March 19, 2024 • 33 mins
This time the guest of the podcast is Rupert Sutton, Director & Partner Director & Partner at Weben Partners.
Rupert has more then 30 years of experience in working in consulting, marketing and sales in Asia and Europe, with biggest part of it of living and working in Japan.
In the Part 1 of our conversation we have discussed the intricacies of the Japanese retail market and other channels to enter Japan with FMCG.
Highlights from the episode:
- Understanding the unique characteristics of Japan's retail environment, including its emphasis on expertise and focus for success.
- Exploring the diverse retail structure, from supermarkets and department stores to vending machines, and how space constraints influence consumer behavior.
- Uncovering opportunities for imported products and navigating the complexities of distribution channels, including insights on working with distributors in Japan.
- The importance of data-driven decision-making and strategic channel selection in maximizing success in the Japanese market.
- Insights into the evolving role of online channels like Amazon and Rakuten, and their impact on consumer shopping habits.
Listen to the Start Global Insights podcast on all major platforms and YouTube. And don't forget to subscribe not to miss the second part of the conversation.
Don't forget to subscribe not to miss the second part of our conversation.
Speakers LinkedIn Profiles:
Host, Dmytro Shvets https://www.linkedin.com/in/dshvets/
Guest, Rupert Sutton https://www.linkedin.com/in/rupertsuttonwebenasia/
Rupert is also the author of the book Export and Expand. You can find the blog Export and Expand of Rupert Sutton at https://exportandexpand.com/
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Hi, I'm Dmytro Shvets, your host at The Start Global Insights, where I interview experts
(00:11):
from different countries about local business secrets and international expansion experience.
Today we will talk again about mysterious and faraway country that is called Japan,
and this time my guest is Rupert Sutton.
He is a director and partner at Weben Partners, a consulting company.
(00:32):
Rupert has more than 30 years of experience in working in consulting, marketing, and sales
in Asia and Europe, with the biggest part of it of living and working in Japan.
And I hope that today Rupert will share all his experience of doing business with this
country.
And welcome to the show, Rupert.
(00:52):
Thank you very much for having me.
Thank you very much for having me.
It's a pleasure to be here.
Thank you for agreeing to share your experience, and this is very valuable for me and for our
listeners.
Could you tell shortly about your activities in Japan?
How did you end up in this country?
So you are originally from UK, yeah?
(01:13):
Correct.
So I'm originally from the UK.
So when I left university, I joined Nestle UK, and I worked in the UK for six years in
marketing and sales and market research.
And I wanted to go overseas.
And when I was 28, Nestle sent me to Japan.
Nestle Japan is a very large organization here.
(01:35):
It has over 2 billion US dollars in sales, coming really from three products only coffee,
confectionary, or should I say KitKat, and also Petcare.
And this is something that I kind of want to, it's going to be a theme in terms of maybe
some of the messages that I give today.
(01:56):
Succeeding in Japan is about being an expert.
It's not trying to do everything.
It's trying to be really focused and being a real expert in what you do.
And ironically, by being focused, you can be very successful here.
Trying to do everything, lots of products, lots of different things is probably not the
(02:19):
way to succeed here because it's too complex.
So I worked for Nestle in Japan in total for about eight or nine years.
I also worked for Nestle in Malaysia.
And then I set up my own company, Weave and Partners.
And since then, we've worked with a very large number of consumer products, what we call
(02:42):
FMCG, OTC, meaning over the counter medicines, some pharma companies, and also some distributors,
basically on three types of projects.
Insights about customers, consumers, shoppers, channels, competitors, very important.
(03:03):
It's very important to have a map, a conceptual map of where to play.
We also work with clients on strategy, especially to do with branding, brand portfolio, product
development, innovation, and also what we call route to market.
(03:26):
And I would say route to market is probably the biggest problem that most foreign companies
have.
And the typical problem manifests itself in people say, well, I can't find my product.
I can't see it.
The visibility is very poor.
The pricing is wrong.
I don't think my partner is motivated.
(03:48):
I think I'm in bed with the wrong partner.
The partner takes too much margin.
There's a whole string of problems regarding route to market.
And the third type of project we work on is capability, capability development for consumer
products companies.
So it's things like shop and marketing, it's things like distributor management, key account
(04:11):
management, those sorts of things.
I live in Japan.
I'm recording this from Osaka.
So that's Japan's second biggest city.
I've also lived in Tokyo.
Actually, I think it's an advantage not to live in Tokyo.
Many people come to Japan and immediately go to Tokyo.
(04:33):
The capital city is always the most competitive.
It's always the most, the hardest.
Some of the other cities here are big.
I mean, Osaka, we have eight to 9 million people.
So it's not small by any stretch of the imagination.
But there are some differences between the cities.
(04:56):
And it's again, part of where to play.
It's about making strategic choices about where to focus on.
You need to be really concentrated because it looks like, for many people, Japan looks
like a small country.
Yeah, it's some islands far away and very closed, but it is 125 million people living
(05:17):
there.
Yeah, so it is very big market.
And in addition to that, we have at the moment about 20 million foreign tourist arrivals
coming into Japan.
And this is also 20 million visitors a year.
It's a big, big number.
(05:37):
The airports are absolutely chock-a-block full of visitors coming to Japan.
And this is, and they spend, the tourists spend a lot of money here.
And they become a very important part, important target for companies as well and brands.
(05:59):
And it's something also for Ukrainian companies to think very carefully about.
Again, it comes about where to play.
Can we talk about the retail structure?
What are the main players or channels?
How does it look like in Japan?
So it's complex.
Okay, so let's talk about the main channels.
(06:24):
So you've got what we call GMS, General Merchandise Stores.
So you've got chains like Eon Group and you've got Seven and I Holdings, which has got a
big chain called Ito Yokodo.
Okay.
Then you've got, and the general merchandise stores are quite big, they're normally at
(06:45):
five levels, five stories.
They've got food and those sorts of things at the bottom floor.
And then on other floors, they'll have fashion, apparel and other types of products.
Okay.
You've got about 60 or 70 supermarket chains.
Chains, not stores.
(07:07):
Not shops.
Not shops, chains.
You've got a convenience store channel, which is very big.
So you've got 7-Eleven, which is the biggest convenience store chain with about 18,000
outlets.
You've got Lawson, which has got about 14,000.
(07:28):
You've got Family Mart.
Then you've got others as well.
Okay.
And then you've got small shops nearby, so you can describe it like that.
So Japan is a highly urbanized society.
Okay.
So about 80% of the people and the population is living in urban areas now.
(07:52):
Okay.
And because the country is very mountainous, 80% of Japan is mountains, okay, and pretty
steep mountains.
So living in the mountains, the mountains, to be honest with you, are quite empty.
Now, by the way, this is also another product category where Ukrainians...
(08:13):
Because I know that you've got cold winters in Ukraine as well.
We have cold winters here.
Yeah, and mountains as well, yeah.
Right.
And so one of the categories where foreign products have done well is in outdoor gear
or that sort of thing, because they've got knowledge.
They've got a unique selling proposition.
So the cities are very dense, okay?
(08:36):
Your average family in Tokyo is living in 70 or 80 square meters, if not less.
So the storage space in houses is very small.
Fridges are small.
So therefore, people go shopping several times a week, if not daily.
Okay.
So convenience stores are very useful because they are mainly in city centers in the suburbs.
(09:03):
And they're a very convenient sort of top-up place.
But getting distribution in convenience stores is really hard.
It's really hard even for Japanese companies.
These chains are very disciplined.
They change layouts continuously, continuously.
So even the biggest consumer products companies would be lucky if they got three or four SKUs
(09:28):
listed in a convenience store.
But getting visibility in a convenience store is very...
If you can do it, it's great brand visibility for you.
You've got a drugstore channel, which is, of course, relevant for health products, cosmetics.
By the way, cosmetics is a very big area where foreign companies have done well historically
(09:54):
in Japan.
Beauty products, those sorts of things.
A lot of drugstores sell food products and beverages now.
There's probably about 35,000 drugstores here.
And there's a number of big chains.
You've got an import channel.
(10:19):
So you've got some retailers who specialize just in import.
So for example, there's a coffee company called Calde.
And Calde has a lot of coffee.
Of course, coffee is not grown in Japan because it's tropical.
By the way, Japan is a net importer of food.
(10:40):
Most people don't know that.
I know that Ukraine is a breadbasket of Europe in terms of wheat and barley and those sorts
of things.
Yeah.
So you've got a lot of raw materials.
Japan lacks a lot of basic raw materials because of these mountains, you see.
They don't have a lot of land for growing crops.
(11:01):
So they tended historically to import a lot of raw materials, and still do, and then processed
here.
Which for you, for Ukrainian companies, because there's kind of like three channels that you
could think about.
One is, of course, a retail channel, which is the question that you asked me.
There's also a very, very big food service channel.
(11:24):
You think about all of these restaurants, hotels, QSR.
Horika.
Horika is huge, absolutely huge.
And then there's another channel, which is an industrial channel, because there's a lot
of food and there's a lot of manufacturing here.
And they buy ingredients and a lot of imported ingredients.
(11:47):
And for new entrants, because the Japanese consumer is very difficult to understand,
very fussy, very spoiled, honestly, very high attention to detail.
Achieving those standards can be a challenge.
And so working with another food company or another consumer products company is a way
(12:09):
to get significant volume and also help them on supplying some of the ingredients that
go into some of their retail products.
It's a very interesting route to market opportunity.
What about the private label?
Is it common to enter where this...
(12:29):
It's a good question.
So private label is not as big in Japan as in Europe, but it is not small either.
So for example, Eon, which I mentioned a minute ago as the biggest retail chain, they have
their own brand called Top Value.
Some of the convenience stores also do what they call double chop.
(12:53):
So they've got a brand which is a product which is branded, say, 7-Eleven with a manufacturer
brand as well.
There's also another channel here called...
And I'm kind of going into sort of toiletry and cosmetics here.
There's a lot of what we call 100 yen shops.
(13:16):
So a coin, a 100 yen coin.
Is this like one euro shop in Europe?
Exactly.
One euro shop, one dollar shop, whatever.
And these companies have a lot of private label products and manufacturers who manufacture
just for them.
But they're big.
(13:37):
There's hundreds of these and they're chains, they're big chains.
You've got, as I was mentioning before, you've got import supermarket chains.
So you've got people like Kaldi, you've got Seijo Ishii, which is a premium chain, incidentally
owned by Lawson, the convenience store group.
(13:57):
You've got Jupiter.
You've got here in Osaka, we've got a chain called Hankyu Oasis.
Again, there's probably about a thousand import shops as part of these different chains where
people are buying products that they find in Europe or they find in the United States.
(14:19):
They tend to be well-known brands and they're imported as is with just like a Japanese overstick
or whatever and sold in those stores.
You've also got Costco, which has become very big in Japan.
This is Costco's fourth biggest market in the world.
(14:42):
It's an American company, yes.
It is an American chain.
Costco's is a wholesale, well, it says it's a warehouse chain.
It says that it's, well, basically you buy a membership and you pay 4,800 yen a year
to have a Costco membership.
So about, well, roughly speaking, 35 euros, something like that.
(15:06):
As a consumer, yes.
As a consumer, I've got a Costco card and basically I can go and a lot of products in
Costco are foreign products.
And Costco also trades direct.
This is also a very important difference.
Because, going back to what I said earlier, supermarkets, they don't actually have a lot
(15:32):
of storage space because land's really historically been really expensive here because it's condensed.
That's why people are living in small houses.
So the delivery system is contracted out to third party logistics companies or wholesalers
who are often co-owned by a trading house who might also co-own a retail chain.
(16:01):
So of course you can see some integration, vertical integration.
But what that means is it means that deliveries happen very, very frequently, daily.
In fact, for the convenience stores, sometimes several times a day.
So that has implications.
(16:21):
Historically, manufacturers were told to trade through these Shoshas and through these wholesalers.
But of course there's margin there, cost.
And Costco said, no, we're not going to do that.
We're going to go for direct trading.
And historically, the Japanese companies didn't want to do that.
The Japanese manufacturers didn't want to do that, but they've had to change.
(16:43):
And Eon now is doing some direct trading.
So it is possible to have a direct trading relationship with some retailers.
And I've got a chocolate client, Swiss chocolate client.
He's selling 150 containers a year to Costco.
(17:03):
So that in itself is substantial.
So again, it comes back to where to play.
Where do I decide to focus in this morass of retailers?
And that is really driven by what category you're going to focus on, which is very important
(17:30):
because there's some categories which are harder for foreign companies to succeed here
than others.
There are some categories where the consumer is more open to foreign products, in my opinion.
Good.
Can we come back to the retail structure a bit and talk about the online?
(17:51):
Is it big in Japan?
How do you trace this direction or channel?
So online is huge.
So you've got a number of different players in online.
You've got Amazon.
Amazon Japan has got about 16 warehouses here.
(18:12):
It's a huge organization, Amazon Japan.
You've got a Japanese company called Rakuten, which means literally translated as fun heaven.
If you look at the kanji, you've also got Yahoo shopping.
(18:32):
So the penetration of online varies by category.
So in categories like electronics, online penetration is over about 30% of electronic
products are sold online.
If you look at how much ice cream is sold online, it's less than 5%.
(18:57):
So the importance of online varies from category to category.
I think what we can say is that most online sales are for consumers who have already bought
a product once already.
(19:17):
People here like to see and try and touch before they buy, which is coming back to the
channel and I missed an important channel for you a second ago is department stores.
So there's about 350 department stores here.
(19:42):
Very premium, wonderful food displays.
The most enticing food displays that you will see in the world on the basement.
Quite a lot of department stores have got shopping shops.
So as a brand, you can basically hire space and build your own shopping shop in a department
(20:04):
store.
So certain premium brands, cheeses, those sorts of things.
By the way, there's a lot of imported cheese here.
Have built kind of like these display shops within department stores and it's a very good
way to build branding and to get trial.
(20:28):
And visibility.
Absolutely.
Because as with every country, the biggest challenge for new brand, this applies in Ukraine
as much as it does here is trial.
How do I get the consumer to try my product?
And then how do I get them to come back again?
(20:48):
Now e-commerce tends not to be a good way to get trial because people can only see something
on the screen.
They can't touch it.
They can't feel it.
So it's useful to have like some physical offline presence as a place to showcase your
(21:09):
brand and then to start to build awareness for it.
And then you can direct people to online and so on for purchase.
One of the great things we've got here is something called Kuroneko.
Kuroneko means black cat in Japanese.
And Kuroneko Yamato is a name of a company.
(21:34):
It's a black cat trading company.
Basically they will deliver product anywhere in Japan within 24 hours, which given, well,
it depends if it's Tokyo Osaka, definitely 24 hours.
Hokkaido is a bit longer because it's further away.
It's usually a bit longer.
(21:55):
But I can order product from a shop in Tokyo online and it will be delivered here to me
tomorrow in Osaka 500 kilometers away.
Even at Shild product, a frozen product.
Is it common that this retail stores have own online stores?
Yes.
Almost.
Most retailers will have their own online portals.
(22:17):
Absolutely.
But the physical fulfillment of that is done through people like Kuroneko or possibly Amazon
depending upon, because Amazon has also got this third party seller network, et cetera,
et cetera.
What about the vending machines?
I saw that this is kind of a big direction in Japan.
(22:37):
Well, historically, well, the vending machines is similar in concept to the way that we used
to run pubs in the UK.
Okay.
So basically in Britain, historically pubs were owned by brewers.
Okay.
And so they were like a closed sale system.
(23:00):
And vending machines are owned and run by the large drinks companies, Kirin, Coca Cola,
Suntory.
Actually, the biggest in vending machines is Coca Cola.
They have over a million of them.
So there are a lot of vending machines.
(23:22):
Getting into a vending machine for a competitive brand is almost impossible because Coke won't
take a competitive brand.
Kirin won't take a competitive brand unless they have the distribution rights for that
brand, in which case you may get it in.
But then there's only a certain number of facings in the vending machine.
(23:43):
Again, this comes back to the complexity of this market.
For most consumer products categories, there are thousands of SKUs, literally thousands.
If you look at Nielsen data or you look at any of the retail audit data, you will see
thousands of SKUs.
So the complexity is huge.
(24:05):
And the failure rate, whether it is for a foreign company or for a Japanese company,
is really high.
So about 95% of SKUs are gone within a few months.
Yes.
It's like a startup world statistic.
Correct.
So again, this is why it's really important to decide where to play and to decide what
(24:32):
am I really good at and am I really delivering something which meets a very strong need.
But you don't have to target everybody.
Trying to appeal to everybody is also impossible.
Can we talk about that?
So what is the proper way to enter the retail network chain or shop for foreign products?
(24:55):
So kind of a roadmap.
So if you are a foreign producer looking to enter the Japanese market, what steps should
be done to do it in a systematic and successful way?
So I think starting with the retail network is not the right place to start.
So I think first of all, you've got to think about which category am I playing in.
(25:18):
Now, as I said or alluded to, there are certain product categories where there is a greater
presence of foreign brands.
So pasta, olive oil, wine, cosmetics, some confectionary products, some fashion products,
(25:40):
outdoor clothing, skis, some cars.
Okay, the vast majority of cars sold here are Japanese cars, but we're talking about
a huge market and people like BMW and Mercedes and Tesla are quite popular.
So you don't have to sell to everybody, but you can still have a big business.
(26:02):
So I think the first question you need to work on is coffee is largely dominated by
foreign companies.
Coffee machines are largely sold by foreign companies, for example.
So I think the first question to think about is where to play with what category.
So are we working in a category where the consumer is intrinsically open to a foreign
(26:26):
brand?
Am I going to convince the Japanese consumer to buy Ukrainian or British or American rice?
Good luck, it's not going to happen.
But there are certain product categories where the Japanese consumer is going to say, well,
actually, the foreign products are likely to be better and superior.
Okay, so you want to play in those categories.
Then what you want to think about is you want to understand really some of the market dynamics
(26:51):
of those categories, who are the key competitors, what are the key attributes, physical attributes
and emotional attributes of those brands.
And then we have to do some testing of the consumer product, both conceptually and physically.
Okay.
So it is not yet about the channel even, it is about the consumer and whether the consumer
(27:15):
will accept this product locally.
Absolutely, because it's then about the consumer proposition and who am I going to target with
that proposition.
And if I can tick those boxes, I can be sure that I'm in a category where they're open
to foreign brands, my proposition hangs up, it's got appeal, and it's different from what
(27:38):
are the competitive products, then I can talk to those consumers and I can ask them, where
would you expect to buy these products?
And they're going to tell me, they're going to tell me, okay, well, I might expect to
buy them online, I might expect to buy them in the convenience store, I might expect to
buy them in the department store, I might expect to buy them in the supermarket, or
we might want to get more refined and say, okay, if I was in Tokyo, where would you want
(28:01):
to buy these products versus in Osaka, where are the way to buy these products?
So why a consumer, you understand the channel.
Yes.
So you basically let the consumer tell you, where am I going to focus?
And then you use that to decide what is going to be my channel strategy.
You said that you need to test the product.
(28:21):
Can we come back to that?
So how do you do it?
In my approach, when we are talking about Europe, for example, we are looking for local
players in the channel, like, for example, distributors that have this connection to
the consumer.
And we are testing the product with distributor.
So we are just sending them the sample and distributor says, with his expertise, whether
(28:44):
this product will match or not the consumers they serve.
And you are telling that we need to go to the consumer in Japan.
Absolutely.
And we don't have office in Japan, how to do that?
Well, so you then have to ask yourself the question of, is it worth me?
This is not, Japan is not an easy market.
It's not.
(29:05):
And to be honest with you, we tend to tell companies, if you haven't sold to any other
export market first, and you haven't got a significant business, then maybe Japan is
too hard for you, because you are going to have to do a lot of homework coming here.
And that's going to cost money.
If you just think you're going to sell what I call vanilla product, I don't literally
(29:29):
mean vanilla.
I mean, product as it is, without adjusting size or packaging, it may work, but it may
not.
But going back to testing, I mean, if I was doing chocolate bars, or I was doing alcohol,
by the way, alcohol is another category.
There's quite a few foreign products in alcohol, spirits, especially wine, vodka.
(29:52):
Okay.
I know that's Russia, but I shouldn't say that.
But we call it hurilka.
Right.
But I'm just giving you an example.
These sorts of products.
I mean, you can get Japanese vodka, but people don't think it's as good as the foreign stuff.
Right.
So, you'd then want to do some testing with users of vodka.
(30:18):
How does my product stand up in terms of aroma, in terms of taste, in terms of aftertaste?
But then you'd also want to test the proposition.
What's the brand?
What does it stand for?
How does it compare to some of the other competitive vodkas and also other spirits on the market?
You have to test those things.
(30:39):
You need to make a store check, so you need to see how the other brands work.
Of course, you're going to do a store check, but you're going to actually interview some
consumers with focus groups.
Do I position this as a Ukrainian vodka?
Do I position it as a Kiev product?
Or do I say it's got nothing to do with Ukraine, but it's got something to do with the wheat
(31:00):
and where it comes from or something else altogether?
There's so many different ways that I could position the product.
We have to decide what is the way that it's most relevant for vodka users in Japan.
We can't guess that.
We don't believe in guessing.
Because guessing is expensive.
(31:22):
I guess it is expensive.
In a lot of ways, to be honest with you, if you ask a distributor, they guess.
That is what happens here.
They will guess because they don't know because they don't do that sort of research.
But then you're going to invest all of your packaging in some one person.
One person's opinion, highly risky.
(31:45):
Because at the end of the day, you are going to have to invest in marketing.
Even once you have found the right sales channels, you are going to have to invest in sales materials,
point-to-sale materials.
You're going to have to have a website.
You're going to have to have social media and so on and so on and so on, just as you
(32:07):
would in Ukraine or any other market.
Distributors do not take it on themselves.
You need to support that.
Of course not.
No.
To be honest with you, most distributors in Japan are basically wholesalers.
Transport and storing.
They transport and store and they like brands that are well known.
(32:29):
They are not very good at promoting new products, which is why a new entrant has to take much
greater control over that.
Which is why I'm saying thinking about department stores, thinking about shop in shop, that
sort of thing, where you have direct control.
(32:49):
You can control how your brand appears, what point-to-sale material, what sampling is done,
et cetera, et cetera.
Clear.
Clear.
You have listened to the first part of the interview with Rupert Sutton, the expert with
decades of experience in the Japanese market.
And in the next part, we will discuss with Rupert how to enter the described channels.
(33:14):
So not to miss the next episode, please subscribe to the Start Global Insights on all major
platforms for podcasts, including Spotify, YouTube, and Apple Podcasts.
Hi, I'm Dmytro Shvets, your host at The Start Global Insights, where I interview experts
(00:11):
from different countries about local business secrets and international expansion experience.
Today we will talk again about mysterious and faraway country that is called Japan,
and this time my guest is Rupert Sutton.
He is a director and partner at Weben Partners, a consulting company.
(00:32):
Rupert has more than 30 years of experience in working in consulting, marketing, and sales
in Asia and Europe, with the biggest part of it of living and working in Japan.
And I hope that today Rupert will share all his experience of doing business with this
country.
And welcome to the show, Rupert.
(00:52):
Thank you very much for having me.
Thank you very much for having me.
It's a pleasure to be here.
Thank you for agreeing to share your experience, and this is very valuable for me and for our
listeners.
Could you tell shortly about your activities in Japan?
How did you end up in this country?
So you are originally from UK, yeah?
(01:13):
Correct.
So I'm originally from the UK.
So when I left university, I joined Nestle UK, and I worked in the UK for six years in
marketing and sales and market research.
And I wanted to go overseas.
And when I was 28, Nestle sent me to Japan.
Nestle Japan is a very large organization here.
(01:35):
It has over 2 billion US dollars in sales, coming really from three products only coffee,
confectionary, or should I say KitKat, and also Petcare.
And this is something that I kind of want to, it's going to be a theme in terms of maybe
some of the messages that I give today.
(01:56):
Succeeding in Japan is about being an expert.
It's not trying to do everything.
It's trying to be really focused and being a real expert in what you do.
And ironically, by being focused, you can be very successful here.
Trying to do everything, lots of products, lots of different things is probably not the
(02:19):
way to succeed here because it's too complex.
So I worked for Nestle in Japan in total for about eight or nine years.
I also worked for Nestle in Malaysia.
And then I set up my own company, Weave and Partners.
And since then, we've worked with a very large number of consumer products, what we call
(02:42):
FMCG, OTC, meaning over the counter medicines, some pharma companies, and also some distributors,
basically on three types of projects.
Insights about customers, consumers, shoppers, channels, competitors, very important.
(03:03):
It's very important to have a map, a conceptual map of where to play.
We also work with clients on strategy, especially to do with branding, brand portfolio, product
development, innovation, and also what we call route to market.
(03:26):
And I would say route to market is probably the biggest problem that most foreign companies
have.
And the typical problem manifests itself in people say, well, I can't find my product.
I can't see it.
The visibility is very poor.
The pricing is wrong.
I don't think my partner is motivated.
(03:48):
I think I'm in bed with the wrong partner.
The partner takes too much margin.
There's a whole string of problems regarding route to market.
And the third type of project we work on is capability, capability development for consumer
products companies.
So it's things like shop and marketing, it's things like distributor management, key account
(04:11):
management, those sorts of things.
I live in Japan.
I'm recording this from Osaka.
So that's Japan's second biggest city.
I've also lived in Tokyo.
Actually, I think it's an advantage not to live in Tokyo.
Many people come to Japan and immediately go to Tokyo.
(04:33):
The capital city is always the most competitive.
It's always the most, the hardest.
Some of the other cities here are big.
I mean, Osaka, we have eight to 9 million people.
So it's not small by any stretch of the imagination.
But there are some differences between the cities.
(04:56):
And it's again, part of where to play.
It's about making strategic choices about where to focus on.
You need to be really concentrated because it looks like, for many people, Japan looks
like a small country.
Yeah, it's some islands far away and very closed, but it is 125 million people living
(05:17):
there.
Yeah, so it is very big market.
And in addition to that, we have at the moment about 20 million foreign tourist arrivals
coming into Japan.
And this is also 20 million visitors a year.
It's a big, big number.
(05:37):
The airports are absolutely chock-a-block full of visitors coming to Japan.
And this is, and they spend, the tourists spend a lot of money here.
And they become a very important part, important target for companies as well and brands.
(05:59):
And it's something also for Ukrainian companies to think very carefully about.
Again, it comes about where to play.
Can we talk about the retail structure?
What are the main players or channels?
How does it look like in Japan?
So it's complex.
Okay, so let's talk about the main channels.
(06:24):
So you've got what we call GMS, General Merchandise Stores.
So you've got chains like Eon Group and you've got Seven and I Holdings, which has got a
big chain called Ito Yokodo.
Okay.
Then you've got, and the general merchandise stores are quite big, they're normally at
(06:45):
five levels, five stories.
They've got food and those sorts of things at the bottom floor.
And then on other floors, they'll have fashion, apparel and other types of products.
Okay.
You've got about 60 or 70 supermarket chains.
Chains, not stores.
(07:07):
Not shops.
Not shops, chains.
You've got a convenience store channel, which is very big.
So you've got 7-Eleven, which is the biggest convenience store chain with about 18,000
outlets.
You've got Lawson, which has got about 14,000.
(07:28):
You've got Family Mart.
Then you've got others as well.
Okay.
And then you've got small shops nearby, so you can describe it like that.
So Japan is a highly urbanized society.
Okay.
So about 80% of the people and the population is living in urban areas now.
(07:52):
Okay.
And because the country is very mountainous, 80% of Japan is mountains, okay, and pretty
steep mountains.
So living in the mountains, the mountains, to be honest with you, are quite empty.
Now, by the way, this is also another product category where Ukrainians...
(08:13):
Because I know that you've got cold winters in Ukraine as well.
We have cold winters here.
Yeah, and mountains as well, yeah.
Right.
And so one of the categories where foreign products have done well is in outdoor gear
or that sort of thing, because they've got knowledge.
They've got a unique selling proposition.
So the cities are very dense, okay?
(08:36):
Your average family in Tokyo is living in 70 or 80 square meters, if not less.
So the storage space in houses is very small.
Fridges are small.
So therefore, people go shopping several times a week, if not daily.
Okay.
So convenience stores are very useful because they are mainly in city centers in the suburbs.
(09:03):
And they're a very convenient sort of top-up place.
But getting distribution in convenience stores is really hard.
It's really hard even for Japanese companies.
These chains are very disciplined.
They change layouts continuously, continuously.
So even the biggest consumer products companies would be lucky if they got three or four SKUs
(09:28):
listed in a convenience store.
But getting visibility in a convenience store is very...
If you can do it, it's great brand visibility for you.
You've got a drugstore channel, which is, of course, relevant for health products, cosmetics.
By the way, cosmetics is a very big area where foreign companies have done well historically
(09:54):
in Japan.
Beauty products, those sorts of things.
A lot of drugstores sell food products and beverages now.
There's probably about 35,000 drugstores here.
And there's a number of big chains.
You've got an import channel.
(10:19):
So you've got some retailers who specialize just in import.
So for example, there's a coffee company called Calde.
And Calde has a lot of coffee.
Of course, coffee is not grown in Japan because it's tropical.
By the way, Japan is a net importer of food.
(10:40):
Most people don't know that.
I know that Ukraine is a breadbasket of Europe in terms of wheat and barley and those sorts
of things.
Yeah.
So you've got a lot of raw materials.
Japan lacks a lot of basic raw materials because of these mountains, you see.
They don't have a lot of land for growing crops.
(11:01):
So they tended historically to import a lot of raw materials, and still do, and then processed
here.
Which for you, for Ukrainian companies, because there's kind of like three channels that you
could think about.
One is, of course, a retail channel, which is the question that you asked me.
There's also a very, very big food service channel.
(11:24):
You think about all of these restaurants, hotels, QSR.
Horika.
Horika is huge, absolutely huge.
And then there's another channel, which is an industrial channel, because there's a lot
of food and there's a lot of manufacturing here.
And they buy ingredients and a lot of imported ingredients.
(11:47):
And for new entrants, because the Japanese consumer is very difficult to understand,
very fussy, very spoiled, honestly, very high attention to detail.
Achieving those standards can be a challenge.
And so working with another food company or another consumer products company is a way
(12:09):
to get significant volume and also help them on supplying some of the ingredients that
go into some of their retail products.
It's a very interesting route to market opportunity.
What about the private label?
Is it common to enter where this...
(12:29):
It's a good question.
So private label is not as big in Japan as in Europe, but it is not small either.
So for example, Eon, which I mentioned a minute ago as the biggest retail chain, they have
their own brand called Top Value.
Some of the convenience stores also do what they call double chop.
(12:53):
So they've got a brand which is a product which is branded, say, 7-Eleven with a manufacturer
brand as well.
There's also another channel here called...
And I'm kind of going into sort of toiletry and cosmetics here.
There's a lot of what we call 100 yen shops.
(13:16):
So a coin, a 100 yen coin.
Is this like one euro shop in Europe?
Exactly.
One euro shop, one dollar shop, whatever.
And these companies have a lot of private label products and manufacturers who manufacture
just for them.
But they're big.
(13:37):
There's hundreds of these and they're chains, they're big chains.
You've got, as I was mentioning before, you've got import supermarket chains.
So you've got people like Kaldi, you've got Seijo Ishii, which is a premium chain, incidentally
owned by Lawson, the convenience store group.
(13:57):
You've got Jupiter.
You've got here in Osaka, we've got a chain called Hankyu Oasis.
Again, there's probably about a thousand import shops as part of these different chains where
people are buying products that they find in Europe or they find in the United States.
(14:19):
They tend to be well-known brands and they're imported as is with just like a Japanese overstick
or whatever and sold in those stores.
You've also got Costco, which has become very big in Japan.
This is Costco's fourth biggest market in the world.
(14:42):
It's an American company, yes.
It is an American chain.
Costco's is a wholesale, well, it says it's a warehouse chain.
It says that it's, well, basically you buy a membership and you pay 4,800 yen a year
to have a Costco membership.
So about, well, roughly speaking, 35 euros, something like that.
(15:06):
As a consumer, yes.
As a consumer, I've got a Costco card and basically I can go and a lot of products in
Costco are foreign products.
And Costco also trades direct.
This is also a very important difference.
Because, going back to what I said earlier, supermarkets, they don't actually have a lot
(15:32):
of storage space because land's really historically been really expensive here because it's condensed.
That's why people are living in small houses.
So the delivery system is contracted out to third party logistics companies or wholesalers
who are often co-owned by a trading house who might also co-own a retail chain.
(16:01):
So of course you can see some integration, vertical integration.
But what that means is it means that deliveries happen very, very frequently, daily.
In fact, for the convenience stores, sometimes several times a day.
So that has implications.
(16:21):
Historically, manufacturers were told to trade through these Shoshas and through these wholesalers.
But of course there's margin there, cost.
And Costco said, no, we're not going to do that.
We're going to go for direct trading.
And historically, the Japanese companies didn't want to do that.
The Japanese manufacturers didn't want to do that, but they've had to change.
(16:43):
And Eon now is doing some direct trading.
So it is possible to have a direct trading relationship with some retailers.
And I've got a chocolate client, Swiss chocolate client.
He's selling 150 containers a year to Costco.
(17:03):
So that in itself is substantial.
So again, it comes back to where to play.
Where do I decide to focus in this morass of retailers?
And that is really driven by what category you're going to focus on, which is very important
(17:30):
because there's some categories which are harder for foreign companies to succeed here
than others.
There are some categories where the consumer is more open to foreign products, in my opinion.
Good.
Can we come back to the retail structure a bit and talk about the online?
(17:51):
Is it big in Japan?
How do you trace this direction or channel?
So online is huge.
So you've got a number of different players in online.
You've got Amazon.
Amazon Japan has got about 16 warehouses here.
(18:12):
It's a huge organization, Amazon Japan.
You've got a Japanese company called Rakuten, which means literally translated as fun heaven.
If you look at the kanji, you've also got Yahoo shopping.
(18:32):
So the penetration of online varies by category.
So in categories like electronics, online penetration is over about 30% of electronic
products are sold online.
If you look at how much ice cream is sold online, it's less than 5%.
(18:57):
So the importance of online varies from category to category.
I think what we can say is that most online sales are for consumers who have already bought
a product once already.
(19:17):
People here like to see and try and touch before they buy, which is coming back to the
channel and I missed an important channel for you a second ago is department stores.
So there's about 350 department stores here.
(19:42):
Very premium, wonderful food displays.
The most enticing food displays that you will see in the world on the basement.
Quite a lot of department stores have got shopping shops.
So as a brand, you can basically hire space and build your own shopping shop in a department
(20:04):
store.
So certain premium brands, cheeses, those sorts of things.
By the way, there's a lot of imported cheese here.
Have built kind of like these display shops within department stores and it's a very good
way to build branding and to get trial.
(20:28):
And visibility.
Absolutely.
Because as with every country, the biggest challenge for new brand, this applies in Ukraine
as much as it does here is trial.
How do I get the consumer to try my product?
And then how do I get them to come back again?
(20:48):
Now e-commerce tends not to be a good way to get trial because people can only see something
on the screen.
They can't touch it.
They can't feel it.
So it's useful to have like some physical offline presence as a place to showcase your
(21:09):
brand and then to start to build awareness for it.
And then you can direct people to online and so on for purchase.
One of the great things we've got here is something called Kuroneko.
Kuroneko means black cat in Japanese.
And Kuroneko Yamato is a name of a company.
(21:34):
It's a black cat trading company.
Basically they will deliver product anywhere in Japan within 24 hours, which given, well,
it depends if it's Tokyo Osaka, definitely 24 hours.
Hokkaido is a bit longer because it's further away.
It's usually a bit longer.
(21:55):
But I can order product from a shop in Tokyo online and it will be delivered here to me
tomorrow in Osaka 500 kilometers away.
Even at Shild product, a frozen product.
Is it common that this retail stores have own online stores?
Yes.
Almost.
Most retailers will have their own online portals.
(22:17):
Absolutely.
But the physical fulfillment of that is done through people like Kuroneko or possibly Amazon
depending upon, because Amazon has also got this third party seller network, et cetera,
et cetera.
What about the vending machines?
I saw that this is kind of a big direction in Japan.
(22:37):
Well, historically, well, the vending machines is similar in concept to the way that we used
to run pubs in the UK.
Okay.
So basically in Britain, historically pubs were owned by brewers.
Okay.
And so they were like a closed sale system.
(23:00):
And vending machines are owned and run by the large drinks companies, Kirin, Coca Cola,
Suntory.
Actually, the biggest in vending machines is Coca Cola.
They have over a million of them.
So there are a lot of vending machines.
(23:22):
Getting into a vending machine for a competitive brand is almost impossible because Coke won't
take a competitive brand.
Kirin won't take a competitive brand unless they have the distribution rights for that
brand, in which case you may get it in.
But then there's only a certain number of facings in the vending machine.
(23:43):
Again, this comes back to the complexity of this market.
For most consumer products categories, there are thousands of SKUs, literally thousands.
If you look at Nielsen data or you look at any of the retail audit data, you will see
thousands of SKUs.
So the complexity is huge.
(24:05):
And the failure rate, whether it is for a foreign company or for a Japanese company,
is really high.
So about 95% of SKUs are gone within a few months.
Yes.
It's like a startup world statistic.
Correct.
So again, this is why it's really important to decide where to play and to decide what
(24:32):
am I really good at and am I really delivering something which meets a very strong need.
But you don't have to target everybody.
Trying to appeal to everybody is also impossible.
Can we talk about that?
So what is the proper way to enter the retail network chain or shop for foreign products?
(24:55):
So kind of a roadmap.
So if you are a foreign producer looking to enter the Japanese market, what steps should
be done to do it in a systematic and successful way?
So I think starting with the retail network is not the right place to start.
So I think first of all, you've got to think about which category am I playing in.
(25:18):
Now, as I said or alluded to, there are certain product categories where there is a greater
presence of foreign brands.
So pasta, olive oil, wine, cosmetics, some confectionary products, some fashion products,
(25:40):
outdoor clothing, skis, some cars.
Okay, the vast majority of cars sold here are Japanese cars, but we're talking about
a huge market and people like BMW and Mercedes and Tesla are quite popular.
So you don't have to sell to everybody, but you can still have a big business.
(26:02):
So I think the first question you need to work on is coffee is largely dominated by
foreign companies.
Coffee machines are largely sold by foreign companies, for example.
So I think the first question to think about is where to play with what category.
So are we working in a category where the consumer is intrinsically open to a foreign
(26:26):
brand?
Am I going to convince the Japanese consumer to buy Ukrainian or British or American rice?
Good luck, it's not going to happen.
But there are certain product categories where the Japanese consumer is going to say, well,
actually, the foreign products are likely to be better and superior.
Okay, so you want to play in those categories.
Then what you want to think about is you want to understand really some of the market dynamics
(26:51):
of those categories, who are the key competitors, what are the key attributes, physical attributes
and emotional attributes of those brands.
And then we have to do some testing of the consumer product, both conceptually and physically.
Okay.
So it is not yet about the channel even, it is about the consumer and whether the consumer
(27:15):
will accept this product locally.
Absolutely, because it's then about the consumer proposition and who am I going to target with
that proposition.
And if I can tick those boxes, I can be sure that I'm in a category where they're open
to foreign brands, my proposition hangs up, it's got appeal, and it's different from what
(27:38):
are the competitive products, then I can talk to those consumers and I can ask them, where
would you expect to buy these products?
And they're going to tell me, they're going to tell me, okay, well, I might expect to
buy them online, I might expect to buy them in the convenience store, I might expect to
buy them in the department store, I might expect to buy them in the supermarket, or
we might want to get more refined and say, okay, if I was in Tokyo, where would you want
(28:01):
to buy these products versus in Osaka, where are the way to buy these products?
So why a consumer, you understand the channel.
Yes.
So you basically let the consumer tell you, where am I going to focus?
And then you use that to decide what is going to be my channel strategy.
You said that you need to test the product.
(28:21):
Can we come back to that?
So how do you do it?
In my approach, when we are talking about Europe, for example, we are looking for local
players in the channel, like, for example, distributors that have this connection to
the consumer.
And we are testing the product with distributor.
So we are just sending them the sample and distributor says, with his expertise, whether
(28:44):
this product will match or not the consumers they serve.
And you are telling that we need to go to the consumer in Japan.
Absolutely.
And we don't have office in Japan, how to do that?
Well, so you then have to ask yourself the question of, is it worth me?
This is not, Japan is not an easy market.
It's not.
(29:05):
And to be honest with you, we tend to tell companies, if you haven't sold to any other
export market first, and you haven't got a significant business, then maybe Japan is
too hard for you, because you are going to have to do a lot of homework coming here.
And that's going to cost money.
If you just think you're going to sell what I call vanilla product, I don't literally
(29:29):
mean vanilla.
I mean, product as it is, without adjusting size or packaging, it may work, but it may
not.
But going back to testing, I mean, if I was doing chocolate bars, or I was doing alcohol,
by the way, alcohol is another category.
There's quite a few foreign products in alcohol, spirits, especially wine, vodka.
(29:52):
Okay.
I know that's Russia, but I shouldn't say that.
But we call it hurilka.
Right.
But I'm just giving you an example.
These sorts of products.
I mean, you can get Japanese vodka, but people don't think it's as good as the foreign stuff.
Right.
So, you'd then want to do some testing with users of vodka.
(30:18):
How does my product stand up in terms of aroma, in terms of taste, in terms of aftertaste?
But then you'd also want to test the proposition.
What's the brand?
What does it stand for?
How does it compare to some of the other competitive vodkas and also other spirits on the market?
You have to test those things.
(30:39):
You need to make a store check, so you need to see how the other brands work.
Of course, you're going to do a store check, but you're going to actually interview some
consumers with focus groups.
Do I position this as a Ukrainian vodka?
Do I position it as a Kiev product?
Or do I say it's got nothing to do with Ukraine, but it's got something to do with the wheat
(31:00):
and where it comes from or something else altogether?
There's so many different ways that I could position the product.
We have to decide what is the way that it's most relevant for vodka users in Japan.
We can't guess that.
We don't believe in guessing.
Because guessing is expensive.
(31:22):
I guess it is expensive.
In a lot of ways, to be honest with you, if you ask a distributor, they guess.
That is what happens here.
They will guess because they don't know because they don't do that sort of research.
But then you're going to invest all of your packaging in some one person.
One person's opinion, highly risky.
(31:45):
Because at the end of the day, you are going to have to invest in marketing.
Even once you have found the right sales channels, you are going to have to invest in sales materials,
point-to-sale materials.
You're going to have to have a website.
You're going to have to have social media and so on and so on and so on, just as you
(32:07):
would in Ukraine or any other market.
Distributors do not take it on themselves.
You need to support that.
Of course not.
No.
To be honest with you, most distributors in Japan are basically wholesalers.
Transport and storing.
They transport and store and they like brands that are well known.
(32:29):
They are not very good at promoting new products, which is why a new entrant has to take much
greater control over that.
Which is why I'm saying thinking about department stores, thinking about shop in shop, that
sort of thing, where you have direct control.
(32:49):
You can control how your brand appears, what point-to-sale material, what sampling is done,
et cetera, et cetera.
Clear.
Clear.
You have listened to the first part of the interview with Rupert Sutton, the expert with
decades of experience in the Japanese market.
And in the next part, we will discuss with Rupert how to enter the described channels.
(33:14):
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platforms for podcasts, including Spotify, YouTube, and Apple Podcasts.
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