■Future outlook

2. Progress of the Mid-Term Management Plan

(1) Overview and progress of the medium-term management plan

G-7 Holdings ＜7508＞ started a 5-year medium-term management plan for the fiscal year ending 2026/3, which is the 50th anniversary of its founding, as the final year. Sales of 250 billion yen and ordinary profit of 10 billion yen were set as performance targets for the fiscal year ending 2026/3, but due to rising store opening costs and utility costs associated with rising prices, and a slump in the mini supermarket business due to a round of nesting demand, etc., ordinary profit progressed slightly below plan until the 2024/3 fiscal year. However, it can be said that there are plans to make a company with annual sales of 12 billion yen or more a subsidiary in the business supermarket business this time, and the target is within firing range. Priority measures remain the same as before, and it is a policy that not only works on growth in existing businesses in the future, but also aims for profit growth while incorporating M&A strategies, and sustainable growth is expected over the medium to long term.

The company is working on the following 10 items as priority themes in order to achieve growth.

1) Each operating company increases sales and profits every fiscal year, and challenges record highs

2) Assume that each operating company must have a surplus

3) Challenge the total number of deficit stores and zero total deficit

4) Aim for a year-on-year increase in both sales per employee and gross profit, which are productivity indicators

5) Make sure to achieve a profit growth rate that exceeds the sales growth rate

6) Take on the challenge of developing new businesses and new business categories with high investment efficiency

7) Challenge to open 50 to 70 new stores with high investment efficiency each term (number of stores will go from 586 stores at the end of the 2021/3 fiscal year to 1,000 stores in the 2026/3 fiscal year, including G-7 malls)

8) Work to promote M&A and capital and business alliances

9) Strengthen recruitment and make every effort to develop human resources and human resources education (the number of employees, including part-time workers, will go from 7,746 at the end of the fiscal year ending March 31, 2021 to 14,000 in the 2026/3 fiscal year)

10) Promote ESG and SDGs initiatives

Of these, for 2), G-7 Ricos Stores is in the red in the 2024/3 fiscal year, but we believe there is a good possibility that it will become profitable by the 2026/3 fiscal year. Regarding 3), improvements seem to have been delayed. The idea is to reduce deficit stores by improving productivity of store operations, improving inventory turnover, and reviewing product strategies. 4) As for the productivity index, there is an upward trend in both sales and gross profit. This is largely due to the growth of the business supermarket business, but we will continue to aim for an increase compared to the previous fiscal year in all businesses.

Preparations are underway to begin the development of new businesses and new business types with high investment efficiency in 6) in the fiscal year ending 2025/3. Regarding the store opening plan for 7), it remains at about half the level of 50 to 70 stores that have been targeted, with 34 stores for the fiscal year ending 2022/3, 27 stores for the fiscal year ending 2023/3, and 24 stores for the 2024/3 fiscal year. There is also a steady store opening plan with 27 stores for the fiscal year ending 2025/3, and the hurdle to achieve the target of 1,000 stores has become high, but the policy is to actively proceed with opening stores if the business environment improves. Regarding human resource recruitment and education for 9), based on the idea that the source of corporate growth is “human resources,” it is a policy to continue strengthening, and the number of new graduate employees in 2024/4 was 104 in the group, and recruitment was carried out on par with the previous semester. In addition to continuing regular training for the development and promotion of young executive employees, we aim to strengthen human capital management by proceeding with a review of personnel evaluations leading to skill improvement and motivation for individual employees.

(2) Earnings Targets by Business

Earnings targets (operating company targets) for the main business are expected to be sales of 100 billion yen, ordinary profit of 4.5 billion yen (1.19 times sales compared to the fiscal year ending March 31, 2021), sales of 50 billion yen, ordinary profit of 2.5 billion yen (1.57 times the same sales, 1.20 times ordinary profit) in the meat business, and sales of 1.2 billion yen (1.91 times the same sales, 1.28 times ordinary profit).

Of these, the business supermarket business achieved its target 2 years ahead of schedule for the 2024/3 fiscal year, and further growth is expected even after the 2025/3 fiscal year due to M&A effects. Regarding the store opening strategy, it is a policy to actively continue opening stores mainly in Kanto, Chubu, and Kyushu, where there is plenty of room to open stores. Meanwhile, for the AUTOBACS business, it is necessary to expand sales by 1.5 times and ordinary profit by 1.9 times over the next 2 periods, making it a challenging target. Since it is difficult to expand stores through M&A of FC member companies, we aim for growth by expanding the domain into peripheral businesses in the car life category. Currently, 5 “FIELD SEVEN” stores have been opened as an outdoor goods business, and they are working on training, but the reality is that growth is sluggish, and it seems necessary to search for new growth strategies, including M&A, in the future. The butcher business also needs to expand sales by 1.7 times and ordinary profit by 3 times over the next 2 periods, and the hurdles are slightly higher, similar to the AUTOBACS business. As for sales, it seems possible to increase sales almost in conjunction with the simultaneous opening of stores with “business supermarkets,” but the issue is improving profit margins, which remained at the level of 1.9% for the fiscal year ending 2024/3.

For the mini supermarket business, they had set challenging targets of 21 billion yen in sales and 400 million yen in ordinary profit, but for the time being, they are tackling the top priority of making existing stores profitable, and it seems that growth strategies will be launched at the stage where prospects for profitability are established. As individual meals increase along with changes in social style, demand for urban mini supermarkets is also seen to be at a certain level, and since multi-store development is a relative factor since it is a small store, and synergy effects with group businesses such as PB products and meat can also be expected, it is expected that a profit model will be established to achieve profitability in the future.

In addition, the Bike World business, specialty food/private brand business, agri business (Megumi no Sato), and overseas businesses each target a scale of 10 billion yen in sales and 200 to 300 million yen in ordinary profit (based on distribution value for the agri business). Also, for the Curves business and the store interior business (mainly construction of business supermarket stores), we are targeting 2 billion yen each in terms of sales. There are also discrepancies with respect to the original goals, but we are basically aiming for expansion in all businesses, and we anticipate that sustainable growth will continue over the medium to long term while also utilizing M&A strategies.

(Author: FISCO Visiting Analyst Joe Sato)