets. “Five Reforms” will further ensure the sustainable growth of the company with stronger values delivered to existing and new markets, customers, local communities not only to 2025 but beyond. As we can clearly see here, Digital Transformation is one of the 5 key components of company's overall strategy

On Innovation mindset
According to Mr. Yasutsugu Iwamura, AEON Mall Co., Ltd. President and CEO, “digital transformation (DX) is not about the pursuit of tangible goals. Digital transformation is the act of achieving the ideal of what we should be through people-centered DX”. People, who can be external customers, partners, or internal employees, are really the key of this journey. The emphasis on internal employees is highlighted through recruitment and training of personnel with focus on planning and utilizing digital technology. Furthermore, Mr. Iwanura summarizes the 3 initiatives: Innovation, Digitization Digitalization, Transformation under below exhibit.  Under the “Transformation” initiative, mindset reform is an essential starting step. Under this step, employees are explained and convinced on the urgency, need and relevance of DX to their works and lives. They are also encouraged to challenge their own understanding or company's status quos with enquires which may lead to further opportunities and actions. 

On Investment
According to AEON's financial information, by 2Q2021, the company has a healthy level of cash and cash equivalents. In particular, this figure in end of 2020 is JPY 1,217,054 (approx. USD 10 billion), while the record for first half of 2021 is JPY 1,067,425 (approx. USD 9.4 billion). Those are among the highest level of cash and cash equivalents of the company during the period 2016 - 2021. The availability of fund combined with aligned strategy from management team for digital transformation are the strong basis for any digital shifts

In conclusion, AEON has done a great job to prepare the team and organization for Digital Transformation. In fact, the digital commitment is definitely strong with AEON

Source:
1. https://www.aeon.info/en/ir/finance/cashflow/
2. https://www.aeon.info/en/ir/finance/review/
3. AEON Mall Co., Ltd. “Integrated Report 2021” https://www.aeonmall.com/en/ir/i_report.html
4. AEON Company Profile

Considering all variables, from market opportunity, other potential disruptive technology, to customer needs, it can be seen that the period of 1-2 years is realistic. Considering demographic situation in Japan with the aging population, not all targeted customers may understand immediately what AEON is offering, hence the implementation should be done step by step. 

Below is the timeline for both internal and external sides to implement this transformation.

Timeline for service development

• Month 1-2: Preparing the space for pick-up point and manage the online orders workflow.
• Month 3-4: Introducing AEON mobile app for online grocery and building the new team responsible for online orders preparation and pick-up.
• Month 5-7: Maintaining the mobile app performance and customer satisfaction of the service while start promoting for self-checkout counter 
• Month 8-9: Collecting customer feedback on the mobile app and monitor if there’s any improvement needed as well as keep guiding customers to use the self-checkout app and counter.
• Month 10-12: When customers already get used to online grocery shopping and self-checkout, an introduction to financial diary and product recommendation can be started.
• Month 13-15: Collecting customer feedback on the new features and analyze the data to see whether customers are satisfied with the service and starting to shift from the traditional way of shopping to the online and self-checkout.

Timeline for internal preparation

• Month 1-2: Hiring Head of Technology and Operations for AEON grocery.
• Month 3-4: Hiring young talents from internal and/or external to work for the pick-up point and managing orders from the mobile apps.
• Month 5-12: Marketing and promotion team monitor the feedback from customers while operations team monitor the efficiency of the current workflow.