Foodex, Japan and Asia’s largest food exhibition, opened this week (13 March) and non-Japanese firms looking to enter this large and lucrative market are flocking through the doors. But how do you go about starting and building a sustainable food business in Japan? Rupert Sutton has some tips.
At JPY18,700bn, (US$155bn) Japan boasts one of the world’s largest packaged food industries (source: Euromonitor). The market can undoubtedly be profitable; its consumers love brands and will pay premium prices. It is not by chance that Godiva, Nestlé’s Kit Kat and Häagen Dazs have become icons. And the big multinationals do not steal all the glory; smaller European artisanal-style brands such as French cheeses, for example hold commanding market shares.
Success in Japan is increasingly relevant across the region. As the economic gap narrows, consumers in Singapore and Hong Kong consider original Japanese goods to be premium products – and have the money to afford them.
As in any market, understanding the consumer is the key. A casual walk through trendy Tokyo neighbourhood Harajuku provides a good introduction to Japanese consumer tastes. Food flavour profiles are generally less sweet than in many western markets and there is little use of colourings. Most westerners taught to evaluate food on one of four basic dimensions (salty, sweet, sour, bitter) discover a fifth dimension in Japan: umami or ‘savouryness’. Umami is best experienced when tasting items like dashi (soup stock) or ika (dried squid).
Building a brand requires a strong concept and focused execution; how it will be communicated, where it will be sold, at what prices and how it will be merchandised. These elements should all be checked with consumers in advance. Many new entrants fail to appreciate the importance of building their company name’s credibility. This is especially important given the recent quality issues that have plagued the Japanese food industry.
Features involving food and drink are very common in the media. There are six main TV stations, a large number of satellite, cable and regional channels and a very wide range of newspapers plus weekly and monthly magazines. Japan leads the world in mobile internet technology and some food brands have developed sophisticated food recipe and cooking sites. Mainstream media is neither a realistic nor efficient option for smaller brands and instead more targeted marketing such as instore demonstrations or events is often more effective. Given the plethora of media it is possible to work with specific stations to get publicity, especially if you have a topical food concept.
A strong innovation and renovation programme is essential, especially for mass-market brands. The food industry is extremely fragmented with hundreds of competitors, most launching up to 50 new items annually. New entrants must bring something ‘new’ to the market, whether it is a technological benefit, proven health claim, product format or positioning, in order to be sustainable. Moreover constant refinement of the innovation after launch is important. Some, like Häagen Dazs Japan have a local Research & Development function.
Understanding the trade in Japan is important even if a third party manages sales. ‘Fragmented’ is an apt description of the retail landscape, with the largest retail groups such as AEON and 7&I Holdings accounting for less than 5% of packaged food sales.
Many retail chains are regional. For foreign brands there is a whole retail channel focused on selling imported goods, which is a potential entry point. Most manufacturers tend to trade through wholesalers and invoice through shosha (General Trading Houses) like Itochu or Mitsui to guarantee cash collection. Note that most shosha have built alliances and cross-shareholdings in many retail and wholesale chains. For example Mitsubishi, owns Ryoshoku, one of Japan’s largest food wholesalers. Therefore working with just one shosha could limit your access to the market. As a consequence, careful selection of which trade channels and regions for your product launch is key. Tokyo may be the most obvious place to visit in Japan, but like most other capital cities, it is the most competitive.
Whilst Japanese companies have an extremely high commitment to customer service, scant attention is given to shareholders. The adage that customers are Gods is true. The structure inside many Japanese food companies also differs; for example, it is a mistake to assume that all Japanese food companies have marketing departments with brand managers. Initiatives tend to start from the bottom and in some cases the most senior person is very devolved from the operational details. Japanese society is based around group consensus; as a consequence, negotiations take time, many people are involved and patience and resilience are essential. The positive is that once agreements are made, plans are well executed by the entire team.
If you are serious about taking your business into Japan, it is essential to gather a team which includes people who have relevant experience and contacts. Learn the rules of the game in your category by studying consumer insights to competition to trade channels. Firms need to be very clear they can bring something new to the market if they wish to be sustainable. Test marketing before full-scale launch is a good sense check to verify how well the brand and supply chain work. It is also a strong argument to use later with other chains.
Japan is a complicated market, but teams who do their homework well and stay completely focused, can prosper
Rupert Sutton is an Asia based management consultant and can be contacted at firstname.lastname@example.org.