Top Management Message October 14, 2003

Today, Lawson announced its interim financial results for the year ending February 2004. The interim period, ended August 31, 2003, was characterized by unique challenges, such as the coldest summer in a decade and intensifying competition in some regions. This was compounded by little sign of recovery in local economies or the national economy as a whole, leading to year-on-year falls in both total net sales and operating income. On a brighter note, recurring profit was up slightly on the same period in the previous year, thanks to the roll out of the regional headquarters system in March 2003, which allowed us to better control costs, and stronger results by Group companies and affiliates. As a result, we were able to reach our consolidated earnings targets for the interim period.

Our current focus remains firmly fixed on driving forward Lawson Challenge 2004, our three-year management reform plan designed to rejuvenate the company and take it to a new stage of growth. At the moment, we are specifically working to ensure all the measures we launched in the previous fiscal year are taking hold. I would like to take this opportunity to outline three of these measures: Revitalizing frontline operations; optimizing the value chain; and forging alliances.

Revitalizing frontline operations:

As planned, the introduction of the regional headquarters system has led to a transfer of significant decision-making powers. As this new structure has taken hold at the regional level, we have created a more responsive organization. This has enabled us to open new stores more rapidly and develop more regionally oriented products, directly translating into a new energy at our frontline stores.

Optimizing the value chain:

Our plans to reduce the number of rice dish vendors from the current 40 companies located nationwide, to just a handful of mega-vendors during the current fiscal year, are going well. In regional operating areas where we have already consolidated vendors, we expect to see greater product uniformity and improved quality as the latest processing equipment is installed at factories and infrastructure is enhanced. Where this infrastructure is already in place, we have been able to eliminate all preservatives in our food products and control the overall volume of other additives. This is helping us to satisfy demands for safe, healthy and tasty products that customers can trust. These steps have already been completed in the Kanto and Kinki areas, and we are now in the process of rolling them out to the rest of the country.

Forging alliances:

We are developing alliances with a number of key partners, such as Japan Post, Culture Convenience Club (CCC), the operator of TSUTAYA, a leading media rental chain, NIPPON OIL CORPORATION (ENEOS), and a number of regional banks. All these alliances are based on one overriding goal: moving into markets and customer categories where Lawson has been traditionally weaker. Our alliance with CCC is already bearing fruit. A point card system for TSUTAYA cardholders launched on October 1 has clearly led to an increase in customers. We plan to actively forge similar alliances going forward.

The second half of the year has got off to a good start for us. In September, existing store sales posted year-on-year growth for the first time in seven months. We plan to build on this momentum as we work together with store owners to further increase customer footfall by making Lawson "the 'hot' station in the neighborhood"-stores in tune with communities and local customers. This, I believe, will boost storeowner revenue and ensure we achieve the targets laid out in Lawson Challenge 2004.

October 14, 2003

Takeshi Niinami
President and CEO

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