Riding forth

Donki also has a growing range of store formats, including smaller Picasso stores, giant Mega Don Quijote and even a Platinum Don Quijote selling high-end products.

Looking to expand but faced with a shortage of suitable suburban locations, Donki last year took a 40 per cent stake in the merchandise store unit of FamilyMart Uny Holdings.

It’s an unlikely marriage of disparate corporate cultures.

But so far it seems successful: the companies’ first six Donki-style stores have almost doubled sales in the five months to July, with a further 20 stores to be converted in 2019.

That is helping push Donki toward its target of 500 stores by 2020, from 420 stores currently. Uny has almost 200 locations. The purchase of part or all of Walmart’s Seiyu chain would mark a dramatic acceleration of that expansion. Walmart says it has not made a decision to sell Seiyu.

Donki’s newest frontier is overseas, with two “Don Don Donki” stores opened in Singapore in the last year and another due to open in Bangkok this year.

Founder Takao Yasuda, who moved to Singapore after retiring three years ago, drove the expansion there after finding Japanese products too costly. Prices are as much as 50 per cent lower than rivals, said Takahashi, the CFO. The Singapore stores are stocked mainly with food and drink, leveraging Japan’s culinary reputation. Donki’s “yaki-imo” or baked sweet potato is its best-selling product.

Singapore-based Euromonitor analyst Chayadi Karim said Don Quijote has tweaked its strategy in Singapore, where shoppers are unburdened by a deflationary mindset and “are willing to pay that premium for Japanese products.”

Southeast Asian expansion, with several new stores opening annually, along with 28 outlets in Hawaii and California, are building Donki’s food retailing expertise.

Concerns about overly rapid expansion weighed on the company’s shares this year, and like all Japanese retailers, it faces headwinds from the country’s aging population and growing affection for online retailers.

But for now, its ability to make money seems to be resilient.

In the most recent quarter Donki’s gross margin - a key measure of profitability climbed 0.4 per cent on a year earlier to 26.6 per cent.