The Direx acquisition: a second format (2009)

Covering the ground your strength cannot reach, with a different format

The heart of this acquisition lies in filling the space outside the trade area where its own drugstores work best — with a format of a different character. The low-cost store Sundrug had honed in cities and their suburbs is hard to run profitably if simply stretched out into thinly populated country. Rather than fill that blank with stores of its own, Sundrug swallowed whole a company that held a different answer: a discount store carrying goods down to fresh food. Sharing the same foundation of low-cost management, but using two formats according to differences of customer and location — the founding generation’s fixation on the trade area can be seen coming to fruition in the shape of a twin-format business.

That said, while the two-format shape pushes up scale, it also carries the difficulty of running businesses of different character inside one company. A discount store, weighted toward food and fresh produce, earns a thinner gross margin than a drugstore built around medicines and cosmetics, and rising sales do not necessarily lift the profit rate in step. As the industry moved toward trillion-yen combinations like Matsukiyo Cocokara and Welcia-Tsuruha, Sundrug stayed out of the large reorganizations, choosing its own path with two formats and loose alliances. How to keep binding the urban drugstore and the rural discount store together — the choice made in the 2009 acquisition is still being tested today.