23 Apr 2015

Center on Japanese Economy and Business, Columbia Business School – Zadankai

Thursday 23rd April 2015

Gyoza, Rice and Noodles for the U.S. Mainstream Market

Recently, staff from the Japan Local Government Center had a unique opportunity to listen to a high level Japanese corporate executive talk about how his company intends to gain access to the mainstream U.S. consumer market. Mr. Hiroshi Kaho, general manager for business strategy and development at Ajinomoto Company, Inc., gave a short talk in English followed by an interesting question and answer session. What is really significant about this opportunity is the chance to hear from an insider what strategy is needed to market Japanese products in a mainstream market like the United States.

As Japanese consumers know, the Ajinomoto Company is the largest food company in Japan. Mr. Kaho’s talk was on the strategy that Ajinomoto has adopted to build on the growing interest in Japanese and Asian food outside of Japan and the Far East. In particular, he described how Japanese companies can ‘leverage’ this growing interest in and acceptance of Japanese food. What he emphasised as essential was the commitment to the country one is introducing one’s products into.

First, we need a little background about Mr. Kaho and Ajinomoto. Mr. Kaho has more than 20 years’ experience in the food industry. Beginning in sales, straight from college, he has been involved in brand development (Knorr foods of Switzerland) and business development in South East Asia and Latin America. But the most important aspect of his career has been in Mergers and Acquisitions (M & A, for short).

He was in charge of the Ajinomoto-acquired, Hong Kong-based Amoy Food Ltd. company before taking up his present position. Ajinomoto has itself been expanding from its origin as a spice company and has reached the point where there is little room for growth internally in Japan. So, it has moved into the South East Asian and Latin American (mainly Brazil) markets. But now, it is poised to move even bigger by addressing the North American and European markets. That is Mr. Kaho’s main task now.

Mr. Kaho began his talk by explaining about the nature of selling food products to customers not familiar with the items being sold. Take gyoza, for example. Originally from China, it was brought to Japan. In China, gyoza for the most part is boiled. The Japanese, not used to that type of cooking for dumplings, adapted the food to pan-frying. In modifying the food, the Japanese made it popular. Mr. Kaho stressed that it is in the modification that a product can become universal. And that is what the Japanese have done for gyoza. It is like sushi, which is an essentially Japanese food that was brought to the United States and made popular, then modified by the American consumer to suit his tastes, and has now become universal. Mr. Kaho explained that adaptation of a food to the tastes and habits of the consumer is what helps make it a success. This is what Ajinomoto has learnt is the key to its expansion into the world markets.

Although Ajinomoto is a company with a number of different products, it is hoping to become a global supplier of speciality foods. Outside of Japan, until now, it has concentrated on what it calls the ‘Five Stars’ – Thailand, Vietnam, Indonesia, the Philippines and Brazil. Having accomplished a considerable success in these markets, the company wants to expand to what it calls the ‘Rising Stars’ – North America and Europe. In particular, there is a desire to become a major player in the United States. Mr. Kaho went on to talk about how Ajinomoto conquered the ‘Five Stars’ and how it will change to win over the ‘Rising Stars’.

Ajinomoto has always taken the long view, developing three-year plans that focus on brand loyalty not price, often because it cannot compete on price alone. In the ‘Five Stars’, the company took a strategy to enter these markets where the purchasing power of the individual does not support major supermarket chains. Instead, the company could work directly with small grocery stores. It concentrated on satisfying the needs of ordinary consumers. It paid attention to how people cook their food. The company’s market research focused on the individual at home and her preferences. But that approach will not work in the U.S./European markets. The company knew it had to think differently. There is intense competition in the mainstream market, being local or ethnic will not provide sufficient growth, and local decision-making will not be effective for such a large scale market. Ajinomoto recognised that it had to think globally to succeed.

The question was how to move beyond the ethnic market and create a loyal mainstream consumer base. This is where M & A was needed. There is, however, an important pre-requisite for any M & A decision – product development. What makes the product stand out? How does it appeal to the larger consumer base? For Ajinomoto, the answer was (and is) that its product is better than ‘home-made’; using technology to perfect its product so that, even though more expensive, it will attract and hold a loyal customer. More than that, though, the company also realised it had to adapt to local tastes.

With all this in mind, and now that Ajinomoto had prepared itself to enter the mainstream market, the next stage was to find the means to go mainstream. That of course was sales and distribution. This is where M & A makes sense. So, in 2014, Ajinomoto acquired Windsor Foods. It was not easy. Ajinomoto had to convince Windsor Foods, owned by a private equity firm, that it could bring positive assets to what was already a big company in the pre-packaged food market. Ajinomoto was able to do that because it had done its homework. It stressed it was a family-owned company that had a reputation for ‘chef-quality’ products – better than ‘home-made’. It added that it could bring greater profitability through its superior production management, focusing on efficiencies and product quality through technology. As for Windsor Foods, it has a solid reputation and, most important, access to the mainstream American market. Establishing Ajinomoto’s product brand will be a challenge – but go and look at the home page of Windsor Foods to see precisely how they are enticing the American consumer: http://www.windsorfoods.com/. It is too early to tell how well the strategy will work but Ajinomoto is confident this approach is the way to encourage Japanese firms to expand beyond local markets. All in all, a fascinating story.