By providing quality products at competitive prices, Kobe Bussan is bringing the Japanese concept of Shoku to local communities and providing needed food-related services.
For eleven consecutive years, food exports from Japan have registered record-breaking numbers, reaching JPY 1.45 trillion in 2023. Now, this trend is being reflected on a global scale. The number of Japanese restaurants overseas has also tripled in the past decade, from 55,000 in 2013 to 200,000 restaurants today. How do you account for the continued rise in Japanese food exports and the growing popularity of Japanese food?
I believe there’s a very high potential for Japanese food because Japan is an island country that nurtures a unique food culture. For example, the noodle culture originated overseas. However, it was further nurtured and diversified in Japan, so if you look at ramen, there isn’t only one kind; there are various kinds of ramen now. I was wondering why it happened. Japan is an island country, and it is small, but it is divided into 47 prefectures, and each prefecture has nurtured its unique food culture. This diversification is due to both climate and culture. Through such diversification, know-how, and experience have accumulated, and food culture is now exported to overseas countries. That is quite valuable and unique.
That’s one thing. Another thing is the Japanese people’s palate and the idea of umami. For example, Ajinomoto is a Japanese company that invented MSG, and other things like unique broths have been invented here, so I believe that Japanese people have a very sensitive tongue or palate, which also leads to the nurturing of the food culture. As for the future potential, Japanese chefs are going to other countries and cooking in restaurants there, so I believe that Japanese food has a lot of potential to grow in popularity.
One more thing I would like to highlight is that many of the items exported from Japan are fresh ingredients. For example, wagyu beef is highly valued in overseas markets, as are Japanese fruits. In fact, local fruits in other countries have much lower prices than imported Japanese fruits, but those consumers understand the value of our fruit, so no matter how expensive they are, they’ll spend money to buy them. Why is this? Japan has a limited population and Japanese farmers only look to Japanese consumers beforehand, which means the market is limited, but in order to satisfy that market, they need to go for quality rather than quantity. Farmers usually go for productivity to produce as much as possible, but Japanese farmers do not focus on that. Of course, there are pros and cons to this, but the result is high quality. The same is true for Wagyu. It’s difficult to grow and care for those cows, but the result is the highest quality beef. You could say that Japanese farmers go against the global trend, but the results are good for exports.
The focus on quality is a very interesting point. You mentioned the limited size of the domestic market. That has never been truer than it is today. Japan has the oldest population in the world, and its population is shrinking. This means fewer consumers, and it also creates large agricultural and logistics bottlenecks. For example, there needs to be more farmers, which is threatening certain regions and production bases. How is your company facing these challenges?
Since Kobe Bussan doesn’t directly do business with farmers, let me talk about Japan as a whole. The farmers’ distribution channel is complicated. First, the farmers grow and harvest their products, and that goes to JA, which is an agricultural cooperative that sorts them. They sort based on criteria, and anything that doesn’t meet those criteria is considered valueless, so only the products that meet the criteria will be shipped to retailers. That is how it goes. Since many of the agricultural products are outside of the criteria, farmers cannot get the money for those, so in the end, some cannot make money, and they want to hand over the business to their sons or daughters. They don’t want to do that hard work that is unprofitable anymore, but now there is a shortage of successors to the farms.
What has happened recently is that farmers have tried to diversify the distribution channel, so they distribute directly to the end customers or retailers without using JA. That way, they can even sell the products that are outside of the JA criteria.
One more thing worth mentioning is that farmers in the same region usually harvest very similar crops, so if you have a very good harvest this year, there can be oversupply and prices drop. Therefore, to maintain the price, they dump part of their harvest, which is not good for the environment, so I believe that diversification of distribution will be good for both prices and preventing waste.
Since you touched upon the environment, the Ministry of the Environment estimated that food loss in Japan in 2021 was 5.23 million tons, and recent research has shown that Japanese people want more sustainability efforts to be made. For example, 53% desire less plastic packaging, while 46% desire more sustainable packaging, and companies have begun to respond. What initiatives are you undertaking to reduce food waste and to better the company’s environmental performance, and how is your company reacting to the demand from consumers for more sustainable packaging?
Regarding food loss, the items we sell in our Gyomu Super retail stores are a little different. Most of them are frozen foods and canned products, which means they have longer shelf lives. If you look at ordinary supermarkets, 50% of their products are either perishable, fresh foods or ready-to-eat meals. Obviously, the more of those items offered, the more the food waste will be, but in our case, the amount of food waste is very low. That’s the first thing.
Gyomu Super
The second thing is that we have restaurants, and when it comes to World Buffet, our food waste rate is less than 1%. For other restaurants, the food waste rate is usually double-digit. The reason we have such a low food waste rate is that we use ingredients and food that come from our Gyomu Super stores, including frozen food and processed food, which have a relatively long shelf life. Another reason is our menu development. We develop our menu based on the idea of trying to reduce or minimize food waste. Of course, a buffet is not a fixed menu, so we have some flexibility with the food so we can adjust the buffet menu based on what ingredients are being used or not used.
A third thing is our ready-to-eat meals. Normally, to meet customer demands, you want to increase the number of menu options, but if you do that, then you will increase the rate of food waste. However, what we do is limit the number of menu options. By doing so, we can reduce the labor costs and the food waste rate because if you develop and sell many options but they are not selling well, that’s a waste. That’s why we focus on what we know we can sell. If we can innovate with menu development and operations, then we can reduce food waste even more.
I’d like to explore Kobe Bussan’s business a bit more. The group has been divided into two big divisions since 1985, with wholesale and retail divisions with Gyomu Super stores, World Buffet and Premium Karubi restaurants, and the Chisouna delicatessen business. On top of that, you have a series of subsidiaries that cover a diverse range of offerings. What advantages do having these two divisions and subsidiaries bring to the group, and what synergies are you able to create between those different operations?
Many of the subsidiaries are companies producing private labels for Gyomu Super stores, so these provide extra value and help us offer different options than other supermarkets because these production sites can make what the customers want. Of course, we have many national brands available, but we need to make products specifically for specific stores or consumers. Rather, they are focused on the general market demand, so sometimes those national brands are not really suited to Gyomu Super's needs. With our subsidiaries, we can develop products from scratch so we can customize flavors, portion sizes, and price levels, which gives us great operational flexibility.
Offering private labels is one of the differentiating factors of the Gyomu Super stores. Another differentiating factor has also been the ability to import foreign flavors. You work with suppliers in over 50 countries across the world to bring those unique international flavors to your stores. Are you looking for more international partnerships for the Gyomu Super stores, and if so, what are the regions or the food types that you’re most interested in bringing to Japan?
Let me first explain our concept of product development. We don’t simply stick to private labels no matter what. What we do is to first choose what we want to sell and after that, we will consider sourcing options. For example, if a specific manufacturer from Germany is a good source, we will work with them. If the best source is a national brand, we will use that. If there is no good option, we will make it ourselves.
When it comes to importing goods, we don’t do any squeezing of categories; we will cover broad categories. Of course, in order to sell at Gyomu Super stores, we need to understand the customers' needs, and based on that, we will do the sourcing. But the important issue is deciding which customer needs, which may not be only Japanese customers because we have many foreign workers here, and as you mentioned, Japan’s population is shrinking and aging. This means that to maintain the Japanese economy, we need to get more people from outside the country, and those people have food tastes that need to be addressed in the market. If not, they won’t want to stay here. That’s why we need to prepare various foods to meet the needs of everybody who is working in Japan, such as Asian food, halal food, and other diverse foods.
To continue on the theme of partnerships, we know they can enable a mixture of things which are otherwise unattainable. For example, they allow companies to offer more diverse products, to improve operations efficiency, and to expand market reach. In 2021, Kobe Bussan and SoftBank partnered together to open a next-generation pilot store in Osaka that uses AI to enhance the grocery shopping experience. Are you seeking any other types of partnerships, domestic or abroad?
Regarding the SoftBank partnership, we tried to find next-generation technology to increase convenience, customer experience, and efficiency. That’s a core goal, and we continue to look for partners who can help us with that. We have several pilot projects ongoing, and for that kind of interesting technology, it doesn’t matter whether it is used inside or outside of Japan. Once we find interesting technology, we will do a pilot project with it to see if it is effective, and then we will decide if we should deploy it to all stores or not.
In terms of the SoftBank partnership, that project didn’t go well, but that wasn’t because the technology wasn’t good. Rather, when we did a cost-benefit analysis, the cost was higher than the benefit, so we decided not to deploy it across the stores, though perhaps the technology might be suitable for other, bigger supermarkets. In general, we are seeking technology that fits the Gyomu Super business model, and it is natural that some will be suitable and some will not.
Another unique project that your company has been doing is the overseas agricultural project. Since 2014, you’ve been harvesting wheat in the southern part of Egypt along the Nile River. The goal of this is to invest in desert land and turn it into a farmable area thanks to a technology called center-pivot irrigation. Why did you decide to do this, and is this going to be a one-off project, or are you planning to continue or expand it?
My father founded this company and he was worried about the food shortage in the world and the food self-sufficiency rate in Japan, which was very low. In the case of Japan, we are okay because the population is shrinking and aging. However, the world is a different story. The population has exploded and there are many people suffering from famine. This is unbelievable from the Japanese people’s perspective. We know that nowadays, the amount of arable agricultural land is shrinking, so we want to reverse this trend somehow, so that was our motivation. The model is to purchase desert land, convert it to green, arable land, and then convert it to agricultural land.
Of course, water is a crucial factor in this model, and this is the reason we chose Egypt. For example, if you see the big rivers in China, they run from the east to the west. However, in Egypt, the Nile flows from north to south and comes from the equator, so it seems unlikely to dry up. Therefore, our founder thought there was so much water available, not just from the Nile but also from groundwater, which could be used to convert the desert land to agricultural land to grow wheat there finally.
Of course, Egypt is a dry country, so they cherish the water and the government controls it, but we have been able to get the water from underground and that has been enough to grow the wheat. As a company, Kobe Bussan has limited power, but we hope to set an example. If people see that a company like ours can do it, maybe they can do it also, so we hope to inspire others to follow our lead.
Apart from Egypt, you have international offices in China, Hong Kong, and Myanmar. Are you looking to diversify your overseas operations, and if so, where will you focus?
Regarding the current overseas bases, China, Hong Kong, and Myanmar have different functions. China is a production company. Hong Kong was our trading base, but these days, it is mostly dormant. We set up in Myanmar to develop IT talent, but because of the geopolitical situation there, those people have been moved to Japan.
As for future overseas business, we’re not going to do it from these places. For Gyomu Super, we want to first focus on Southeast Asia. We will do this by setting up stores with partner companies, and we will have Gyomu Super stores in Hong Kong, Vietnam, and Malaysia. For our products, we export from Japan to other countries such as the US, New Zealand, and Australia.
Over the past four months, Kobe Bussan stock has been on quite a bullish run. Your stock traded around JPY 3,300 in April of this year, and as of this morning, it was over JPY 4,000, which is more than a 20% increase. How do you account for this bullish trend?
Actually, previously, our share price was higher than JPY 4,000 by about 15% to 20%. It then went down to the JPY 3,000 level. The primary reason was the depreciation of the yen. At the time, sales were up, profit was up, and we had added new shops, but we had many imports that need to be purchased in dollars, so the forex rate had a significant impact on our profit. Naturally, investors understood that, so our share price declined. Recently, as you mentioned, it went up, and again, that was because of the exchange rate as the yen appreciated from JPY 160 to JPY 141 to the dollar.
It was quite interesting to hear you speak about your father’s vision when he started the Egypt project. I would like to know about your personal vision. Do you have an ambition or an objective that you would like to achieve during your time as president?
I want to achieve both quantitative and qualitative objectives. The quantitative goal is a business achievement. Currently, our sales are around JPY 500 billion, and I want to double that. I want to be a JPY one trillion business. The qualitative goal is about the fact that our business is related to food, and we have end customers who are purchasing our products. What I want to do is to provide unique and differentiated goods and services to our customers to enrich their lives.
For more information, visit their website at: https://www.kobebussan.co.jp/english/
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