Operational and Other Risks

(As of May 26, 2023)

The Group primarily sells food to consumers in our main convenience store businesses. Direct and indirect impacts such as a sharp rise in food and energy resource prices and product purchase price increases triggered by the situation in Russia and Ukraine, and an increase in expenses related to store operations such as utility bills may impact our financial situation and business performance in the future.

The Group gathers operating resources and promotes operational reforms towards mid- and long-term business growth and development of new businesses. For more details, please refer to “1. Management Policy, Business Environment, and Challenges to Address (4) Management Strategy, Businesses that Need Addressing with Priority, and Financial Challenges.”

Risk related to natural disasters such as large-scale earthquakes, tsunami, typhoons, and flooding is going up every year, and it is anticipated to continue in the mid- and long-term as well as the expansion of their scale. In the event that these large-scale natural disasters, accidents, fires, terrorism, wars, or the spread of infectious diseases such as COVID-19 occur in Japan and overseas where we operate our businesses, these issues may impact our financial situation and business performance in the future.

We have established Business Continuity Planning (BCP) in case of large-scale disasters and pandemics, introduced a safety confirmation system, and taken measures such as disaster drills. The Group companies have also individually put various measures in place. Based on the Basic Act on Disaster Management, we have established a disaster management operations plan as a nationally designated public facility. We have created systems in the event of disasters such as disaster prevention measures and disaster emergency measures so that we can cooperate with related organizations to appropriately and immediately execute disaster management at the time of disasters.

However, in the event of natural disasters and pandemics, the Group may not be able to completely avoid such damage, which may impact our financial situation and business performance in the future.

The Group has adopted the franchise system in the convenience store business, one of its principal businesses, and provides "FamilyMart System," which the Company has developed and owns, to franchisees. The franchisees and the Group are in the relationship of coexistence and co-prosperity, and we aim to provide convenience to customers each day while we grow and prosper together.

In the franchise system, it is imperative that the Group and franchisees have mutual trust and cooperation. In the event that the trust between the Group and franchisees is damaged or many of the franchise contracts result in termination due to difficulties in franchisees continuing businesses from profitability deteriorating because of a slowdown in personal consumption or a sharp rise in labor, rent, and/or utility costs, these issues may impact our financial situation and business performance in the future.

FY2022  was the first year of our three-year plan to achieve renewed growth as part of our medium-term management plan, and we are working to strengthen the foundations of our convenience store business—our stores, our brand, and our customers—and expanding new businesses based on these foundations to create a virtuous cycle of new growth.  Additionally, we are making ongoing efforts such as reforming our cost structure, maximizing the digital environment, and promoting our own unique SDG activities. All together, these initiatives are transforming our business as a whole. For more details, please refer to “3. Analysis of Financial Situation, Business Performance, and Cash Flow by Management (2) Management’s Analysis and Discussion of Business Performance from the Perspective of Management.”

In addition, in the event that various transactions are suspended or franchisees lose credibility due to acts that infringe on the FamilyMart system, and violations of laws and regulations or misconduct by franchisees or suppliers, these issues may impact our financial situation and business performance in the future.

In our mainstay convenience store business, the Group principally sells foods to consumers. In addition, other than foods, the Group also offers products for consumers' life such as clothes and daily necessities. In the event that a severe product-related accident including food poisoning, product tampering, mislabeling, or recall occurs, these issues may impact our financial situation and business performance in the future.

The Group ensures safety and security of foods and other products by setting quality control standards, establishing the consistent quality control structure from manufacturing to sales together with business partners, and other means.

In Japan and abroad where the Group operates the businesses, the Group applies Companies Act, Financial Instruments and Exchange Act, tax laws, Labor Standards Act (including other laws and regulations, etc. concerning labor management), Antimonopoly Acts and subcontracting acts, food-related laws, and other laws and regulations, etc. concerning environments, and has obtained administrative permits and approvals, etc. Based on the recognition that legal compliance is an extremely important corporate responsibility, the Group ensures legal compliance by strengthening the compliance structure.

However, even if such measures are taken, the Group may not be able to avoid compliance-related risks or the risk that its social credibility may be damaged, including personal misconduct of an officer or employee. 

In addition, we cannot deny the possibility of unforeseen enactment, amendment, or repeal of laws and regulations by domestic and foreign administrative, judicial, and regulatory authorities, or the possibility of significant changes in various regulations along with drastic changes in social and economic environments. In the event that these happen, these issues may impact our financial situation and business performance in the future.

As of the present time, there has not been any lawsuits raised that have a huge impact on our financial situation and business performance. However, in the event that the Group’s business activities or other activities have become a target for major lawsuits, these issues may impact our financial situation and business performance in the future.

The Group agrees with The Ten Principles of the United Nations Global Compact, which includes the principles related to human rights. We comply with “Guiding Principles on Business and Human Rights” and “The OECD Guidelines for Multinational Enterprises” by the UN as well as respect the “International Bill of Human Rights” and “ILO Declaration on Fundamental Principles and Rights at Work,” and we have established “FamilyMart’s Human Rights Policy” as the basic policy on respect for human rights.

We recognize the possibility that our activities as well as activities of business partners such as supply chains and franchisees may have an impact on human rights of stakeholders including customers and local communities, and we expect that our business partners and other related parties understand this policy and support it. At the same time, we will continue to promote respect for human rights by communicating with them, sharing information, and collaborating with them.

However, in the unexpected event that the Group or a business partner experiences a human rights issue, there may be risk of the Group losing credibility or becoming subject to compensation liability. Consequently, these issues may impact our financial situation and business performance.

The Group has positioned solving global issues related to the environment and society as one of the important challenges facing our management, and as such we have established the Basic Policy on Promotion of Sustainability. In addition, in order to contribute to solving social issues including environmental problems and achieving a sustainable society, we have created Famima Eco Vision 2050 as our mid- and long-term goals towards 2030 and 2050. We also actively work on risk management such as building an environmental management system to prevent environmental risk, including risk of legal conflicts in product handling, service provision, and business investment projects; and conducting wide-range sustainability surveys to supply chains. We have put in place the Sustainability Committee to appropriately handle the risk and opportunities related to climate. In this committee, we monitor natural disasters as well as trends of laws and regulations and examine a plan to handle them. We also set our goals and plans related to climate, including Famima Eco Vision 2050, manage progress, and evaluate.

Regarding climate change, which we consider an urgent issue, we agree with the recommendation by the Task Force on Climate-related Financial Disclosures (TCFD). We have participated in the TCFD Consortium led by the Ministry of Economy, Trade and Industry, the Ministry of the Environment, and the Financial Services Agency. Based on the recommendation by the TCFD, we analyze the impact that risk related to climate change has against businesses and business performance and their countermeasures, and disclose the results. Greenhouse gas emissions are calculated for the entire supply chain, and the reduction target is certified by the SBT initiative as “well-below 2°C” based on scientific evidence, compared to the “2°C target” goal set by the Paris Agreement.

However, even with these measures, in the event that an environment or social issue such as environmental pollution occurs due to the Group’s activities, the results may lead to delay and suspension of businesses, cost incurring for measures, lowering of public esteem, and may impact our financial situation and business performance in the future.

In the course of our business operation, the Group collects and maintains personal information including information on customers. In the event that an accident related to the leak of personal information, these issues may impact our financial situation and business performance in the future.

To prevent unauthorized access to personal information and leakage of personal information among others, the Group takes organizational, personnel, physical and technical safety control measures that are generally considered highly reliable, and exercises necessary and appropriate supervision over employees handling personal information. We as well as our three subsidiaries have obtained the PrivacyMark certification by Japan Institute for Promotion of Digital Economy and Community (JIPDEC).

The Group has built an information system among the Group, business partners and stores. If a failure of this information system, an abuse of the system or similar improper act causes a situation that disturbs execution of operations, etc., the Group's execution of the businesses, operating results, financial conditions and others may be affected. The Group has established security measures for the information system.

In order to conduct multi-layered monitoring of the development plan, development processes, and quality, as well as improve the design quality and testing comprehensiveness, the Group supervises the vendors and vice versa, having established an integrated development framework and promoting projects. We have also set the code of conduct related to the handling of information so that our employees can recognize that achieving a high information security level is an important matter. We have continued to work on maintaining the IT environment with cyber security risk in mind, enhancing technical security measures, and setting up thorough measures for risk management to secure the safety of the information system operations.

However, even with these measures in place, we cannot entirely avoid the risk of incidents such as leaks of confidential information and personal information due to unexpected external illegal access or breach by computer viruses, or suspension of the information system due to a failure of equipment and trouble on communication lines. Depending on the scale of the damage, these issues may gravely impact our financial situation and business performance in the future.

Japan as a society is currently facing a reduced labor force due to an aging society with fewer children. Because our main business is operating convenience stores, any disruption to our business activities due to the reduced labor force, increased operating costs due to higher staffing costs, and labor shortages in the supply chain, our financial situation and business performance may be affected in the future.

To address this issue, the Group is implementing new technologies and testing and developing energy-saving and labor-saving methods for our stores.

The Group holds a large amount of fixed assets such as tangible fixed assets, right-of-use assets, and goodwill related to stores. Impairment losses on these assets have been recognized as necessary at this point in time; however, in the event that the profitability of stores declines significantly due to unexpected deterioration in economic conditions or poor performance, and the book value of these assets no longer can be considered recoverable, a new impairment loss will be recorded. These issues may impact our financial situation and business performance in the future.

We strive to reduce such risks by making decisions on store openings based on store opening criteria and by regularly monitoring store profits and losses.