Drink to that: Small foreign brands find space on local shelves

Anybody who has lived in Japan for a while will be familiar with the fleeting nature of food and drink trends. Take bubble tea, for example. New pop-up shops appear every week, and people line up for a city block to try a new flavor. But soon the tea may be gone. It’s a reflection of the reason Japan’s food and beverage market is a tricky one to settle into—especially for foreign brands. Competing for shelf space in convenience stores, supermarkets, restaurants, and bars is tough, presenting one of many obstacles foreign companies must overcome.

The ACCJ Journal spoke with companies that import beverages to Japan to find out how they view the current market and what they are doing to sustain success and gain a stronger foothold.

Tropicana

Natural Beverages Japan makes pure-juice, not-from-concentrate (NFC) products and imports them to Japan. Coming in a variety of flavors, the juices originate in Brazil, where the company is known as Natural One. Paul Guilfoile, president of Natural Beverages, shared with The ACCJ Journal what he has learned about breaking into the market. Having previously worked for Kirin Tropicana Inc., one of the best-known juice brands in the world, Guilfoile has firsthand experience of entering the Japanese market.

While Japan has a reputation for being closed off, things have changed noticeably over the past 10 years. Guilfoile’s work with Tropicana played a huge part in bringing that brand to the local market. Comparing the challenge today, he said: “Ten years ago, we had a lot of similar products from concentrate brands like Dole and Sunkist and Minute Maid. And then you have your midrange Japanese brands, and your private label brands. Today, the only big player that remains is Tropicana, and there are a few of the regular Japanese brands, like Meiraku and Sujahta.”

Perfect Package

Indicating that the competition in Japan has now leveled off, Guilfoile mentioned the challenges that he faced 10 years ago when working with Tropicana.

“Most of the juices in Japan have always been made by dairy companies. You know, the milk-carton approach with a very short shelf life,” he said. “When I came here and started Tropicana, we had a 12- or 14-day shelf-life for the juice, so we struggled.”

Consumers were used to a maximum shelf life of seven days, as with dairy products. “It took years for the Japanese trade to understand that it’s okay to have a longer shelf life for juice,” Guilfoile said.

His extensive background in advertising helped Guilfoile craft an effective plan. “Understanding the packaging lineup you need to have, the flavor line up you need to have, and the price points you need to have is important.”

Japan Market

When addressing the current state of juice in Japan, Guilfoile mentioned the quirks that are specific to the country. “One thing that hasn’t changed is the low percentage of NFC juices in the Japanese market. Asia is predominantly a from-concentrate market. They remove the water, ship it overseas, then people buy it in bulk over here and put the water back in to sell it.”

Natural Beverages are looking to enter the high-quality, pure-juice market, which Guilfoile believes is in demand. “In Japan it’s high-value, high-quality items. It is probably the right time as the population is actually going down and you have a lot of older folks looking for good, high-quality products.”

Paul Flint, co-founder and representative director of Premium Beverages, a Japan-based company that imports spirits from the United States, explained that the alcohol sector here is not as tightly regulated as it is in the United States.

Describing the local approach, he said: “Japan has a three-tiered system of distribution—national, regional, and local—but that is simply an organic system developed for volume sales. It is not mandated by law. Thus, a small company can sell directly to retailers and build volume, at which point they can approach local distributors to handle the logistics for a 13-percent margin on a slightly bigger volume, and so on up the distribution chain.”

Another market expert is Mark Spencer, a Japan-based importer who has been introducing British beers and ciders to the local market since 2000. Initially, Spencer was importing for Hobgoblin pubs, but has since expanded to other customers throughout Japan. He spoke to us about how the market has evolved over the years.

“When I started importing draught beers, most bars only sold one or two different draughts, and the guest beer system was almost non-existent. Also, the Japanese makers would supply fridges and other incentives to lock out other beer suppliers. Nowadays, most bars—with the exception of those in restaurants—will have several taps, and the selection changes regularly. In fact, the large Japanese breweries have now launched their own small-batch beers to compete in the market.”

With his previous distribution experience and market know­ledge, Spencer told us about a new project on which he is embarking. “I have now decided to get into the booming Japanese gin market. We will be launching two locally made gins and a spiced rum with my new venture, The Tokyo Distillery Company.” Re-entering the market with all new products, the company plans to start releasing the spirits this summer.

Not Just Juice

Drinking culture in Japan is huge, as is the import of non-Japanese alcohol. Drinking establishments—as well as super­markets and convenience stores—are all becoming more familiar with offerings from different countries. And that includes the United States. Premium Beverages currently handles two U.S. whiskies: one from Kansas and one from New Mexico. They also import rum from Georgia, bourbon from Texas, and a smoky maple syrup (non-alcoholic, of course) from Vermont.

“We bring in new products and test-market them. The challenge for us as an importer with new products was lack of a market,” Flint said. “Without an existing market, you need to build one, which requires time and money. This does not guarantee success but, for a small business, it is necessary to generate cash flow to keep the company afloat while you do the market-building actions.”

Flint explained how he sees the market in Japan for alcoholic beverages. “I don’t know what the macro numbers are—and I’m not sure that macro numbers are meaningful for smaller players—but every product category is a niche market. And, for smaller companies, there are so many potential outlets. There is a good chance that you can get to solvency with a little effort. Once you have solvency, you have longevity, which is really the key to market building. The longer you are in the market, the more opportunities will present themselves.”

Convenient Competition

With fleeting consumer trends and difficulty in succeeding, it is hard for foreign brands to break into the market—especially to secure shelf space in the competitive world of convenience stores, or konbinis as they are called in Japanese. Family Mart, 7-Eleven, Lawson, and Natural Lawson are huge distribution points for the food and beverage industry in Japan.

“Traditionally, they used to take in new products only twice a year, at the beginning of their fiscal year, which is in April, and then again in September. Now, that has shifted to four key times. But, if an item is interesting enough, they will bring it in to their store early,” explained Guilfoile. “If you have four or five flavors in your lineup, you shouldn’t expect to get all flavors in at once. The reason for that is, if it doesn’t sell well, they’ll cut the product and you can lose the listing or the place on a shelf. So, you always have to have the next flavor ready.

“What we used to do is share our innovation pipeline with our convenience store buyers, so they understood that we were serious and ready to innovate to stay in their store for the long run.”

Guilfoile also said the opportunities to promote and advertise in convenience store chains are slim compared with those in the United States.

Supermarkets

Keeping your brand and products current and attractive to consumers is important for any type of business. This is particularly true in supermarkets, where the competition sits on the shelf next to you.

“Once you get in, you can pretty much stay in for at least a year. But you are expected to come up with new flavors every now and then, or do something innovative with your packaging,” said Guilfoile, stressing the importance of branding.

However, Flint said that smaller operators gladly welcome new products, with their flagship product, Kansas Clean Distilled Whiskey, gaining a lot of traction.

As for companies that are looking to expand into Japan, Guilfoile advised, “Get a good partner, study the market, and understand that everything is different from the United States.

Custom Media publishes The ACCJ Journal for the American Chamber of Commerce in Japan.

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