class 7_the japanese distribution system

8/8/2019 Class 7_The Japanese Distribution System

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Copyright 2007 Keio University

The Japanese Distribution

SystemClass 7


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Class 7Copyright 2007 Keio University 2

Quote of the DayOur objective is to make sure that Carrefour

leads in pricing and wins market shareeverywhere 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 feudalsystem was abandoned

Japan at that time was divided into more than

500 regions, geographical difficulties alsosupported this trend


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The small manufacturers heavily relied on

the financing, distribution and storagecapabilities of wholesalers for survival,

especially to market their products in other

regions


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Japanese consumers could choose from

an unlimited number of shops with anextremely high service level

In 1989 half of the more than 1.6 millionretail shops were food shops (Batzer and

Laumer 1989:50)

Large purchases of stock are not commonpractice in Japan


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Wholesalers in Japan

Wholesalers give priority to customerservice

They also deliver even the smallestquantities to retailers upon request, acceptunsold goods without complaints, grantspecial discount to long-time clients andoffer them credit for up to five months

Small retailers depend heavily on themand are supported in activities likebookkeeping and customer service


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Distribution in the 80s

For non-durable goods similar retail prices were

maintained, retailers who changed their priceswere not regarded trustworthy and could notbuild up strong relationships with wholesalers

Almost no multi-brand shops (each distributor isstrongly related to only one wholesaler)

Small retailers were strongly protected by the

Japanese government (e.g. shop space fordepartment 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 complicatedand non-transparent system of rebates and haveformed a complicated and interdependent multi-layered systems of wholesaler relationships of

their own (each product passes through adistribution chain of two to five layers ofwholesalers)


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Traditional and Alternative Forms of

Distribution


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Functional Allocation ofFunctional Allocation of

Responsibilities/Tasks within Channels ofResponsibilities/Tasks within Channels of

DistributionDistribution

Manufacturer Intermediary RetailProduction Order taking SellingPromotion Inventorymaintenance OrganizingconsumersNationalsales promotion

Space control atthe retail level In-store promotionDealer aids ProductAssortmentEducation ofdealers

AreaMarketingFinancing Financing

Distribution of Cosmetics in Japan


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Retail Structure and Process

Japan has the highest number of stores percapita 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 modelbegan its success in Japan

Large Japanese manufacturers usually possess

large numbers of their own retail outlets (e.g.confections, fabrics and home electronicappliances)


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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 moreinvolved in importing

Cash and carry wholesalers, which areincreasing in number, are not inclined to acceptreturns from retailers nor do they developpersonal relationships


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Japanese SupplierMultinational Corporations

Distribution in Japan

Japanese Distribution Models

Source: Roland Berger analysis

Distributiontype

Producer

Trend

1 2 3

Japanese Producer (general) Kao Beiersdorf-Kao

Procter & Gamble

Consumers

Wholesaler

Manufacturer

RetailSuper-market(hyper-

markets)

Drugstores

CVSDepart-

mentstores

Smallretailers

Consumers

Wholesaler

Manufacturer

Consumers

Wholesaler

Manufacturer

To somesupermarkets


markets)

Drugstores

CVSDepart-

mentstores

Smallretailers


markets)

Drugstores

CVSDepart-

mentstores

Smallretailers

Source: Roland Berger


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Changing Forms of Distribution


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Pricing in Japan

Comparison between Europe, US and Japan

0.657 0.5931.055 1.2180.933 0.9711.465

1.8050.472 0.5300.833

0.992

0.2770.320

0.2330.297

0.277 0.3200.233

0.297

0.843 1.2821.591

2.0184.019

4.285

5.495

6.928

Hypermarkt Supermarkt Hypermarkt Supermarkt Hypermarkt Supermarkt

Rice

Water

Coca Cola

Diet coke

Beer

Butter

Milk

Japan USA

Whole 7.4768.301

17.218

20.560

10.904

13.556

Differenceto Japan

-36.1%-56.6%-59.6% -34.1%

1.055

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

1.694 1.677

2.763 2.763

1.1331.998

0.9990.6390.7050.6391.4971.724

8.428

11.121

Europa


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Import Distribution Alternatives

A number of non-Japanese importers have

opened subsidiaries in the Japanese market sogo shoshasare 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 ofproduct prices


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Changes in Import Management

Czinkota/Ronkainen,

Global Marketing, p.507

Producer

Import Agent

Processing +Packing Plant

PrimaryWholesaler

IntermediaryWholesaler

Small Wholesaler

Retailer

Retail Price: 170 yen/300g package

Producer

ImportingCompany

Processing andPacking Plant

Depots

DistributionWholesalers

Distribution

Centers

Retailer

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

Conventional Route Restructured Route


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Examples

In the late 1990s, some Japanese

companies revolutionized businessmodels by handling every process from

product development to product sales and

excluding all middlemen (Ohmae 2003)

Uniqlo

Zoff 100 Yen Stores

class 7_the japanese distribution system

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