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An initial examination of the Japanese food market reveals that there are several potential export segments including food processors, supermarkets, convenience stores, and the foodservice industry. The Japanese foodservice industry is an attractive segment because it offers a market for both processed and semi-processed goods, thereby falling in line with Alberta's goal of increasing value-added exports. It is also more attractive than the CVS segment because of a much smaller number of product turnovers, making it a more durable business opportunity. There is also a wider range of opportunity because of the need for processed vegetables and oils, processed beef and processed pork.
Within the foodservice industry, the market for Alberta products can be divided into fast food, Japanese taverns, family restaurants, dinner restaurants and cafeterias. Of these categories, family restaurants are one of the strongest potential markets because of the need for a variety of products – not limited to hamburger patties and french fries. However, family restaurants have struggled to maintain sales growth in a period of significant downturn for the industry as a whole. Like much of the food market in Japan, there is continued pressure to reduce costs while maintaining high quality standards. And, in order to attract customers in the face of strong competitive influences, product differentiation and creative product planning are at the forefront of business strategy.
When compared to other food-producing countries such as the United States, Australia and New Zealand, Canadian products have a minimal presence in the Japanese foodservice industry. Of particular note is the strong marketing presence of beef products from the U.S., Australia and New Zealand, as well as U.S. pork products. The meat exporting bodies of these countries have paid promotional fees to have quality assurances promoted in family restaurant menus and have significant promotion presence at industry trade events. The strong 'natural' image that Canada holds in the minds of Japanese people presents an excellent opportunity to expand exports in a mostly untapped segment.
In assessing strategic opportunities in the Japanese foodservice industry, it is important to study how food materials are used and how the final product is presented. More importantly, it is necessary to understand how new menu items are developed and how input materials are procured. Thus to enhance strategic selling opportunities, Japanese buying practices and systems must be clearly outlined and examined.
This training section took place in a major Japanese foodservice company over a period of seven weeks. The internship allowed for considerable exposure to Japan's foodservice industry and to the different avenues that might be explored by Alberta agri-food producers wishing to export to Japan. The foodservice company I trained with is involved in a wide variety of retail endeavours, ranging from employee cafeterias and bakeries in train stations, to Edo-era Japanese taverns and a chain of nationwide family restaurants. While the cooking styles vary considerably among the types of outlets, the majority of meal components are procured in a prepared format to minimize the amount of in-store preparation time required. Thus the foodservice industry offers an export market that may differ substantially from other industry segments like supermarkets.
Since the majority of the training took place in the product procurement division, most of the time was spent with various buyers. In this situation I found it useful to view myself as an Alberta producer wishing to serve the Japan foodservice market. As such, the report is written from a sales perspective to examine: why an Alberta producer might want to look at this market, where does business potential lie, what factors affect product procurement, who are competitors in the market, and how to improve sales performance.
The following served as resources for this study:
Exploring International Market Opportunities
"Companies intending to do business in foreign markets must be aware of their own experiences and how these have helped shape their managerial philosophies and practices. In addition, they must determine how the new environment differs from their more familiar domestic environment and decide how managerial philosophy and practice must be changed to adapt to new conditions."
Before beginning it is necessary to ask, "Why explore a foreign market like Japan?"
However, wherever the market, it is important to remember that sales are dependent on the importer/procurer's interest in Alberta products as well as the end consumer's willingness and ability to buy the final product vis-à-vis other competitive products.
The acquisition of resources can include tangibles such as foreign capital and technologies, or intangibles such as business networks, information and experience.
With these fundamentals in mind, I began with a list of questions I would ask myself if I were an Alberta producer looking to expand into an overseas market like Japan:
Overview: Japanese "Gaishoku" Industry
The scope of this market study will be limited to the Japanese foodservice market.
In order to explore opportunities in the Japanese Foodservice Industry, it is important to first examine industry conditions. First, the development of the foodservice industry over the past 20 years is presented, followed by an examination of recent performance. Finally industry trends and keys to the immediate future are discussed.
The following information was obtained from 1999 Data Handbooks prepared by the Japan Foodservice Association, which tracks the Japanese Gaishoku Sangyo or Foodservice Industry. The information was presented in Japanese and translation has been direct where possible, however re-phrasing was sometimes necessary.
The Japan Foodservice Association webpage can be found at: http://www.jfsa.or.jp.
Address: Hamamatsu-cho Central Building 10F, Hamamatsu-cho 1-29-6, Minato-ku, Tokyo, Postal Code 105-0013.
(Tel: 03-5403-1060, Fax: 03-5403-1070).
1998 Total Market Size (sales): Y28,858,500,000,000 (~ US$280 billion)
1998 Total Number of Stores: 836,400 stores
1998 Total Industry Employment: 4,115,000 people
The industry experienced flat growth from 1991 to 1998 with sales growing from Y27.4 trillion (1991) to only Y28.8 trillion (1998). During this period the industry recorded negative sales growth in 1994 and again in 1998.
Industry Market Share by Type:
Growth in the number of times eating out:
Year-on-Year Sales Growth For the Period 1995-1998
Sales Growth Including New Stores (as % of previous year)
|
Type |
1995 |
1996 |
1997 |
1998 |
|
Fast Food |
101.8 |
100.9 |
100.2 |
99.9 |
|
Family Restaurant |
104.5 |
106.9 |
106.2 |
104.2 |
|
Pub, Izakaya |
101.8 |
109.2 |
108.8 |
104.0 |
|
Dinner Restaurant |
100.3 |
106.8 |
102.0 |
98.7 |
|
Coffee Shop |
111.2 |
109.6 |
112.5 |
112.0 |
|
Total |
102.9 |
104.6 |
103.4 |
102.4 |
Growth in Number of New Stores (as % of previous year)
|
Type |
1995 |
1996 |
1997 |
1998 |
|
Fast Food |
103.4 |
102.1 |
101.0 |
101.3 |
|
Family Restaurant |
104.6 |
105.6 |
109.1 |
108.8 |
|
Pub, Izakaya |
105.5 |
106.1 |
108.8 |
106.1 |
|
Dinner Restaurant |
105.6 |
106.5 |
104.6 |
107.0 |
|
Coffee Shop |
111.2 |
108.8 |
111.9 |
111.1 |
|
Total |
104.3 |
103.9 |
104.4 |
104.4 |
Sales Growth Excluding New Stores (as % of previous year)
|
Type |
1995 |
1996 |
1997 |
1998 |
|
Fast Food |
98.4 |
97.3 |
100.5 |
96.7 |
|
Family Restaurant |
99.8 |
102.0 |
98.3 |
95.4 |
|
Pub, Izakaya |
96.6 |
100.6 |
97.9 |
96.0 |
|
Dinner Restaurant |
96.5 |
100.7 |
98.9 |
94.2 |
|
Coffee Shop |
96.5 |
99.2 |
98.2 |
99.1 |
|
Total |
98.2 |
99.8 |
98.8 |
95.9 |
Growth in Number of Customers - excl. new stores (as % of previous year)
|
Type |
1995 |
1996 |
1997 |
1998 |
|
Fast Food |
98.3 |
98.2 |
100.3 |
98.3 |
|
Family Restaurant |
101.4 |
101.3 |
97.9 |
96.8 |
|
Pub, Izakaya |
96.4 |
100.9 |
97.4 |
96.8 |
|
Dinner Restaurant |
98.8 |
100.6 |
98.1 |
95.5 |
|
Coffee Shop |
98.3 |
99.7 |
97.9 |
98.4 |
|
Total |
99.0 |
99.7 |
98.8 |
97.5 |
Growth in Average Sales Per Customer – excl. new stores (as % of previous year)
|
Type |
1995 |
1996 |
1997 |
1998 |
|
Fast Food |
100.1 |
99.1 |
100.3 |
98.3 |
|
Family Restaurant |
98.3 |
100.7 |
100.3 |
98.6 |
|
Pub, Izakaya |
100.2 |
99.8 |
100.5 |
99.1 |
|
Dinner Restaurant |
97.6 |
100.1 |
100.8 |
98.7 |
|
Coffee Shop |
99.1 |
100.0 |
100.3 |
100.7 |
|
Total |
99.1 |
100.0 |
100.0 |
98.4 |
Conclusions on Industry Performance:
Future Trends for the 21st Century
Market Size: Foodservice Industry vs. Other Industries
Use of Leisure Time by Japanese People: Representative Population
Keys for the Foodservice Industry in the 21st Century (End, DataBook Info)
Main Family Restaurant market participants:
Gusto is a chain being spun off from Skylark Family Restaurants, which is renovating and re-positioning the stores to focus on the lower end of the market, featuring lower prices (under Y1000), free drink refills and a large take-out menu. Skylark Garden serves the upper end segment, with Skylark & Skylark Grill in the upper-middle segment, and Jonathan's as the market leader in the middle segment. Jonathan's has a clearly identified 'Aussie Beef' dish including Aussie MLA export quality assurances.
Royal Host serves the upper end of the market, with most dishes over Y1000 and several nearing Y2000. They offer very few explanations of food ingredients and no special promotional seals representing foreign export bodies (ie. USMEF). One item of interest is a "Healthy Beef Steak" featuring a low fat marbling content (Y1500).
Denny's also has very little product ingredient descriptions and no beef promotional seals. They do, however, have a menu seal certifying the use of official "American Berkshire Pork" in their pork cutlet dishes (tonkatsu). They also feature a 'big size' hamburger (230g) consisting of 100% beef for Y730 without drink. A hamburger steak sells for Y980 (plus drink set = Y1280), while most beef platters sell in the Y980-Y1580 range. This places Denny's in the middle segment of the market.
CASA, serving the middle segment, does the most to explain the quality of its ingredients such as organic sauces and products. It also has the most significant use of foreign export seals and products. Clearly identified in its menus are quality assurance seals from 'Aussie Beef', 'New Zealand Beef', USMEF Pork (Wyoming).
Joyful is one of the most successful chains in terms of growth and profitability, both in double digits. It is focused on the lower end of the market, but has succeeded in attracting customers from other segments. The reasons for its success include all menu items under Y1000, streamlined operations (50% cost of other chains), 25% fewer menu changes, and a focus on increasing the number of customers every day.
Main Fast Food market participants (meat-based):
In 1995, McDonald's lowered the cost of a Big Mac in Japan for competitive reasons. In 1994, the Big Mac cost Y391, whereas in 1996 it cost only Y288 (currently Y280). A Big Mac combo in 1999 totals Y630 including tax, and all burgers are 100% beef. McDonald's is the clear leader of foreign market entrants with a significant presence.
A Burger King Whopper currently costs Y380 (Y350 on sale) and a Whopper combo with drink and fries totals Y682 including tax (1999 – almost Cdn$10.00). Burger King does the most work to advertise the 100% high quality beef content of their burgers and to explain to Japanese customers the advantages of flame-broiled cooking techniques. Their in-store literature is highly descriptive and continually changing. Most complaints against Burger King are the size of its burgers (too large); however, the 'American 50's Diner' image is very popular with young people.
Most single hamburgers at the major chains sell in the same price range. Most combination sets are in the Y500-Y600 range, or Y600-Y700 range for larger burgers.
MosBurger is reputed to have the best match to the Japanese taste. However, I personally find their burgers the least tasty, from what I reason to be a burger consisting of a mixture of beef and pork. Still, it is consistently a Japanese favourite.
A footlong Subway sandwich, without drink, ranges from Y600-Y900.
Main Beef Bowl (Gyu-don) market participants:
A regular size beef bowl generally costs Y400, with a large size for Y500. It is typically called a 'one-coin' fast food market (with the use of a Y500 coin). Assorted side dishes, such as pickles, salads, and soups, are also available.
The main target customer segment is males (almost exclusively) of all ages and a trip to such a store at lunch or dinnertime shows they have clearly hit their market. This has largely been due to the traditional store images. However, new stores are attempting to brighten their appearance somewhat to attract females.
The beef bowl consists of boiled short-plate beef slices placed on a bowl of rice.
To determine the best target market segment, the Japanese foodservice industry can be evaluated along the following product or market factors:
In terms of growth rate and sales stability, both the fast food and family restaurant segments have low growth, while the stability of the cafeteria segment is attractive.
Competitive lead times are longest in the family restaurant and fast food segments because of the small turnover of primary ingredients. The cafeteria segment has a larger turnover since its clientele are daily customers who demand more variety.
The fast food segment allows for the least spillover into other segments since product types are limited, while the family restaurant and cafeteria segments offer significant room for development. In particular, successful introduction of one product into a family restaurant could lead to spillover success in other restaurants within the group.
Products must be adapted to meet Japanese import requirements and more importantly to meet strict quality and size specifications, depending on the client.
In the pursuit of a market segment, the types of Alberta products that may be appropriate for export to the Japanese foodservice industry can be identified as:
Family restaurants offer the broadest range of input product requirements.
Economies of scale in distribution for Alberta exporters can be achieved by partnering directly with a major restaurant group because of its central distribution.
Communication adaptation and cultural sensitivity will be critical to success in Japan.
Strict control requirements within the exporting company should be initiated and carefully monitored. These controls should focus on service levels to Japan, claims, and lead times. Goals should be put in place to continuously improve standards.
Alberta exporters will largely be constrained by physical and cultural distance from the market. Innovative and sincere attempts to overcome this distance can strongly enhance the opportunity for success. Cost constraints may also limit profitability.
Market Segment Conclusion:
Family Restaurants offer one of the most stable markets, with a wide range of product requirements, long lead times for product development, and a durable sales market. The intense competitive arena places a premium on products that are seen to be healthy and can be differentiated from competitors. There is an unexploited opportunity for Alberta and Canadian products. Cost is key, but so is product appeal.
Additional information on Family Restaurants:
The decision to frequent a Family Restaurant depends on convenience in terms of proximity and parking availability, as well as atmosphere and price.
A single FR store usually has a target market of a 2km radius around the store.
Sales breakdown consists of: 93% = food & beverage, 4% = beer, 3% = tobacco, gum.
Average FR sale per customer is about Y950 (of which only Y315 is input cost).
Customer loyalty is not very strong, as convenience (i.e. location) is paramount.
The competition for customers places a heavy emphasis on product offerings, so it is wise to examine how FR menus are developed and input products are procured.
Menu Development in a Family Restaurant Chain
The basic menu in a Japanese Family Restaurant consists of 55-65 items, excluding sets (ie. rice & drink set, bread and coffee set). The menu is generally divided into categories of: steak, hamburger steaks, chicken, spaghetti, doria-gratin, Japanese, Chinese, 'Special Concepts', salads, side menus, desserts and drinks.
There are two basic menu introductions (cycles) over the course of a year. The first is the spring/summer menu from April to September, and the second is the fall/winter menu from October to March. Different parts of the menu focus on specific time periods such as Breakfast, Lunch, TeaTime, and Dinner.
Planning for the fall menu begins in May/June and must be finished by the beginning of August, the reason being that it takes another 45 days to finalize and produce the actual menu (i.e. product pictures, menu design and layout, menu printing) and secure food item supply contracts. A 200-store chain will require over 6,000 printed menus.
The number of items in a menu cannot be too extensive or it will create preparation difficulties for the kitchen staff as well as decision problems for the customers.
Menu item pictures require a delicate balance between looking too good and not good enough. If the picture is not attractive enough, customers won't select the item. If the picture is too attractive as compared to the real item, the customer will be disappointed with their selection. A balance is needed so the picture induces a selection, yet the real item exceeds expectations. There is also a difference between menu colour contrasts in summer (cool colours) and winter (warm colours).
The focus is on a 'customer needs' menu, one that addresses seasonal influences as well as basic Family Restaurant menu expectations.
The decision whether to keep or cut an item from the menu depends on the category. Sales are tallied and measured against a base of 100 people, which provides a daily base for comparisons against stores of different sizes (and customer capacities).
A 'best' sales level for meal items is about 2 sales per 100 people for 1 item in a day. However, when the menu is changed a restaurant cannot cut too many items because it creates problems for training the chain's kitchen staff. Denny's typically cuts 5 items, while CASA cuts about 10 items (because of its focus on 'special concept' items).
Initial product introductions are usually received from producers (i.e. Ito Ham).
The company's food division initially receives a product presentation from a supplier, such as a menu idea involving the supplier's product like a frozen fried chicken item. The development division then takes the product and develops a complete dish, for example by adding a cheese sauce and vegetables to the fried chicken. The development division and procurement division work together to determine selection of ingredients, with the procurement division responsible only for sourcing.
The development division then presents the finalized menu item, or 2-3 variations of the finalized item to the sales planning division. The sales division then evaluates the item based on taste, volume, appearance, wholesale cost & overall impression, and makes the final decision with input from the development and procurement divisions.
Selling price is determined by looking at competitor menus. Upper price bounds are limited by what other restaurants are presenting. It is not always possible to lower the input costs, but selling price can be lowered (however, this affects profit margins).
An effort is made to continually improve items, whether by lowering input costs or by increasing the quality of ingredients. New ingredients are presented in clusters (i.e. three types of potato fry), with each item having either a taste, appearance or cost factor. However, care must be taken to not focus always on cost alone. For example, if an initial ingredient is of high quality but also high cost and some quality is sacrificed for a lower cost at the next procurement round, then a new lower quality benchmark is established. Further cost squeezes at subsequent procurement reviews could result in a product with strong cost performance but poor quality as the quality benchmarks are continually revised downwards. The quality gap widens and the menu trends down.
The cost of one dish item consists of approximately: 30-33% = wholesale cost input, 30% = store labour, 17-20% = distribution & transport, 20% = profit margin. Some items are sold at lower prices and reduced profit margins if it has been established that the item will encourage the purchase of other higher margin items. The menu mix provides average profits where individual item volumes can be critical.
Many stores have a 15-minute maximum wait for orders, so preparation time must also be taken into account. Difficult-to-prepare dishes are pre-prepared and frozen.
Items are mainly developed from marketing results. If analysis shows that customer volumes in one target segment are slipping, an item aimed directly at that segment is developed (i.e. bigger size dishes to attract men, more salads to attract women).
When planning item ingredients, the business goals of the item must be clearly stated in terms of:
The use of new ingredients is announced regularly and new products are explained to the food division, including preparation methods. Where the use of certain input material is increasing, all buyers are kept informed of progress so that they are aware of trends and the possible need for additional volumes or alternate supply sources.
Before initiating contact it is important to research the buyer's operations: look for product matches in-store, study presentation styles, pricing and product sizes.
Cold calls are not discouraged, but written materials should be in Japanese.
The procurement and menu development divisions meet to conduct product taste tests and evaluate monitor group results, and to discuss ways to change or improve menus. The procurement division also meets with the sales planning division to discuss ideas for new products as well as monthly and seasonal 'product fair' ideas.
Individual buyers are held accountable for excess inventory reduction when items are discontinued at seasonal menu change time and must report plans to clear out stocks. Some products are simply written-off if complete reduction is difficult, while other specific products are claimed back to the producer. The manager oversees this process in front of the division as a group so that all buyers are responsible for their excess purchases, which leads to an amount of buyer risk in the procurement process.
Buyers do not have direct decision control over the buy decision. Their responsibility is the sourcing of several different input products and subsequent presentation to the food division (sales & development) where a group consensus decision is reached.
Buyers must also consider storage capabilities when deciding between frozen, chilled or fresh materials, as each requires different storage and distribution handling.
The Importance of Point-of-Origin Promotions
Distinctly marked meat products from the U.S., Australia, and New Zealand are present in several major FR chains; however, no Canadian products were found.
Canadian meat products, particularly beef, have lost the first-mover advantage in the Japanese market. However, the silver lining here is that other countries have borne the costs of educating consumers in Japan, particularly USMEF. Few other country images are as strong as the image of Canada in Japan. The Canadian image has yet to be exploited, and with growing meat import acceptance, the time is ripe for progress.
Foreign meat exporting bodies from the U.S., Australia, and New Zealand have paid promotional fees to have their certification seals and messages printed in FR menus beside products originating from their countries (i.e. Aussie Beef, USMEF Pork).
Example comments of a USMEF Pork safety message include: An American Pork High Quality Seal, "Delicious & Healthy", HACCP controlled production (Japanese).
The use of imported meat in Japan is now substantial and customers are increasingly accepting of such products, having achieved confidence in foreign food safety levels.
A surprising encounter with strong Point-of-Origin promotion came at a roadside service area where U.S. Colorado State Organic Beef was distinctly advertised. The ad (180g steak, salad & coffee for Y2000) professed that no pesticides had been used on the farmland in over 100 years and the cattle were fed only natural feed. A picture of Colorado cowboys on their Rocky Mountain ranch also accompanied the display.
U.S./Canadian beef has an advantage over Aussie beef in that Japanese don't like grass-fed beef because of fat colour and meat odour. However, the Aussies have changed to mid-grain finishes to get better prices in Japan, thereby reducing the competitive gap. Also, in FRs cooking and sauces can mask colours and odours.
Most FRs won't run area-specific promotions, such as a US Pork Fair, but will run product-specific promotions, like a Pork Cutlet Fair (with USMEF seals).
Blunt feedback from various meat buyers in Japan concluded that Canadian meat promotional efforts are weak in comparison to other foreign producers. While it is not expected that Canada promote on the same level as the US, there is consistent surprise that Canada has been unable to promote on the same level as a similar sized competitor in Australia, or a much smaller competitor like New Zealand.
Conclusion: Strategic Selling Implications
Escalation of commitment through investment in entering a new market (i.e. sunk costs) requires a series of clear-cut decision points. The Alberta exporter needs to make a detailed study of their potential customer(s) and understand how products are procured. Decision points can help to ensure that both parties to a business opportunity are ready to proceed with confidence, especially when timing is critical.
Importers can spread their operating risks by developing alternative suppliers, or buyers may be seeking new foreign products that complement existing product lines. The chances of achieving export sales are improved by studying client needs.
A long-term learning approach is necessary for entering the Japanese market. In one case, I watched as a buyer leafed through an unsolicited fax from an unknown vegetable wholesaler in America. The buyer identified two weaknesses in the approach – one that the fax was entirely in English and two that he wasn't interested in spot 'fire sales' – before dismissing the transmission to the garbage. In another case, an Alberta producer came to Japan on his first trip to the orient with the intention of seeing various products on display in the foreign market. He was here the first time to learn only, and will be able to return again with a carefully prepared market strategy.
If international procurement of supplies and ingredients lowers costs or improves the quality of finished products, the procuring company may then be better able to compete more effectively in the domestic competitive arena. Alberta export products must not only meet these criteria, but these competitive values must be clearly communicated to those in charge of procurement from their own industry perspective.
Having a good product is not enough to achieve success in Japan. Understanding Japanese procurement systems and business practices is an absolute must. Alberta products do not have a strong enough profile in the market yet. There is room for many Alberta products, but other foreign producers have beaten Canada to the punch. Aggressive, well-thought out sales strategies and industry cooperation are needed to achieve the momentum necessary for market optimization.
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