Daiei is these days considered a test of the government's appetite for painful change.
It also wants to act before too many jittery suppliers start refusing to do business with Daiei.
Daiei supermarkets are installing video cameras above soft-drink shelves to catch anyone tampering with products.
The alternative is a much uglier outcome for Daiei, and for the dozens of banks from which it has borrowed.
"Daiei alone could spin off a dozen or so companies in the next 12 months, " says Smith.
Daiei, a larger national chain, plans to add to the 11 stores it owns that already sell petrol.
The weakest, such as Nissan, a car maker, and Daiei, a supermarket chain, had to borrow even to meet wage payments.
Sanwa is under pressure to act quickly, for its exposure to Daiei will double when it merges with Tokai Bank, another lender, in April.
Selling its best assets, including its money-making convenience stores, cut the firm's debt but left Daiei with unattractive and less lucrative outlets.
ECONOMIST: Reports of Daiei's rebirth have been greatly exaggerated
Smaller manufacturers and service companies, such as Daiei, Japan's biggest supermarket chain, took on debt to expand and are now in trouble.
Between August and November, Daiei, once the biggest retailer in Japan, saw its share price almost double before giving back some of its gains.
ECONOMIST: Reports of Daiei's rebirth have been greatly exaggerated
It is high time that the likes of Daiei, a retailer, Misawa Homes Holdings, a housebuilder, and Sojitz, a trading company, were cast adrift.
The reluctance to spend has led to several bankruptcies among big retailers such as Mycal, while supermarket Daiei has been seeking new funding to stay afloat.
And this week Daiei, a supermarket group, announced its decision to sell its 20% stake in Lawson, another konbini chain, to Mitsubishi Corporation, a big trading house.
Daiei and other domestic chains such as Seiyu and Ito-Yokado are all struggling to cope with colossal debts and imprudent diversification, and their underfunded outlets are getting tatty.
They see Daiei as a huge turnaround in the making.
ECONOMIST: Reports of Daiei's rebirth have been greatly exaggerated
One problem will be persuading Sumitomo Bank, a third big lender to Daiei with several other costly headaches (eg, two life insurers and a bunch of construction companies), to approve the plans.
Daiei, the biggest retailer, operates 383 general-merchandise stores.
Sanwa Bank, one of the chain's four biggest creditors, is weighing several schemes, including one in which Daiei's main supermarket operation has its debts forgiven, allowing it to survive, but other parts of the group are sold or shut down.
The struggle to make a profit and reduce debt is still being waged at some big companies, including Daiei, once the biggest supermarket chain, Japan Airlines, Sanyo Electric, Rakuten, the biggest internet shopping mall, and Softbank (though the last could be cushioned by its large holding of Yahoo Japan shares).
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