The Japanese Distribution
System
Class 7
Copyright © 2007 Keio University
Quote of the Day
„Our objective is to make sure that Carrefour
leads in pricing and wins market share
everywhere 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.
Copyright © 2007 Keio University ｜
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Class 7
This Lecture
• Wholesale structure and practice
• Retail structure and process
• Major changes since the early 1990s
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Class 7
Historical Development
• During the feudal era of Japan, the country was
divided into many small regions that were selfcontained
• Manufacturers had to develop proper distribution
systems for each territory, even after the feudal
system was abandoned
• Japan at that time was divided into more than
500 regions, geographical difficulties also
supported this trend
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Class 7
Historical Development
• The small manufacturers heavily relied on
the financing, distribution and storage
capabilities of wholesalers for survival,
especially to market their products in other
regions
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Class 7
Historical Development
• Japanese consumers could choose from
an unlimited number of shops with an
extremely high service level
• In 1989 half of the more than 1.6 million
retail shops were food shops (Batzer and
Laumer 1989:50)
• Large purchases of stock are not common
practice in Japan
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Class 7
Wholesalers in Japan
• Wholesalers give priority to customer
service
• They also deliver even the smallest
quantities to retailers upon request, accept
unsold goods without complaints, grant
special discount to long-time clients and
offer them credit for up to five months
• Small retailers depend heavily on them
and are supported in activities like
bookkeeping and customer service
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Class 7
Distribution in the 80s
• For non-durable goods similar retail prices were
maintained, retailers who changed their prices
were not regarded trustworthy and could not
build up strong relationships with wholesalers
• Almost no multi-brand shops (each distributor is
strongly related to only one wholesaler)
• Small retailers were strongly protected by the
Japanese government (e.g. shop space for
department stores was limited by law)
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Class 7
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 complicated
and non-transparent system of rebates and have
formed a complicated and interdependent multilayered systems of wholesaler relationships of
their own (each product passes through a
distribution chain of two to five layers of
wholesalers)
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Class 7
Traditional and Alternative Forms of
Distribution
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Class 7
Functional Allocation of
Responsibilities/Tasks within Channels of
Distribution
Manufacturer
Intermediary
Retail
Production
Order taking
Selling
Promotion
Inventory
maintenance
Organizing
consumers
National
Space control at
the retail level
In-store promotion
sales promotion
Dealer aids
Product
Assortment
Education of
dealers
Area
Marketing
Financing
Financing
Distribution of Cosmetics in Japan
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Class 7
Retail Structure and Process
• Japan has the highest number of stores per
capita 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 model
began its success in Japan
• Large Japanese manufacturers usually possess
large numbers of their own retail outlets (e.g.
confections, fabrics and home electronic
appliances)
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Class 7
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 more
involved in importing
• Cash and carry wholesalers, which are
increasing in number, are not inclined to accept
returns from retailers nor do they develop
personal relationships
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Class 7
Distribution in Japan
•Japanese Distribution Models
2
1
Consumers
Supermarket Drug
(hyper- stores
markets)
Distribution
type
Retail
CVS
Depart- Small
ment retailers
stores
Wholesaler
Manufacturer
Producer
Japanese Producer (general)
Consumers
Supermarket Drug
(hyper- stores
markets)
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Source: Roland Berger analysis
Retail
CVS
Depart- Small
ment retailers
stores
Wholesaler
Manufacturer
• Kao
• Beiersdorf-Kao
Japanese Supplier
Trend
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Consumers
Supermarket Drug
(hyper- stores
markets)
Retail
CVS
Wholesaler
Depart- Small
ment retailers
stores
To some
supermarkets
Manufacturer
Procter & Gamble
Multinational Corporations
Class 7
Source: Roland Berger
Changing Forms of Distribution
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Class 7
Pricing in Japan
•Comparison between Europe, US and Japan
Europa
Japan
USA
-59.6%
Difference
to Japan
-34.1%
-56.6%
-36.1%
20.560
17.218
11.121
13.556
8.428
10.904
Whole
Rice
Water
Coca Cola
Diet coke
Beer
Butter
Milk
8.301
7.476
4.285
4.019
0.843 0.277 1.282 0.320
0.472 0.277 0.530 0.320
0.971
0.933
0.593
0.657
Hypermarkt Supermarkt
6.928
1.497
0.705
0.999
1.133１
1.724
0.639
0.639
1.998
2.763
2.763
1.591 0.233
0.833 0.233
1.694
1.677
1.465
1.055
Hypermarkt
Supermarkt
Hypermarkt
5.495
2.018 0.297
0.992 0.297
1.805
1.218
Supermarkt
Source: Roland Berger analysis (Germany: Wal Mart, Eurospar, Japan: Carrefour, Marusho, US: Meyers, K-Mart, Kroger, Whole Foods Market)
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Class 7
Import Distribution Alternatives
• A number of non-Japanese importers have
opened subsidiaries in the Japanese market
• sogo shoshas are 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 of
product prices
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Class 7
Changes in Import Management
Conventional Route
Restructured Route
Producer
Producer
Import Agent
Importing
Company
Czinkota/Ronkainen,
Global Marketing, p.507
Processing +
Packing Plant
Primary
Wholesaler
Processing and
Packing Plant
Depots
Intermediary
Wholesaler
Distribution
Wholesalers
Small Wholesaler
Distribution
Centers
Retailer
Retailer
Retail Price: 170 yen/300g package
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Retail Price: 128 yen/300 g package
Class 7
Savings: 25 %
Examples
In the late 1990s, some Japanese
companies revolutionized business
models by handling every process from
product development to product sales and
excluding all middlemen (Ohmae 2003)
– Uniqlo
– Zoff
– 100 Yen Stores
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Class 7