Poking The Convenience Giants – Welcia Holdings (TYO: 3141)

Thinking Points

  • Major drug store operator Welcia (TYO: 3141)  is becoming Japan’s neighborhood pharmacy.
  • In doing so, the company directly competes with the convenience industry.
  • Welcia maintains a strong position against the giants in convenience, thanks to Aeon’s (TYO: 8267) backing.
  • With its 18x EV/EBIT price tag and many moving parts, Welcia does not present a compelling investment opportunity.
  • Investors ought to look at pharmacy and drug store related industries for opportunities.

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20% EBIT CAGR With A Walmart Twist – TYO: 3349 Cosmos Pharmaceuticals

Thinking Points

  • Cosmos Pharmaceuticals (TYO: 3349) operates drug stores with a Walmart and 7-Eleven-like strategy, delivering industry leading growth (20% 10 year EBIT CAGR) over the past decade.
  • The company’s larger than normal stores target small areas and resembles a neighborhood supermarket.
  • At 18x EV/EBIT, Cosmos is a high quality business trading at an even higher price.

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Drug Stores Inconveniencing 7-Eleven

Thinking Points

  • Drug stores are entering convenience territory, offering goods typically available at convenience stores.
  • Convenience chains are fighting back by slowly working into the more regulated OTC drug market, mostly through partnerships with drug and pharmacy chains.
  • The distinguishing characteristics of the convenience, drug store, and pharmacy industry are less apparent now.

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