Tobacco sales lift Japan convenience stores in July

TOKYO (Reuters) - Japan's major convenience store chains are set to post double-digit sales growth in July, a welcome boost after years of weak revenue, as cigarette smokers shun new ID-requiring vending machines and flock to their stores.

After seeing same-store sales fall or post only meagre growth for months, FamilyMart Co Ltd (8028.T) and Lawson Inc (2651.T) have seen revenue pick up from May as use of a new ID function became compulsory in more parts of Japan.

Shares in both firms have rallied 22 percent over the last three months, outperforming a 4 percent fall in Tokyo stock exchange's retail sub-index .IRETL.T.

FamilyMart, the nation's No. 3 convenience store operator, said July same-store sales are up 14-15 percent so far, its biggest monthly sales jump in at least 17 years.

Japan's No. 2 operator Lawson said it is seeing double-digit same-store sales this month, the best growth since it went public eight years ago. An industry source said Seven-Eleven, a unit Seven & I Holdings Co Ltd (3382.T), was seeing growth of close to 10 percent.

Vending machines began to require the special smart ID card, called Taspo, in certain areas of the country from March and the requirement now covers all areas of Japan.

"To be frank, the Taspo factor is the top reason for the growth," said a source at one of the companies, who declined to be identified.

Convenience store chains, wary of anti-smoking sentiment, have been reluctant to refer publicly to the windfall nature of their sales boost.

Company representatives also said price hikes at supermarkets and favourable weather have helped sales, as have rising gas prices that have prompted many consumers to avoid dining out and instead buy meals from convenience stores.

But analysts warn the boon is likely to only help for a year as the companies still face the daunting challenge of creating growth amid a highly saturated market with an ageing population.

"It's dangerous to assume that this is proof of a revival of convenience stores as a retail format," said Lehman Brothers retail analyst Yasuyuki Sasaki.

"Next year, it will probably be back to the same situation as last year when few investors were interested in convenience stores, which have to find growth in overseas markets or in a new store format," he said.

FamilyMart's shares rose 3.5 percent to 4,440 yen in afternoon trade while Lawson shares were up 2.2 percent at 5,110 yen. Seven & I, which has gained 4 percent over the past three months, was 1.7 percent higher at 3,070 yen.

(Additional reporting by Ritsuko Shimizu; Editing by Edwina Gibbs)