DyDo Group: Embracing New Challenges with Dynamism

One of the big challenges that Japan is facing is its demographic decline. It’s a country with the oldest population in the world and one that is getting increasingly older each year. This is posing several challenges, including a shrinking domestic market. This is also being reflected in the vending machine market. If we look back to the year 2000, for example, Japan had over 5.5 million vending machines nationwide. Last year, there were around 3.9 million. How are you reacting to these challenges, and to what extent do you think Japanese companies need to look overseas to secure long-term business success?

We recognize the challenges of growing a business focused on vending machine sales in Japan, particularly given the declining population and shrinking market. However, we believe vending machines remain a highly convenient option for consumers. Our goal is to enhance this segment of our service and increase our market share, ensuring the sustainability of this business in the long term.

It’s difficult to find new locations to place beverage vending machines, but there is still demand in many areas now for other products, such as diapers for babies, snacks, and feminine hygiene products, so we can expand in those areas.

Besides considering the product line, we also want to react to market needs, like having cashless payments for the machines. Renovation would be required in order to improve its usefulness, but we would like to increase the value of the vending machine in order to expand the market. In that regard, we want to take on the challenge of growing domestically as our core business, but we would also like to tackle the international market even more. International sales only account for 20% right now, but we would like to expand that to 30% or 40%.

DyDo Group has a unique history, dating back to its founding as a one-man operation by your grandfather, who sold medicines and used a pay-later structure. The company has since evolved and branched out overseas under your leadership. Could you tell us about the unique changes and evolutions that have happened?

We started out as a medication supplier, placing a box in each house and using a pay-later system. That was due to our wish to contribute to society, and we then considered how we could extend or explore new business opportunities. A vending machine is quite similar to the medicine boxes we were providing. The customer buys the medicine, and then we collect it later.

The turning point for our business came with the success of the DyDo BLEND COFFEE brand, which we launched in 1975. We decided to sell it through vending machines, a decision that proved to be a game-changer. The product was especially well received by taxi and truck drivers, driving our exponential growth.

When we started placing vending machines, there were no convenience stores, so people had to go to liquor shops, rice shops, or tobacco shops to buy drinks. However, those shops were closed at night. Placing vending machines allowed 24-hour access, which helped us place vending machines all across Japan.

Vending machines have been closely related to the lives of Japanese people, but when convenience stores began operating 24 hours a day, that affected vending machine sales, which was another turning point for us.

We are now focusing on placing vending machines in locations closer to users than convenience stores, such as workplaces and factories. The strategy involves shifting vending machine placements to more convenient and accessible spots for consumers.

Your group’s business is split into the beverage business, both domestically and overseas, and the non-beverage business, which is split between pharmaceutical products and OEM services. You also have a leading market share in food. Looking at the non-beverage business, which segments and products do you see as having the most growth potential?

What we value the most is contributing to people’s health, so I don’t have specific products in mind. For example, our Tarami subsidiary can enable people to access and consume fruits, and supplemental products can energize and keep people active. For pharmaceutical products, we want the people who are suffering to be better, so health is of central importance.

Dydo Healthcare Locomo Pro Proteoglycan 

One notable aspect of your pharmaceutical business is its focus on researching rare diseases, such as autoimmune neuromuscular disorders. You are also exploring collaborations with global pharmaceutical companies for technology licensing. Could you share more about this partnership strategy and how you plan to drive growth in this area of your business?

We were late to join the pharmaceutical market, so we partnered with overseas companies that already have products or have undergone a certain period of development. We then obtained those technologies to provide them in Japan. This type of partnership will continue so we can launch consecutive products.

On that theme, your Group Mission 2030 plan targets becoming a global brand that supports the health of people around the world. To this end, you promote healthy lifestyles and products. As you mentioned, you are also looking to grow the international side of the business to over 30%. Can you discuss some of the key strategies and initiatives you’re implementing as part of this plan to achieve these goals?

While our work with orphan drugs is part of our longer-term plans, our immediate focus, particularly for our international goals, is on expanding the healthy drinks segment.

Turkey is currently our top foreign market, followed by Poland, China, and Southeast Asia. In Turkey and Poland, we already have established brands, and our strategy is to build on this foundation by introducing healthy and functional products to further expand these markets.

Of course, beverages and food are deeply tied to taste preferences and culture. We don’t aim to replace existing products with healthier options outright. Instead, we plan to extend our product lines by introducing health-focused products alongside what we already offer. 

Is that through your own branded products or via an M&A strategy to acquire more local brands?

Both are possibilities. The businesses in China and Southeast Asia are still small, but there is a trend to shift to healthier products, and the amount of sugar in drinks is decreasing. Some countries even imposed a tax on sugar, so we are expanding our exports from Japan.

It’s interesting that you have such a big market share in Turkey, which is a country with a predominantly Muslim population. I saw you have a halal cola there. If you were to expand in Southeast Asia, Indonesia, as the world’s largest Muslim country, would be a great opportunity. How important is catering to local tastes or religious criteria in your business model?

We had then set our sights on the Muslim world as our target for entering foreign markets. Our first target was Malaysia, and the second was Turkey. We faced difficulties in Malaysia, so we withdrew, but we targeted Muslim countries because of the religious restrictions. Exports to countries with a high number of immigrants from Turkey are increasing in Europe.

In recent years, you’ve actively pursued partnerships, including a joint venture with Shibusawa Warehouse and the launch of a product using the Frisk license developed by Perfetti. Are you currently seeking new partnerships in overseas markets? If so, what specific areas or opportunities are you targeting?

We have our own branded products and tie-up brands. This year, we launched the FRISK Sparkling drink and as well as a carbonated beverage featuring K-POP idols on the packaging. This may not be a partnership per se, but we do look for partnerships and other avenues to expand the lineup. We’vealso been thinking about surprising consumers. Even if a partnership seems in one way to be unrelated to the beverage, we might do so to provide that surprise feeling.

You mentioned that one of your targets is to introduce functional beverages into the overseas market to improve health. One challenge with this is the regulatory hurdles. Have you encountered any of these challenges, and if so, to what extent are you trying to put structures in place to overcome these?

Of course, each country has different regulations, so we needed to do extensive research on what ingredients can and cannot be used. This was a hurdle in terms of product development. However, we overcame that in some countries and successfully launched the products. By doing so, we have gained experience, expertise, and knowledge, which we can use to shorten future development efforts.

For example, we have a PET bottle of coffee produced in Thailand that we provide to Hong Kong and Singapore. However, regulations in Hong Kong and Singapore are different. They are available in convenience stores in each country, especially in Singapore requires special health score labeling as well, so depending on the country, we need to take different actions, and we are building experience around that.

You announced the acquisition Wosana, a Polish drinks manufacturer in December 2023. Poland is obviously centrally located in Europe, which may give you access to new markets. Will you focus just on Poland, or do you have a broader strategy related to this acquisition?

We would like to expand our business to Europe from Poland. We originally selected Poland after Turkey. Poland has a decent population, the market is growing, and it is close to Germany and France, so we thought it would be a good first step. Then, we could further expand into Europe.

Going back to your Mission 2030 plan, further to expanding the health food sector, you’ve also set some financial goals. You’re currently at the growth stage of this plan, where you’re aiming to hit a consolidated ROIC of 8% by the end of the plan. From your recent results, you’re at around 6% currently. Are you on track to achieve these goals, and what are some initiatives you will use to continue this growth?

The situation has changed since our initial plan. Vending machine revenue is shrinking domestically, but overseas, the financial situation is improving inflation, so overal,l we’re on track.

I think the future challenge is to improve the revenue of the vending machine business in Japan. That’s the biggest challenge, and to do that, we are considering a smart operation to be our most important strategy, which would be to make the business more efficient and productive. Smart operation is not about increasing sales but about improving productivity and efficiency, which will improve profit.

Could you tell us a bit more about what the smart operations entail?

Our vending machines are now managed online, allowing for real-time communication to monitor the sales status of each machine. This enables us to efficiently plan visits to restock or service the machines. Additionally, we have integrated AI technology to optimize the timing for replacing products within the machines.

Previously, these decisions were made based on workers’ experience, but increasingly, AI is taking over this process. Our goal is to reduce the time required for restocking and servicing by two-thirds, significantly improving operational efficiency.

You had 270,000 machines in 2022. How many do you currently have?

The number of units is hovering around 270,000.

The importance of sustainability is increasing in terms of both products and operations, and towards that end, you have a Love the Earth campaign. Can you tell us about some of the key points of this campaign and some of the sustainability steps you’re taking in your operations?

We mentioned having approximately 270,000 vending machines, and operating those use a lot of power for cooling and heating, so we’ve been working for the past ten years or more to save energy. Compared to ten years ago, the energy consumption has been reduced by half. However, further cutting that energy use would be difficult, so we are now developing new environmentally friendly vending machines. We are purchasing credits for wind or water-generated energy to have carbon-neutral vending machines. That is the core of our Love the Earth project.

Many companies are working on reducing CO2, so we are suggesting those companies to install their vending machines with our Love the Earth vending machines.

In terms of products, we are using aluminum and steel materials, which are recycled in Japan, so we are placing these products in the companies who are willing to receive them. As for plastic bottles, we are increasing the ratio of the materials used that can be recycled in order to contribute to a more circular society.

You’ve been at the helm as president for ten years now. Let’s imagine that we will come back to interview you again for the 20th anniversary of your presidency in 2034. What would you like the company to achieve by then?

We hope that the vending machine business will still contribute to people’s convenience and welfare in 2034. I believe the situation will change and innovation will progress, but hopefully, we will provide greater value to people, and we’ll be widely accepted. Of course, I think we are contributing today, but I hope that vending machines will become an essential piece of infrastructure for people’s lifestyles.

Although we have taken on the challenge of expanding the vending machine business abroad, we haven’t succeeded yet, so maybe in ten

For more information, please visit their website at: https://www.dydo-ghd.co.jp/en/