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The Japanese Distribution

System
Class 7

Copyright © 2007 Keio University


Quote of the Day
„Our objective is to make sure that Carrefour
leads in pricing and wins market share
everywhere we have chosen to do business."
Jose Luis Duran, Chairman of Management Board,
Carrefour in 2005

"Let's be honest, Japan was a short, expensive


adventure for us."
Jose Luis Duran, CEO, Carrefour in 2005.
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This Lecture

• Wholesale structure and practice


• Retail structure and process
• Major changes since the early 1990s

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Historical Development

• During the feudal era of Japan, the country was


divided into many small regions that were self-
contained
• Manufacturers had to develop proper distribution
systems for each territory, even after the feudal
system was abandoned
• Japan at that time was divided into more than
500 regions, geographical difficulties also
supported this trend

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Historical Development

• The small manufacturers heavily relied on


the financing, distribution and storage
capabilities of wholesalers for survival,
especially to market their products in other
regions

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Historical Development

• Japanese consumers could choose from


an unlimited number of shops with an
extremely high service level
• In 1989 half of the more than 1.6 million
retail shops were food shops (Batzer and
Laumer 1989:50)
• Large purchases of stock are not common
practice in Japan

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Wholesalers in Japan
• Wholesalers give priority to customer
service
• They also deliver even the smallest
quantities to retailers upon request, accept
unsold goods without complaints, grant
special discount to long-time clients and
offer them credit for up to five months
• Small retailers depend heavily on them
and are supported in activities like
bookkeeping and customer service
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Distribution in the 80s

• For non-durable goods similar retail prices were


maintained, retailers who changed their prices
were not regarded trustworthy and could not
build up strong relationships with wholesalers
• Almost no multi-brand shops (each distributor is
strongly related to only one wholesaler)
• Small retailers were strongly protected by the
Japanese government (e.g. shop space for
department stores was limited by law)

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Wholesalers and their Practices

• In Japan wholesalers have more influence than


in any other country
• They also bear a sustantial selling risk, because
they usually take unsold goods back
• Wholesalers also participate in a complicated
and non-transparent system of rebates and have
formed a complicated and interdependent multi-
layered systems of wholesaler relationships of
their own (each product passes through a
distribution chain of two to five layers of
wholesalers)
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Traditional and Alternative Forms of
Distribution

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Functional Allocation of
Responsibilities/Tasks within Channels of
Distribution
Manufacturer Intermediary Retail
Production Order taking Selling
Promotion Inventory Organizing
maintenance consumers
National Space control at In-store promotion
sales promotion the retail level
Dealer aids Product
Assortment
Education of Area
dealers Marketing
Financing Financing

Distribution of Cosmetics in Japan

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Retail Structure and Process
• Japan has the highest number of stores per
capita and per area (7.9 stores per 1000 people,
6.8 in the US)
• Department stores are a very important retail
force (shop-in-shop system)
• During the 80s the convenience store model
began its success in Japan
• Large Japanese manufacturers usually possess
large numbers of their own retail outlets (e.g.
confections, fabrics and home electronic
appliances)
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Major Changes since the 1990s

• The number of small retailers decreased


dramatically
• Bigger wholesalers became more powerful and
smaller wholesalers started to lose business
• The wholesaling business is starting to get more
involved in importing
• Cash and carry wholesalers, which are
increasing in number, are not inclined to accept
returns from retailers nor do they develop
personal relationships

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Distribution in Japan
•Japanese Distribution Models
1 2 3

Consumers Consumers Consumers

Super-
Retail Super-
Retail Super-
Retail
Depart- Small Depart- Small Depart- Small
market Drug CVS ment retailers market Drug CVS ment retailers market Drug CVS ment retailers
(hyper- stores stores (hyper- stores stores (hyper- stores stores
markets) markets) markets)
Distribution
type
Wholesaler
Wholesaler Wholesaler
To some
supermarkets

Manufacturer Manufacturer Manufacturer

Japanese Producer (general) • Kao


Producer Procter & Gamble
• Beiersdorf-Kao

Trend Japanese Supplier


Multinational Corporations

Source: Roland Berger


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Source: Roland Berger analysis
Changing Forms of Distribution

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Pricing in Japan
•Comparison between Europe, US and Japan
Europa Japan USA
-59.6% -34.1%
Difference -56.6% -36.1%
to Japan
20.560

17.218

11.121
13.556
8.428
10.904

7.476 8.301 6.928


Whole
1.724
Rice 1.497 5.495
0.639
0.705 0.639
Water 4.285 0.999
Coca Cola 1.1331 1.998 2.018 0.297
4.019 1.591 0.233
Diet coke
0.843 0.277 1.282 0.320 0.992 0.297
Beer 2.763 2.763 0.833 0.233
0.472 0.277 0.530 0.320 1.805
Butter 1.465
0.933 0.971 1.694 1.677 1.218
Milk 1.055
0.657 0.593
Hypermarkt Supermarkt Hypermarkt Supermarkt Hypermarkt Supermarkt

Source: Roland Berger analysis (Germany: Wal Mart, Eurospar, Japan: Carrefour, Marusho, US: Meyers, K-Mart, Kroger, Whole Foods Market)
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Import Distribution Alternatives

• A number of non-Japanese importers have


opened subsidiaries in the Japanese market
• sogo shoshas are still very prominent, but not
always a very profitable partner, especially for
foreign importers
• More foreign companies are directly targeting
Japanese retailers with their products
• Cost of imports range from 35 to 40 per cent of
product prices

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Changes in Import Management
Conventional Route Restructured Route

Producer Producer

Czinkota/Ronkainen,
Import Agent Global Marketing, p.507
Importing
Company
Processing +
Packing Plant
Processing and
Packing Plant
Primary
Wholesaler
Depots

Intermediary Distribution
Wholesaler Wholesalers

Distribution
Small Wholesaler Centers

Retailer Retailer

Retail Price: 170 yen/300g package Retail Price: 128 yen/300 g package Savings: 25 %

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Examples

In the late 1990s, some Japanese


companies revolutionized business
models by handling every process from
product development to product sales and
excluding all middlemen (Ohmae 2003)
– Uniqlo
– Zoff
– 100 Yen Stores

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