What’s in store for both Japan’s economy and one of its most renowned and respected companies, Kikkoman, is discussed by its Honorary CEO & Chairman of the Board of Directors, Yuzaburo Mogi, as well as the buildup of the company’s success and the importance of sharing and understanding culture and experiences when it comes to international business.
Kikkoman is one of Japan’s most highly respected and well-recognized companies with a rich history stretching back more than 300 years. What in your opinion has been the secret of such a globally successful entity?
I believe that Kikkoman’s global success can be explained to a large extent by the high-quality focus that you find in our products which has generated trust from our customers all over the world.
We started our global business back in 1957 when we established a sales company in San Francisco, California. From there we started marketing our products. We approached general consumers directory and we found that the most effective way to promote and market was to have in-store demonstrations in supermarkets. We would cook meat at the supermarkets and cut it into small pieces with soy sauce for customers to try and taste. Customers bought our soy sauce if they liked the taste. That kind of in-store demonstration was a good way to let potential customers understand the quality of our products.
Then at the same time, we built a test kitchen at our sales headquarters in San Francisco, where we hired home economists and asked them to develop various adaptations of American dishes using soy sauce. The home economists developed many recipes, which we introduced and shared in the home section of local newspapers.
We also published cookbooks and made small recipe books to accompany the bottles of soy sauce. Through these recipe developments, we were able to teach the American consumer how to use soy sauce, and then they understood the taste of high-quality soy sauce through in-store demonstrations. Our sales gradually started to grow from there.
As far as distribution channels are concerned, we opened a sales company in San Francisco in 1957, and then we opened a branch office in Los Angeles in 1958. After that, we then went to the East Coast where we opened a new branch in New York in 1961 and started marketing. Then we opened a branch in Chicago in 1965 and started marketing in the Midwest. Later on, we opened a branch in Atlanta, Georgia as well to develop the southern market. This is how we gradually opened branches in the American market.
Fortunately for us, our sales have grown, and one of the reasons why I think the sale of soy sauce was accepted by American consumers is that soy sauce goes well with meat. American consumers started using soy sauce with meat dishes originally in the kitchen, and they understood how to cook with our products and what it tastes like. They then gradually expanded the usage to other foods.
Since our sales had grown to a certain level in 1973, we decided to build a factory – we compared the Midwest, East Coast and West Coast and we finally chose the Midwest. Soy sauce is a capital-intensive industry so having one factory rather than many small factories is more effective and cost efficient. We saw that to ship products all over the United States, the Midwest was the best choice for our plant location. We built a factory in southern Wisconsin in 1973 and then soy sauce sales grew even more. Later on in 1998, we built another factory in California.
Since 1957, when we started and opened our sales company in San Francisco, our soy sauce business has shown significant growth. American consumers gradually understood more and more the high quality of our product, so I think quality is the key to our growth.
Fiscal year 2015 was another landmark year for Kikkoman. You registered a group operating profit of more than 25 billion yen and passed the landmark of 371 billion yen in sales. What in your opinion has contributed most to the impressive landmarks reached last year?
I believe that our international business has been showing steady growth, which is what I believe is the most important reason for the healthy performance of our company. Our US business has been growing, as well as our European business. In 1979, we opened a sales company in Düsseldorf, Germany and started marketing there as well. Since the establishment of the sales company, our sales have grown substantially, and in 1997 we decided to have a manufacturing plant in the Netherlands. Since then, we have been enjoying an average of double-digit growth in the European market. Because of these factors, we are now enjoying growing profits from those and other operations at a landmark level.
Regarding the implementation of Abenomics, what is your opinion on how successful these measures have been and what the effects on the ground have been?
Japan has seen economic stagnation for more than 20 years. However, Mr. Abe became Prime Minister in 2012 and started his so-called Abenomics government policy that has seen Japan almost beat back deflation. Nevertheless, we still have slow economic growth and Mr. Abe made a new objective to reach a 600 trillion yen GDP target by sometime around 2020. I think that is good target to have for 2020, but it is not so easy for Japan to have economic growth, especially constant economic growth. Now, maybe we have something to strive for with the 600 trillion yen target. We should try to reach that target, and for that I think Mr. Abe’s economic policy should be successful.
From that point of view, 2016 is a very important year for the Japanese economy. Right now, the prospects of the Japanese economy are surrounded with uncertainty. There was negative growth during the last quarter, that is from October through December. The global economic situation is not so easy or stable as well, bearing in mind China’s slowdown and the European economies that have not recovered completely yet. The US has decided to raise interest rates and Japan’s negative bank rate now for the first time contributes to these uncertainties in the global economy – and I don’t know how they will all play out. Therefore, the economic situation is not so good currently as I see it.
However, if we have a strong economy this year, the government can continue its plans to raise the consumption tax next year from 8% to 10% across the board with a limited impact on the economy. I hope that the Japanese economy will grow into the 2020 Tokyo Olympics and towards the 600 trillion yen target for GDP. That is a good case scenario. Japan’s economy is not that strong yet and may become weaker, in which case expectations should be modified. From that point of view, 2016 is a very pivotal and determinant year for the Japanese economy.
From there, I think in order to have a strong economy, both the government and private companies/private sectors should perform and work in their respective roles properly. I believe that the role of government is to create circumstances under which private companies can perform effectively, while the role of the private sector is to work hard under those circumstances. In this instance, the government should promote deregulation, which of course they are working on currently - but not enough has been achieved yet, especially in the fields of agriculture, medicine and labor where more deregulation is needed. Furthermore, they have to work more on the TPP and expand free trade. As you know, the TPP covers almost 40% of world trade and would offer us a huge market in Asia Pacific, so it should be started and implemented as soon as possible. It will be interesting to see how the TPP develops and unfolds years from now. Tax cuts or tax decreases for corporations are also needed. These three items – deregulation, expanding free trade and decreasing corporate taxes – are the most important tasks for the government at present.
As for the role of the private sector, innovation and differentiation are the primary focus. Innovation plus differentiation is what the private sector and private companies need to achieve. We enjoyed economic growth between 1960 and 1973 in Japan. During that time of high growth, many Japanese companies promoted innovation and differentiation, which created demand among consumers. Those promotions added value to their products and services.
During the high economic growth in the past, Japanese companies also took risks. After the Japanese economy collapsed and during the stagnation period, many Japanese companies forgot about taking risks. Now I think they are again trying to take risks and promote innovation and differentiation. So if both the government and the private sector work together and perform their respective roles, we can have a strong economy this year in Japan.
In the documentary Make Haste Slowly: The Kikkoman Creed, you stated in reference to the company’s US expansion that “without taking a risk, nothing can be successful”. Where do you believe that the company’s next best opportunities lie and what are the risks that you must now face to grasp them?
Internationally, we were able to develop a good business model in the US market, and we are now trying to expand that model to the European market. The next step for us will be to expand that business model into the Asia Pacific, South America, and then eventually to the African market. We have also been able to take our oriental food distribution business worldwide. Japanese food is currently very popular and Japanese food culture has expanded in popularity global. These factors create a favorable environment where we can expand our oriental food distribution business. We have business in the US, Europe and Asia, but there is a big opportunity for us to expand our business further. Globally soy sauce has been popular, but in the future we may add a different business segment. Although we don’t know yet what other business opportunities are available, we are currently studying our options.
The Japanese soy sauce market is not growing because of the declining population. Therefore, I think we have to seek higher added-value products. For instance, we have developed a new type of bottle which prevents oxidation of the soy sauce. That new bottle is quite popular now in Japan and sales for the new bottle type have been growing gradually every year since its introduction. This kind of high added-value product should be developed in the Japanese market in order to grow sales even with a declining population.
We also have an R&D center where we are always working to develop new products and new business lines. If we have a chance and the right opportunity, we will consider further M&A. About five years ago we acquired a soy milk company in Japan which so far has been successful. Since acquiring the soy milk business in Japan, we have had healthy growth of approximately 7% to 8% every year, and growing profits as well. The soy milk business in the Japanese market has a bright future because general consumers have become health conscious and soy milk is considered as healthier than dairy. Because of that, I believe we can enjoy steady growth for many years to come. Furthermore, we might be able to expand that business globally in the United States and Europe, where soy milk is already an alternative. We already have soy milk business and companies there, but we might have an opportunity to expand there in the future.
Are you planning to expand within the soy milk business into other dairy-based products?
So far, we would like to concentrate on soy milk only, and not branch out to other areas yet because soy milk itself is still growing. Concentrating just on growing the soy milk business is more effective for us at the moment. If the soy milk business stabilizes and stops growing, we might consider further diversification and expansion. But we will first have to see what the future holds for the soy milk business.
Your US-based company is currently growing. How do you plan to sustain this growth over the long term in the United States?
When we started in 1957, our market share was much lower and we were number three, but we became number two in the early 1970s, and then number one in the 1980s. We have now successfully acquired a market share of about 55-60%. I believe that this is because the general consumer understands the high quality behind the Kikkoman brand. We will continue to make an effort to keep our edge and differentiation with high quality, which should enable us to keep our number one share of the market.
How do your branding and marketing strategies currently help with raising awareness of Kikkoman to new customers or new businesses?
Of course we are making an effort always to approach new customers; therefore, we still have in-store demonstrations as well as developing new recipes for using soy sauce. This is a continuous task that will never stop.
How do you plan to leverage your global network and increase sales to create a stronger market position?
We have two manufacturing plants and two sales companies in the US. In Europe, we have one sales company for soy sauce and four sales companies for oriental food, and one plant in the Netherlands. In Asia, we have several sales companies, two plants in China, and one in Taiwan and Singapore. We also have a Del Monte plant in Thailand and China. We currently cover the US, Europe and Asia Pacific, but in the future we hope to cover South America as well. I don’t know yet about installing a plant there, but we have a strong interest in South America and Africa. Currently, the population of the African continent is approximately 1.1 billion, and is continuing to grow rapidly. This kind of population growth represents good sales potential. Therefore, in the future we would like to expand into the South American and African markets.
Where does Kikkoman stand regarding M&A opportunities?
We acquired a soy milk business five or six years ago and it has been successful. If we have an opportunity or a chance to acquire a company where we see a synergy with our existing businesses, we will consider that opportunity.
In regards to our health business, soy milk can be considered as a health business. I think we can expand it in the future.
Customers are increasingly health-conscious and product educated, and want to know the company behind the product. How do you believe your brand is perceived on a global level?
I think consumers understand the difference between our products and those of our competitors. This is because they believe the Kikkoman brand is reliable, trustworthy and healthy. Those are key words for Kikkoman. We are always trying to be a good corporate citizen, because we understand as a private company that we are still a public entity of society. We are here not only to make a profit, but also for helping or contributing – not only to customers, consumers, labor, and suppliers, but also to society as a whole. We must also have good corporate governance.
How do you see your brand as an ambassador for both Japanese culture and tradition to the outside world?
I believe that the exchange of culture is very important for promoting friendship among people and also among different cultures. I believe that food culture is one of the most important factors for that purpose, because if people share an experience through food, they become friends. So from that point of view, promoting the exchange of food and culture can contribute to the development of friendship among people all over the world, which can lead to peace eventually.
Soy sauce is something central to Japanese food culture, which is why we sell soy sauce and introduce soy sauce to people all over the world. By doing so, we can introduce Japanese food culture to the world as well. I hope that people all over the world can have the same food experience using soy sauce and become friends, and hopefully by using the Kikkoman brand.
As a final message, what would you like to convey about Kikkoman?
We at Kikkoman sell soy sauce to give, promote and provide common food experiences among people all over the world; this is where we hope to contribute and promote friendship among people and among different cultures.