Superstore Operations Strategy (Scenario Analysis)

Operating Companies: Ito-Yokado, York-Benimaru

　*Our superstore operations were reorganized in September 2023, with York merging into Ito-Yokado.

In the fiscal year ended February 28, 2023, we conducted a scenario analysis for the Seven & i Group’s three superstore operations of Ito-Yokado, York-Benimaru, and York. For this analysis, an organizational framework for the scenario analysis was created within each of the three superstore companies, with management and the major departments relating to climate change taking part, toward the aim of formulating substantial countermeasures and accurately quantifying business impacts. By discussing the risks, opportunities, and countermeasures at each department we have facilitated analyses aligned to actual situations, thereby improving our capacity to respond to climate change.

Scenario Analysis Assumptions

Analysis assumptions (fiscal year ended February 28, 2023)

Scenario	Decarbonization scenario (1.5°C–2.0°C) / Warming scenario(2.7°C–4.0°C)
Relevant project	Operation of Ito-Yokado, York-Benimaru, and York stores in Japan
Analysis scope	In addition to the physical impact on stores, the analysis will cover costs in store operations and merchandise supply chain issues (raw materials, factories manufacturing merchandise, merchandise shipping) that significantly affect store operations, and customer behavior
Target year	Impact as of 2030

　In this scenario analysis, mindful that the 1.5°C target has become the mainstream worldwide, we implemented analyses consistent with this 1.5°C target. Specifically, we set two scenarios, a “decarbonization scenario (1.5°C–2.0°C)” and a “warming scenario (2.7°C–4.0°C),” with reference to reports on future forecasts and other materials issued by governments and international organizations, including STEPS,*1 APS,*2 and NZE2050,*3 indicated in the World Energy Outlook of the International Energy Agency (IEA). We analyzed the impact of climate change as of 2030.

- *1 STEPS: Stated Policies Scenario. This scenario reflects decarbonization policies and targets that have been so far publicized.
- *2　 APS: Announced Pledges Scenario. This scenario assumes that all climate-related commitments made by governments announcing long-term targets of net zero emissions are fulfilled in full and on time.
- *3　 NZE2050：Net Zero Emissions by 2050. Surpassing the Paris Agreement target, this scenario aims for net zero CO₂ emissions before 2050 toward achievement of the 1.5°C goal.

Significant Risks and Opportunities, and Countermeasures

　Many of the respective risks and opportunities were identified as a result of discussions within each department of three superstore companies regarding specific risks and opportunities that could affect the superstore operations. The assessment referenced each risk and opportunity presented with reference to the case studies and various reports analyzing the domestic convenience store business in the fiscal year ended February 28, 2022. We examined the magnitude of the impact of these risks and opportunities on financial aspects such as sales and profits, as well as strategic aspects such as store operations and merchandise procurement. With carbon emissions targets and policies in each country, changes in consumer preferences, increases in the severity and incidence of extreme weather events, and changes in precipitation and weather patterns as the items for significant risks and opportunities, we qualitatively and quantitatively evaluated the various impacts on the business of these factors and formulated countermeasures for each.

Listing of three superstore companies' risks and opportunities, and countermeasures

◆Transition risks and opportunities (Decarbonization scenario, 1.5°C–2.0°C)

Significant risks and opportunities		Concrete examples	Impact	Scenario	Business risks	Business opportunities	Main countermeasures
Policies and regulation	Carbon emissions targets and policies in each country	Introduction of carbon pricing	Operating cost	・A high carbon tax is introduced, with a carbon tax burden imposed in accordance with CO₂ emissions volumes, increasing the costs associated with store operations, etc.	〇		Below are the main CO₂ emissions reduction measures being promoted (“GREEN CHALLENGE 2050” environmental declaration) ・Promote energy saving in stores; introduce energy-saving equipment and facilities (including reviews of in-store lighting levels, temperature levels of refrigeration and freezer units and facilities, replacement with LED lighting) ・Promote the use of renewable energy in stores (solar power, offsite power purchase agreements (PPA), biomass power generation, etc.) ・Reduce food residue collection and transport costs and CO₂ emissions through the introduction of garbage processors
		Introduction of carbon pricing	Operating cost	・ Increased costs due to the imposition of carbon tax burdens at each stage of the supply chain, with an emphasis on fuel costs for delivery (procurement, products, packaging materials, store construction equipment, sales, logistics, etc.) ・Increased investment costs for the transition to using EVs as delivery vehicles toward the achievement of a low-carbon society	〇		・Support our business partners in their efforts to save energy and expand the use of renewable energy ・Increase use of EV and other environmentally friendly vehicles ・Promote logistics efficiency and green measures (including reviews of delivery systems, joint deliveries, modal shifts, expansion of drop-off/doorstep deliveries, etc.) ・Reduce procurement costs through promotion of local consumption of local production
		Fluctuations in retail electricity prices	Operating cost	・Increased electricity retail prices accompanying the transition to energy saving and efficiency measures ・Increased costs originating in the supply chain (procurement, products, packaging materials, store construction equipment, sales, logistics, etc.)	〇		・Promote energy saving in stores, introduce energy-saving facilities and equipment ・Support the introduction of energy-saving equipment and facilities for business partners
		Expanded use of EVs	Operating cost	・Increased costs from the installation and maintenance of EV chargers in store parking lots	〇		・Prepare for increase in the number of paying customers from expansion of EV charging services in store parking lots
		Expanded use of EVs	Sales	・Increased incentive to visit stores accompanying EV charging services in store parking lots		〇
Reputation	Changes in consumer preferences	Changes in sales due to sales of sustainable merchandise	Sales	・Increased interest among consumers in sustainable products, resulting in increased turnover from sales of products that cater to this interest ・Increased interest among consumers in sustainable services, resulting in increased incentive to visit stores and improved reputation through initiatives such as resource renovation and recycling		〇	・Expand range of certified raw materials (including organic agricultural products, certified marine products) (“GREEN CHALLENGE 2050” target of Sustainable Procurement) ・Bolster product lineup of meat alternatives including soy meat ・Introduce environmentally friendly containers and packaging including non-tray and label-less packaging and promote plastic bottle collection and recycling (“GREEN CHALLENGE 2050” target of Measures against Plastic) ・Introduce shopping baskets made from recycled materials

◆Physical risks and opportunities (Warming scenario, 2.7°C–4.0°C)

Significant risks and opportunities		Concrete examples	Impact	Scenario	Business risks	Business opportunities	Main countermeasures
Acute	Increases in severity, frequency, etc. of extreme weather events	Damage from natural disasters	Operating cost	・Increased frequency and intensity of natural disasters resulting in increased damage costs due to store and merchandise damage caused by flooding from heavy rains and typhoons; loss of sales due to store closures, restoration costs; and costs associated with ensuring employee safety, etc. ・Stock shortages and lost opportunities due to damage to supply chains, including production sites and logistics networks ・Increased investment costs for disaster prevention and preparedness countermeasures	〇		・Create a strategy and stores that anticipates flooding that anticipates flooding (preventing flood damage by expanding the installation of watertight panels and guard pipes) ・Establish disaster-resilient logistics bases and supply networks ・Develop disaster bases utilizing store infrastructure through disaster management agreements, etc. (evacuation locations for local residents) ・Continue operations in the event of a disaster with “Phase Free (a concept of securing an adequate quality of life, regardless of phases such as daily life and emergencies)” facilities, including improved performance of storage batteries ・Prepare fuel reserves for emergency supply delivery ・Ensure water supplies during emergencies by means of the introduction of well water (Ito-Yokado)
		Increased trust and sales through improved resilience	Sales	・Consumers’ heightened awareness of disaster mitigation will increase demand for disaster preparedness products		〇	・Expand lineups of emergency supplies and disaster preparedness goods, stockpiled goods, and easy/ready-to-eat foodstuffs
		Insurance cost related to natural disasters	Operating cost	・Increased insurance cost related to natural disasters due to increased frequency and intensity of natural disasters	〇		・Mitigate losses using various damage prevention measures
Chronic	Changes in precipitation and weather patterns	Price fluctuations of raw materials for agricultural, livestock, and marine products	Operating cost	・Higher raw material costs and increased procurement costs due to declines in yields and in quality of agricultural, livestock, and marine products	〇		・Disperse and consolidate production sites of raw materials ・Ensure stable procurement through the expansion of raw material procurement from weather-resistant sources, such as vegetable factories, land-based aquaculture, vegetable breeding, etc. and certified raw material ・Utilize digital technology and AI ・Expand lineup of frozen and processed foods resistant to the influence of climate
		Increased average temperatures	Operating cost	・Increased electricity use for air conditioning and refrigeration and freezing units and facilities focused on the summer months with resultant increase in electricity fee payments due to higher average temperatures	〇		・Promote energy saving in stores, introduce energy-saving facilities and equipment ・Reduce winter months operating costs, including for heating and snow removal (York-Benimaru: Cold regions) ・Increase store footfall in winter months (York-Benimaru: Cold regions)
			Sales	・Decreased store footfall due to decreased frequency of outings caused by hot weather	〇		・Expand delivery business and e-commerce services (Ito-Yokado: Increase delivery slots through use of large-scale delivery centers) ・Appeal for customers to visit stores in their function as “cooling shelters” (Ito-Yokado: All stores registered as communal cooling locations in Tokyo)
			Sales	・Increased demand in the delivery business and e-commerce services		〇
		Creation of new sales opportunities and expansion of sales opportunities	Sales	・Changes in customer preferences due to rising temperatures		〇	・Expand lineup of products for coping in hot weather (including cooling products, cool-tasting products, sunscreen, etc.)

*The scenario with the larger impact was referred to in assessing each business impact.

* Some items are limited according to location and store size.

(1)Significant transition risks and countermeasures: Decarbonization scenario (1.5°C–2.0°C)

We considered the transition risks and opportunities based on the decarbonization scenario in which various regulations and other measures are introduced to achieve the 1.5°C target. Of these, we estimated the following regarding the impact of the carbon tax system due to the introduction of carbon pricing, which is projected to have the biggest impact.

Significant transition risk: Impact of the carbon tax system

Item	Business impact
Carbon tax (2030)	¥7.4 billion

Assumption: Carbon tax: $135/ton-CO₂ (Maximum amount given in the IEA’s World Energy Outlook 2022)
・Foreign exchange rate: \131.62/$ (Rate used in financial statements for the term ended February 2023)

　For our estimate, with reference to the IEA’s World Energy Outlook 2022, we calculated the impact of carbon tax at the maximum amount of $135/ton-CO₂ as of 2030. The total of three superstore companies' carbon taxes was estimated at ¥10.7 billion based on a simple calculation, assuming CO₂ emissions increase in line with the growth of business activities. However, if we reduce CO₂ emissions to 50% in 2030 (compared to FY2013 levels) as per the target defined in our “GREEN CHALLENGE 2050” environmental declaration, this will reduce carbon taxes by ¥3.3 billion to ¥7.4 billion. Furthermore, we expect that the impact of the carbon tax will eventually be eliminated by promoting efforts to achieve our 2050 net zero emission target.

◆Main countermeasures

We will significantly reduce our carbon tax burden and transition risks such as higher electricity fee payments through efforts to achieve reductions in CO₂ emissions. As approximately 90% of the Group’s CO₂ emissions are attributable to electricity use from store operations, the three initiatives of energy savings, energy generation, and procurement of renewable energy are being pursued to reduce emissions. We also aim to reduce emissions throughout the supply chain, including Scope 3 emissions.

Superstore Operations are focusing the following main activities.

1　Energy savings　

　Reduction of electricity use through installation of energy-saving equipment as well as employees’ efforts to save energy (reviews of in-store lighting levels, temperature levels of refrigerators and freezers, and replacement with LED lighting)

　　　　　　　　　　　　　　　　　　Reach-in cases that keep cold air in (York Mart)　　　　　　　　　　　　　Cleaning the filters on a refrigerator case (York Mart)

2　Energy generation　

Solar panels have been installed at 23 Ito-Yokado stores (including 9 York stores) and 42 York-Benimaru stores (as of the end of February 2023).

3　Procurement of renewable energy

We are expanding cooperation with various electric power companies, including an offsite power purchase agreement (PPA).

Ario Ichihara store

York-Benimaru Ohiramachi store

News releases related to countermeasures, etc.
・2023.2 Signing of “agreement on promoting carbon neutrality and cooperation in the event of a large-scale power outage due to a natural disaster” using York-Benimaru stores in Nasushiobara City, Tochigi Prefecture (in Japanese)

(2)Significant physical risks and countermeasures: Warming scenario (2.7°C–4.0°C)

Significant physical risks: Impacts of natural disasters

Item	Business impact
Store damage, merchandise damage, loss of sales due to closures, restoration cost, etc.	¥5.5 billion

Assumption: A disaster of similar scale to 2019 (Typhoon No. 19)
* Estimates are based on actual damage from the 2019 disaster and forecasts of an increased frequency of disasters and floods. To ascertain the extent of damage, estimates were made without considering insurance coverage.

　In the warming scenario, natural disasters caused by extreme weather pose the greatest risk. It is difficult to predict when and where natural disasters will occur, and once they do, they can cause extensive damage. Currently, the occurrence of extreme weather such as heavy rainfall that cause disasters are increasing due to global warming, and this trend would become even more pronounced under this scenario.
　Based on the extent of damage caused by past disasters, and assuming “a disaster of comparable scale to that experienced in the fiscal year ended February 29, 2020, when a planned closure was implemented due to Typhoon No. 19 (Typhoon Hagibis),” which can be expected to result in both serious and widespread damage, the total amount of damage, including store damage, merchandise damage, loss of sales due to closures, and restoration costs, is estimated at a total of \5.5 billion for the three superstore companies. It should also be noted that while the probability of disasters and flooding is lower than in this scenario, natural disasters precipitated by extreme weather events are also considered to be a particularly significant risk in the decarbonization scenario, with the total extent of damage estimated at \4.6 billion and the impact being assessed.

◆Main countermeasures to impacts of natural disasters

　We will strive to quickly reopen its stores and establishments in the event of a natural disaster as part of enhanced disaster response to continue serving as regional relief bases for local customers offering infrastructure, evacuation locations, etc. The following measures are being taken to address the increasing risk of natural disasters.

・Establish early recovery systems
・Create stores that anticipates flooding (expanding the installation of watertight panels and tide barrier)
・Continue operations in the event of a disaster with “Phase Free (a concept of securing an adequate quality of life, regardless of phases such as daily life and emergencies)” facilities, including improved performance of storage batteries
・Prepare fuel reserves for emergency supply delivery
・Develop disaster bases utilizing store infrastructure through disaster management agreements, etc.

Number of comprehensive alliance agreements with local governments (by operating company)

	As of the end of February 28, 2021	As of the end of February 28, 2022	As of the end of February 28, 2023
Ito-Yokado	56	79	78
York-Benimaru	10	11	14
York Mart	4	4	4
Total	267	320	329

(Alliances with local governments) Initiatives of Ito-Yokado
・July 13, 2022 Supplies provision drill, Funabashi City, Chiba Prefecture
・September 3, 2022 Joint comprehensive disaster drill, Shinagawa-ku and Tokyo Metropolis

・November 5, 2022 Exhibition at disaster prevention fair, Asaka City, Saitama Prefecture

・November 4, 2022 Conclusion of agreement on the supplies provision in the event of a major disaster* with Akabane Fire Station, Tokyo Fire Department

・December 1, 2022 Conclusion of agreement on facilities use in the event of flooding with Ageo City, Saitama Prefecture

・February 14, 2023 Conclusion of an agreement on supplies provision in the event of a major disaster* with Tama Fire Station, Tokyo Fire Department

　*Agreement relates to the supply of foodstuffs, daily necessities, and other essentials to firefighters engaged in rescue and relief operations in disaster-affected areas in the event of a major disaster.

　　　Agreement signing ceremony with Tama Fire Station, Tokyo Fire Department　Joint comprehensive disaster drill, Shinagawa-ku and Tokyo Metropolis

(Alliances with local governments) Initiatives of York-Benimaru

・2023.2 Signing of “agreement on promoting carbon neutrality and cooperation in the event of a large-scale power outage due to a natural disaster” using York-Benimaru stores in Nasushiobara City, Tochigi Prefecture (in Japanese)

Significant physical risks: Increase in raw material cost

　The increase in raw material cost due to changes in weather patterns, which is expected to have the next largest impact, was estimated. Based on the composition of purchase amounts and the availability or otherwise of future data, “rice, tomatoes, and pork” were selected as the raw materials to be subject to the first-year analysis in the superstore operations (with plans to extend the scope of analyses going forward).
　The increase in the purchase amounts was estimated assuming that climate change impacts will result in reduced yields* and that the purchase amounts would increase accordingly. This clarified that the impacts for the procurement of “rice, tomatoes, and pork” can be expected to become pronounced mainly under the warming scenario. Furthermore, for raw material procurement, both the “change in weather patterns,” and the aforementioned “carbon tax system” as well as the “increase in natural disasters” can be expected to have contingent impacts, with various countermeasures being considered and implemented in light of this fact.
* Yield changes are estimated from data provided by the Ministry of Education, Culture, Sports, Science and Technology; the Ministry of the Environment; the Japan Meteorological Agency; the National Institute for Environmental Studies; the National Agriculture and Food Research Organization, etc.

◆Main countermeasures for Increase in raw material cost

　Under our environmental declaration “GREEN CHALLENGE 2050,” we set sustainable procurement as a specific theme—ensuring that food ingredients used in our original products are guaranteed sustainable, and are working toward a society that is in harmony with nature. Below are representative initiatives which we are undertaking for stable procurement as countermeasures for Increase in raw material cost.

・Disperse and consolidate production sites of raw materials
・Ensure stable procurement through the expansion of raw material and certified raw material (marine and agricultural product) procurement from weather-resistant sources, such as vegetable factories, land-based aquaculture, etc.
・Utilize digital technology and AI
・Expand lineup of frozen and processed foods resistant to the influence of climate

Agricultural products

　In addition to promoting the acquisition of GAP certification* in cooperation with producers at respective companies, we also sell private label vegetables such as “Fresh Foods with Traceability” (Ito-Yokado) and “Mitsuboshi Agricultural Products” (York-Benimaru), which deliver select, domestically-sourced vegetables grown with guaranteed safety, reliability, and deliciousness. These efforts are designed to disclose information about safe, environmentally sound products—who produces them, where, and with what motivations.
* Good Agricultural Practice (GAP) is a certification given to producers who engage in sustainability efforts in agriculture, awarded through third-party inspection.

Vegetables sales floor (Ito-Yokado)

　　　　　　　　　　　Number of employees in the Seven & i Group with JGAP instructor qualifications

	FY2021	FY2022
No. of employees with JGAP instructor qualifications	62	139

* Total for JGAP fruits and vegetables and livestock

* Employees of Seven-Eleven Japan, Ito-Yokado, York-Benimaru, Seven & i Food Systems, IY Foods, and Seven & i Holdings

Sales of Ito-Yokado’s “Fresh Foods with Traceability”

	FY2019	FY2020	FY2021	FY2022
*Amount of sales (billion yen)**	228	246	243	248

* Approximate figures

Marine products

　Seven & i Group is working to sell products for which sustainability is guaranteed, such as those certified by the MSC*1 and ASC,*2 to pass on the rich blessings of the sea to future generations.

　In October 2022, the Group acquired Chain of Custody (CoC) certification—a standard for the distribution and management of certified nature and environmentally friendly marine products—from the international non-profit organizations the Marine Stewardship Council (MSC) and the Aquaculture Stewardship Council (ASC). The CoC certification system is used to attest that seafood that has been certified by MSC and ASC as having been produced with consideration to the natural environment has been properly managed without being mixed with non-certified seafood through all the processes of production, processing, and distribution. Obtaining the CoC certification has additionally enabled us to sell MSC and ASC certified seafood processed in-store at the Group’s supermarkets as certified products. Before this, seafood which had been certified by MSC and ASC s sold in Group supermarkets had been limited to a few products processed outside stores, such as fish roe. Under the current CoC certification, meanwhile, sashimi (raw fish) and sliced/filleted products processed in Group supermarkets, including Seven Premium Fresh, the mainstay of our seafood range, can now also be retailed as certified products.

Further, to fulfill our responsibility as a retail business that connects producers and customers, we are also focusing on conveying the value of these products and the producers’ desires to customers through our stores and websites.

*1 Marine Stewardship Council (MSC) certification is a standard for marine products of natural origin relating to sustainable fisheries properly managed with consideration to marine resources and the environment.

*2 Aquaculture Stewardship Council (ASC) certification is a standard for aquaculture products farmed under a responsible aquaculture industry model which takes into account both workers and local communities, in addition to endeavoring to prevent pollution of the natural environment and the overuse of resources.

News releases related to countermeasures, etc.
・2022.10 Seven & i Holdings obtains MSC/ASC CoC certification and begins selling certified seafood processed in-store at 461 stores in its three superstore companies (in Japanese)

(3)Business opportunities and main countermeasures for both scenarios

Business opportunities for the decarbonization scenario

In this scenario, we see changes in consumer awareness as a business opportunity. As consumers develop a strong interest in sustainable products and services in line with government policy and trends toward carbon neutrality, we believe that our current efforts will lead to opportunities and further accelerate those efforts. The following initiatives being promoted under our environmental declaration “GREEN CHALLENGE 2050” are good examples.

◆Initiatives to reduce CO₂ emissions

　As electric vehicles become more common on the roads in the decarbonization scenario, we believe that offering EV charging services at a greater number of superstore parking lots will create more customer traffic. The two superstore companies have installed approximately 2,373 chargers for EVs as of the end of June 2023.

◆ Initiatives for measures against plastic

We believe that converting the containers and packaging used for our original products to environmentally friendly materials and promoting PET bottle collection and recycling will attract public attention and create more customer traffic.

　Taking measures against plastic is one of the initiatives specified in our environmental declaration “GREEN CHALLENGE 2050.” We have set targets to convert the containers and packaging used for our original products (including Seven Premium) to 50% environmentally friendly materials by 2030 and 100% by 2050, thereby reducing the burden on the environment from waste plastic. At Ito-Yokado, York-Benimaru, and York, we have devised sales methods for fresh food and delicatessen items that reduce the amount of containers and packaging used, such as selling by weight or selling individual loose items. In our delicatessen items sales areas, we are increasingly using paper bags rather than plastic containers for selling items such as croquettes and deep-fried chicken. In some other stores, some products sold in fresh meat sales areas have adopted the method of packing meat for sale in plastic bags without a polystyrene tray.

Related news releases, etc.
・2022.3 Measures against plastic at Ito-Yokado (in Japanese)

　Collection machines of plastic PET bottles have been installed at 2,935 superstores and Seven-Eleven convenience stores as of July 21, 2023. The collected bottles are recycled into new PET bottles and underwear in Japan through a “closed-loop” recycling system.