Smiley, William D., Jr.

English

Research Papers in Economics

Food Distribution Changes
from a Japanese Perspective
William D. Smiley, Jr.
The title  for today's  talk as listed  in the conference  has a liaison office in Seattle.  These  offices were set
guide is "Food Distribution  Changes from a Japanese  up to allow more hands-on control of North American
Perspective."  My actual discussion this morning will  products  shipped to Japan and access to correct up-to-
focus on Japanese  consumers'  changing  expectations  the minute information  on food markets and growing
and  attitudes toward food products  as a result of the  areas in North America.
extended  recession and high-valued yen.  At  this  point,  I would  like  to  give  more  back-
I would like to discuss some of the approaches we  ground information on the Ito-Yokado Group  and the
at the Ito-Yokado Seattle Liaison Office  are taking  to  various products  our Seattle office has been involved
develop  North American food products  for shipment  in  developing  for  the Japanese  market  over  the last
to  the Ito-Yokado  Group  retail  stores in Japan.  We  five  or six  years.  Afterwards  I  will  return  to  our
hope  this  session  will  be  of  value  to  individuals  theme.
attempting to develop U.S.  food products for shipment  The Ito-Yokado  Group  has  annual  sales  of over
to the Japanese market.  $27 billion, making it one of the largest retail groups
I would like to thank Dr. Desmond  O'Rourke  for  in the world.  It consists  of:
giving me this  opportunity  to speak with you  today.
I first got to know Desmond  O'Rourke between  1986  0  147 Ito-Yokado Superstores (food, clothing, house-
and  1989 when I ran the Washington State's  food and  hold items)
agriculture  product trade office in Tokyo as director,  0  43  York Mart Supermarkets
agricultural  trade  development,  Japan.  We  were  0  62  York Benimaru  Supermarkets  (regional  super-
involved in many mutual projects at the time.  I wish  market chain)
Desmond  continued success  with his important work  0  22 Daikuma Discount Stores
at WSU Impact Center.  0  5,523  7-11  Japan convenience  stores
As director of Washington  State's food  and agri-  *  The  Southland  Corp.  that has 5,796  7-11  conve-
cultural  product  trade office in Tokyo  from  1986  to  nience stores in the United States and Canada
1989,  I was  in constant contact  with all  elements  of  *  442 Denny's Japan Family Restaurants
the  Japanese  food  distribution  system:  the  various  *  314 Famil Family  Restaurants
trading companies,  retail  groups,  food manufacturing  0  2 Robinsons Department Stores in Japan
companies,  and food service organizations,  etc.  *  77 Mary Ann Women's Boutiques
One  change in the food distribution  system that I  *  30 Steps  men's casual wear stores
think we can  identify  is  the fact  that large  retailing  0  4 Oshman's Japan  Sporting Goods  Stores
organizations  such  as my  company  Ito-Yokado,  our
biggest competitors Daiei and Seiyu, and other retail-  Some  of the  North  American  food  items  that  I
ers have felt the need to become more independent of  have had a hand in developing for shipment to the Ito-
the giant trading  companies and the large food manu-  Yokado Group are:
facturing companies.  These retailers still work closely
with Japanese trading companies and food manufactur-  *  Produce  items:  bundled Mexican  asparagus,  bun-
ing companies  on  some  items,  but retailers  are now  died  Stockton  asparagus,  Florida  high  brix  ruby
doing much more direct development of food products  grapefruit,  California  high  brix  navel  oranges,
for group  stores themselves.  California and Northwest bing cherries,  California
Currently  Daiei  and  Seiyu  have  established U.S.  red  globe  grapes,  California  watermelon,
food product buying offices in Seattle, and Ito-Yokado  California fall strawberries,  California broccoli and
lettuce.  We  are  now  working  on  Washington
apples and other items.
Research  and Marketing Manager,  Ito-Yokado Seattle Liai-
son Office.
February  95/page 120  Journal  of Food Distribution Research*  Daily items (with company-authorized  shelf-life of  Florida grapefruit juice that we sent to Japan in frozen
six months or less): Washington State frozen pota-  55 gallon drums  and had  repacked in Japan into  one
toes,  cut corn,  peas,  mixed  vegetables;  Mexican  liter  refrigerated  cartons,  both under the  Ito-Yokado
frozen broccoli;  super  premium ice  cream;  bread  label.  These were extremely high quality products but
pre-mixes;  single-strength  100  percent  Valencia  more  pricey  than  juice  made  from  concentrates.
orange juice;  single-strength  100 percent  Florida  (After the economy  went  into  recession,  Ito-Yokado
grapefruit juice.  gradually  switched  to  lower  cost  Brazilian  concen-
trated product.)
•  Processed foods: canned  cling peaches,  fruit cock-  We  developed  various  produce  items  that  again
tail,  cut  corn,  whole  tomatoes;  coffee;  and most  emphasized  quality-mainly  taste  and freshness.  We
recently,  a successful private label cola program.  put much  emphasis  on freshness  and sometimes  our
prices were a little higher than other  suppliers.  For
Other members in our office are working on vari-  example,  we  would  insist  on  asparagus  being  har-
ous fish and meat products  for the Japanese market.  vested,  packed,  and  shipped  the  same day-and  the
Returning  to  our  theme-Japanese  consumers'  fields had to be within walking distance of the packing
changing expectations and attitudes toward food prod-  house.
ucts as a result of the extended recession and the high-  Ito-Yokado was famous in the industry for quality.
valued  yen.  I will give  a few  examples  of how we  It appeared that quality products at a fairly reasonable
have  changed  our approach to  developing  food prod-  price would sell easily until, as the Japanese put it, the
ucts for the group as a result of the changing customer  bubble  burst  and  the  economy  took  a  nose  dive in
demands.  Japan.
Almost  every year I return  for  an  intensive  one-  On the last visit I made to Ito-Yokado headquarters
week study  period at the Ito-Yokado  company  head-  in  August  1993,  the  environment  had  completely
quarters  in Tokyo.  At that time, I talk directly  with  changed.  The economy  had been in a deep recession
buyers and learn about consumer attitudes about food  for over a year.  Profits had been down and consumer
products.  My first few  trip to headquarters in 1990,  confidence  had  plummeted.  Buyers  were  under  the
1991,  and  1992 were still under the influence of the  gun  from  top  management  to  rethink  their product
Japanese  Bubble Economy.  Especially  from  1989  to  development  strategies.  The new theme drilled  into
1991,  the  economy,  as  far as  retail  sales  were  con-  my  head  on  that  visit  was:  Customers  expect  low
cemed,  was still strong and appeared  to be growing.  prices;  customers  expect high value  from  food prod-
Consumers had much disposable  income and relative  ucts.
confidence in their economic future.  Low  prices  alone were not enough  for customers
The main  theme at headquarters  at that  time was  to open their purse strings;  customers had to perceive
QUALITY,  QUALITY,  QUALITY.  At  that  time,  high value  in  food  products  they  buy.  (Customers
price  had to be  reasonable,  but quality  was  the goal  were also  angry  that prices  had been  so high  for so
drummed  into  my head.  It appeared  we were living  long.  Customers started to ask why prices on domes-
in  a  sellers'  market  where  Ito-Yokado  customers  tic  products  were  so  high,  when  imported  products
would buy products if products were of good quality.  could be sold at lower prices.  They began  to under-
As a result, we developed the following high-qual-  stand that a strong  yen should mean lower prices  for
ity products:  food products  across  the board.  Actually due to  the
Super premium ice cream to compete with Haagen-  recession and the reluctance of customers to buy high-
Dazs Japan.  We  surveyed  the major producers  and  priced unnecessary items-the system gradually started
found  that  one was  flexible  enough  to  do  our small  to change  from a sellers'  market to a buyers'  market.
original  minimum  orders  and  to  work with  us  dili-  We  expect the buyers'  market  to  continue even after
gently  for  about  a  year  to  perfect  the  formula  and  the recession  ends.)
production method for our product.  We  came in 100  Ito-Yokado  carried  out many  reforms  in order  to
yen less  expensive  than Haagen-Dazs  which  was,  at  reduce prices:  they underwent  management  reform--
the  time,  an  enormous  800  yen  a  pint.  (After  the  reorganizing  departments,  eliminating  unnecessary
Japanese economy  went into serious recession we had  positions,  and  making  headquarters  operations  more
to gradually  phase out this item and replace it with a  efficient.  In order to reduce buying costs and realize
low cost premium ice cream from New Zealand.)  economics  of  scale,  they  put  stronger  emphasis  on
Another high quality item that we developed back  group merchandising.  (They developed products that
when  the  economy  was  very strong  and quality  was  could  be  used  in  more  than  one  company  in  the
the main interest was a single-strength  100%  Florida  group.)
Valencia  orange juice and  a  similar  strength  100%  They demanded  that the overseas offices find ways
Journal  of Food Distribution  Research  February 95/page  121to cut costs in our operations  and food purchasing.  I  For strawberries,  we searched diligently  for high-
was sent home from my headquarters  meeting in 1993  value fresh varieties that have not been shipped widely
with new marching orders-maintain quality, cut costs,  to the Japanese market.  We have succeeded in devel-
and develop items that the customer would perceive as  oping a high-value  fall strawberry  that customers had
high-valued.  not been able to enjoy in the past.
The following are a few examples of products that  Regarding daily products,  we are currently experi-
we are developing to meet the new customer needs:  menting with U.S.  consumer-packed  frozen potatoes
For produce products,  the new theme has become  that  will eliminate  high  Japanese  repacking  charges
TASTE,  FRESHNESS,  PRICE,  and SAFETY.  and  will  be  suitable  for  our  group  merchandising
For  North  American  asparagus,  we  had  to  find  program.
ways to reduce price and also increase perceived value  A final example of our renewed effort to offer low
by  improving  freshness.  We  accomplished  this  by  cost, high value products has been the recent develop-
doing the whole retail bundling operation in Mexico,  ment of a private label cola.  This project was accom-
which costs considerably  less than in Japan  and also  plished in about six months of intensive work.  Taste
cut one day off the time from harvest to  store sale in  and can  design  as well  as  low price  were  our  main
Japan.  concerns.  Consumers  consider  this product,  devel-
For Florida grapefruit,  we cut costs and increased  oped  exclusively  in  North  America  for  Ito-Yokado
freshness  by  gradually  buying  less  off the  Japanese  Group sales, a high-valued product because of its good
market and buying more  directly  from Florida where  taste, appealing  can design,  and low price.
we  instituted a just-in-time  shipment  system to meet  In  closing,  as a  resident  of Washington  State,  I
store  sales,  eliminating  inventories.  Moreover,  we  would like to wish the Washington Apple Commission
developed a unique high brix ruby grapefruit program.  good  luck  in  1995  with  their  efforts  at  marketing
Customers  perceived  higher  value  because  of  good  Washington  apples  in  Japan.  I  hope  that  our
taste,  freshness,  and the fact that Ito-Yokado was one  Washington  apples  shippers  do  not  make  the  same
of only a  few  retailers selling  ruby  grapefruit  rather  mistake that the New  Zealand shippers made last year
than  white  grapefruit.  We  developed  a  late  ruby  when  they  priced  their  apples  out  of  the  Japanese
program to extend our sales of ruby much longer than  market.  Washington apples will only  sell in Japan  if
competitors.  they  can  be positioned at  the  retail  level  at  a much
For cherries,  we  cut costs by increasing  our total  lower  price  than  the  good-eating  Japanese  domestic
buying volume,  while lowering  commissions  paid to  apples.  Washington  apple shippers  should pay close
our shippers.  We also  experimented with lower cost  attention  to  price  (including  reducing  current  ocean
airlines.  We instituted  a special  shipment inspection  freight  rates),  but  in addition,  they  should  seek  out
system that allows us  to  estimate arrival quality  and  innovative promotional strategies at the retail level that
thus  adjust  prices  as  necessary  at  the  store  level  if  will convince  the  Japanese  shopper  that  Washington
quality  varies.  apples are a high-valued item that they should have in
their  shopping bag.
February  95/page  122  Journal of Food Distribution Research

FOOD DISTRIBUTION CHANGES FROM A JAPANESE PERSPECTIVE

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