Delissa In Japan

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Table of Contents

Introduction.......................................................................................2 Japan Overview.................................................................................3

.........................................................................................................................................4

Defining Issue/Problems .................................................................7 SWOT ANALYSIS .............................................................................7

Internal Factors ....................................................................................................................7 Strengths ..........................................................................................................................7 Weaknesses .....................................................................................................................9 External Factors .................................................................................................................12 Opportunities..................................................................................................................12 Threats............................................................................................................................12

Recommendations .........................................................................14
Immediate 2 year planning ................................................................................................14 Alternative Plan after 2 year planning ..............................................................................15

Conclusion ......................................................................................16

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Assessment of Case Study Report

Introduction
Agria is a leading dairy products cooperative in Sweden Swedens leading dairy products cooperative, Agria, Delissa line encountered difficulties in Japan market. Therefore, its managing director in 1991, Bjorn Robertson held a meeting with his team (Peter Borg, Stefan Gustafson , Lars Karlsson) to review Agrias international business. Delissa fresh dairy products were sold worldwide through franchise agreements; but some of them were unsuccessful, particularly in Japan. Robertson declared in his report that the Delissa market share in Japan was under 3% after ten years of operation in the Japan retail market. However, Delissa was successful in other parts of the world such as U.S.A, Germany, France, and United Kingdom.

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Agria's Major Foreign/International Ventures 12.50%

14%

13.80% U.S. Launch 1977 Germany Launch 1980 2.30% U.K. Launch 1982 Japan Launch 1982 95% France Lanunch 1983

Agria was founded in 1967 when several Swedish dairy cooperatives, comprising of 20,000 dairy farms, created a united organization to develop and sell a line of fresh dairy products. Agrias share of Swedish fresh milk products rose to 25%. Agria developed into a powerful national and international organization. Delissa line was founded in 1970, with products as yogurts, desserts, fresh cheese, and fresh cream. By 1991, over 1.1 billion Delissa yogurt and desserts per annum were consumed worldwide. In fiscal year 1990, Delissa sales were $1.6 billion; it employed 4,400 people in and outside Sweden. Agria with its line of fresh dairy under the brand Delissa penetrated over 13 foreign markets with considerable success and minimal capital outlay. Delissas endeavor in the Japan market was unsuccessful because of several problems discussed in this case study, we will study first of all overview of Japan, Delissa and Japan market using SWOT analysis, recommendation and conclusion.

Japan Overview
Background: Japan is an archipelago comprising four main islands (Honshu, Hokkaido, Kyushu, and Shikoku) and 6,848 small islands; land area is 377,835 sq.km. Coastline 33,889 kilometers. The Sea of Japan from Russia in the north; South Korea in the west, China in the southwest. Population is 126.0 million; growth rate, 0.3%.

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The extremely majority practices Buddhism (76.3%); and some other Religions including Christianity. The population is Japanese (99.4%), the rest mostly Korean; Japanese is the only language. Major cities with populations over one million (1995) are (millions): Tokyo (8.0), Yokohama (3.3), Osaka (2.6), Nagoya (2.2), Sapporo (1.8), Kobe (1.4), Kyoto (1.5), Kawasaki (1.2), Fukuoka (1.3), Hiroshima (1.1), Kitakyushu (1). Weather varies from tropical in the south (average temperature 16 degree Celsius) to cool in the north (average 8 degree Celsius). Hottest months are from June to September; coldest months are January and February. Early June to mid-July is the rainy season. Political: In Japan, different political systems were practiced from 1192 to Second World War. From a feudal system, family military rules, to a modern military, capitalism and limited democracy were the systems that rules in Japan before Second World War. After Second World War when Japans surrender in 1945, Japan was occupied by the allies (led by the U.S) for seven years. From this point the conservative Liberal Democratic Party effectively dominated government. The principal opposition parts (communist) were chronically weak. However, after 1993 there were political reform and changes of electoral system. Socioeconomic: The below table gives a good aspect of the situation of social and economical view of Japan.

Statistics Per GNP

June 1991

June 1997 US$36,315 0.6% 34% 0.5% 0

Statistics Pop. growth Infant mortality/1000 Life expectancy(yrs) Literacy rate People per tel.

June 1991 0.4% 5 78 100% 1.8

June 1997 0.3 5 80 100% 1.5

capita US$23,570 4.9% n/a 3.3%

GDP growth Saving (GNP) Inflation(CPI)

Foreign debt 0 (in U billion)

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Pop.(million) Urban population

124.2 77%

126.0 78%

People doctor

per 635 n/a

545 1.6 2,956

People per TV Calorie (cals)

intake n/a

Infrastructure: In March 1992, Japan had 67.0 million motor vehicles, up three- fold from 1970. Car ownership grew from 21.5 million (1980) to 44.7 million (1995). Japans road system comprises 1,130,892 kilometers of highway, 7,754,102 kilometers paved. The Rail network comprises 27, 327 kilometers. Total electric energy production stood at 895 billion kwh. Japans international and domestic airline industry has good and strong situation and it takes good part of the whole economy of the country. Japan has excellent domestic and international world wide telecom service. However Japan has the second largest economy in the world after United States of America. So that GDP per capita is high and almost the people can purchase what ever they needed easily. So that to do business in Japan is suitable but the companies have to analyze the market especially the culture of the people.

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Defining Issue/Problems
The core problem for Agria in Japan is that fact that even after 10 years since the launch of the Delissa brand yogurt in Tokyo, Osaka and Nagoya, Delissa only holds less than 3% of the overall yogurt market share in Japan. Furthermore, by 1991, its market share dropped further to only 2%.

View of a typical convenience store in urban areas.

SWOT ANALYSIS
Internal Factors Strengths
Franchisee: Nikko is Japans second largest association of agricultural cooperative, an equivalent to Agria. The choice of Nikko is further reinforced as they have strong political influence. Nikko has two parts, a manufacturing and a distributing arm. Nikko formed a separate company for distributing, marketing and promoting Delissa products. Distribution: Delissa products will make use of existing distribution channels provided by Nikkos milk product, Nikkodo, with daily delivery schedules and lower costs. At the same time, shifting of distribution will be adopted.

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Entry Strategy: Delissas entry was assisted by SRT International Advertising Agency with substantial advertising and sales promotion budgets approved by Agria and Nikko. Target market was families with new babies, focusing the potential buyer on housewives. Delissas dietary values will be shown in accordance with the housewives dietary concerns. It was stressed that Delissa was a Swedish product made in Japan under license from Agria Co. Thereby enabling association with the healthy food and sophisticated taste from Sweden. Launching of Delissa: Delissa products were presented to retailers on January 1982 prior to launch in Tokyo, Osaka and Nagoya. 3 different types of yogurt: plain, plain with sugar and flavored (vanilla, strawberry and pineapple). Fruit yogurt will be launched a year or two later. Major promotional campaign which involved: - TV, - Newspaper and magazine support - Street shows - in-store promotions - test trials in an outside retail stores
Delissa's Advertising Strategy in Japan

6% 4% 4%

TV Newspapers Magazines In-store Promotion

94%

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Weaknesses
Franchise: Negotiations with the Japanese counterpart were frustrating for the Agria team. Several trips and meetings were made but things dragged on. Even after signing the contract with Nikko, Agria was still no very sure what Nikko thought about them or what they expected from the deal. 80 Nikko salesmen sell Delissa but spend only 5% of their time on it, preferring to push for other products. Common in Japan due to high cost prohibiting separate sales forces for each line of product. Nikko has limited distribution network outside of major metropolitan areas. Coverage at small ciites, towns and rural areas were very thin. Distribution/ordering: Most physical distribution such as drivers and delivery vans is conducted by a Nikko subsidiary with wholesaler support. Ordering system was overcomplicated and slow causing serious bottlenecks. Orders were taken via forms as opposed to other milk and juices that were ordered via phone. An example of the ordering and distributing system is shown below: Day 1 am: Each salesman sent an order to his depot Day 1 pm: Each depots orders went to the Yokohama depot Day 2 am: The Yokohama depot transmitted yogurt orders to the factory Day 2 pm: Yogurt was produced at Nikko Milk Processing Day 3: Delivery to each depot Day 4: Delivery to stores Delivery procedure takes too long. Yogurt arrives in the sales outlet 2 or 3 days after production. Meaning the dates shown on the yogurt cups are 2 to 3 days late. This should be only 1 day. Distribution costs: Distribution costs were excessive. During 1988, distribution costs were at 27% of sales versus competition at only 19%.

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Distribution cost expense as % of Sales for Delissa

19%

Delissa Competition

27%

Advertising: Advertising messages may be too cluttered. Recent consumer research survey shows: 4% unaided awareness 16% with any recall at all 55% did not know what the TV commercial were saying Survey by by Oka Market Research indicated that Delissa tastes good. Delissa would not be able to be differentiated as consumers believe all brands taste good. By 1989, the Swedish advertising image will be dropped because people associate the tagline fresh from the farm with directly imported from Sweden, thereby questioning its freshness. After research, it was noted that the target market should be young people from age 13 to 24 and children. However, Nikko and Oka are running TV spots from 11.15pm to 12.15am. These midnight spots will be unable to reach the children. Advertising had limited budget by 1991 and a 15second spot in Tokyo ranged from Y750,000 to Y1,500,000, which is relatively higher compared to European rates. In an advertising awareness test, half of the respondents claimed not seeing any yogurt brand advertisement. Furthermore, 55% of Delissa advertisement viewers responded that they did not know what the message was.

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Typical convenience store in Japan. Product Returns: Product returns for Delissa is very high compared to other countries. A 5.06% average return rate was recorded as opposed to 0% in Scandinavia and 2% to 3% internationally. He high retun level may originate from the perception of consumers that the product is too old after 5 days even though 14 days is the actual shelf life of the yogurt. Positioning: Agria was trying to position and strengthen Delissas plain yogurt product as Nielsen and Oka research findings found that plain yogurt has the largest segment in Japan. However, Nikko was reluctant to proceed and continues to promote fruit yogurt.
Delissa's Market projection for Yogurt in Japan
50% 45% 40% 35% % of Market share 30% 25% 20% 15% 10% 5% 0% Plain Type of Yogurt Fruit 1988 Market Share/ type of Yogurt 1992 Market Expectations

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External Factors Opportunities

Japans total population is 120 million with urban population of 77% and GNP just above 23,000 USD all indicate a good, stable retail market. Japan has a huge retail market that mainly comprise of small local stores which are extremely favored by Japanese people over western-style supermarkets. As a result independent outlets account for 57% of sales compared to only 3% in the United States of America. More over, Japan has 1,350 stores per 100,000 people, accounting for almost two times as much in the European countries per capita. In Japan, there is very high urban density, 60% of population live only in 3% of the total Japanese islands. So, 85% of the population lives in towns and wealth is distributed evenly meaning theres a lot of middle class. Another factor is the lack of space, for that reason many households choose to shop daily due to lack of storage space and food shopping accounts for 30% compared to clothing at 10%. Other factor is the Japanese market evolution to westernization and the instant popularity of European and American products such as yogurt and other products.

Threats
Distribution costs could get very expensive in Japan because of the complicated street system such as the names and numbers. In fact, Tokyo and Osaka have no street names what so ever. As a result, sometimes distribution system comprises of primary, secondary, and tertiary wholesalers serves supermarkets and retailers making the process longer and costly. To ensure freshness of the dairy products distributors must visit the retail shops daily. More importantly, since the retail market consists mainly of small retail stores that can not hold much inventory. In response, wholesalers, and distributors have to often deliver orders more than once a day, further complicating distribution process and efficiency. The Japanese market is very competitive and the long presence of local companies and naturally Japanese people are very proud of their local made products and might be reluctant towards foreign companies. Japanese traditional yogurt drink, Yakult Honsha that is not sold in the shops but sold door-to-door via women who sell direct to workers in offices accounts for 31% of the total market base of yogurt. Meanwhile, local Japanese companies dominate the market shares lead by Yukijirushi (Snowbrand) at 25%, Meiji Milk Products at 19% and finally Morinaga Milk Industry at 10%.

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Yogurt Brand Consumption in Japan

30%

25%

20% % consumed

15%

Plain Yogurt Fruit

10%

5%

0% Meiji Bulgaria yogurt Yaplait Danone Brand Delissa Morinaga Bifidus

Yogurt sales in Japan tend to be seasonal and thus, per capita consumption is very low at 5.3 cups per person per annum compared to Finland at 120 cups per person per annum, which is almost 95 times more consumption per person. When Delissas brand awareness was put to test it scored in the bottom when unaided awareness test was conducted. But, for a photo aided test Delissa plain yogurt scored closed to Meiji Bulgaria at 71% recognition, for fruit yogurt it was equal to Meiji Bulgaria at 78%. Overall, with the photo aided test Delissa awareness was higher than Bifidus and Danone, but lower than Yoplait. For the yogurt drink 99% were aware of Yakult Joy, while only 44% were aware of Delissa. More over, Delissa was less desirable regarding taste, availability, price, reliability of the brand and its health benefits when compared to top three brands in Japan. Hence, Delissa ultimately failed to really distingitush it self from competitors and convey brand is image effectively.

View of Yakult and Meijis products, competition towards the Delissa line of yogurt.

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Recommendations
Based on the case study analyses, this report will present a time ranged method of recommendation for Delissa. The time range mentioned will be separated into 2 which is a 3-4 years action plan followed by an alternative plan after the implementation of the action plan.

Immediate 2 year planning

Focus on Market Targets and Segments There appears to be an urgent need for Agria to identify, confirm and focus on its desired target market and market segment for Delissa yogurts. Based on their intensive researches completed, they have already identified both young people as primary targets and children as secondary target. Also, the larger market segment to promote is the plain yogurt segment. Referring to these market targets and segments, the promotional activities should be catered and geared towards them. Advertising Advertisement timeslots will have to be changed to suit the target market. If this means a higher marketing budget, then management should condone it. A midnight advertisement slot is both wasteful and pointless as it will not be able to reach the desired target audience. Agria has to focus on its motto or taglines. Based on the studies, it was evident that Japanese consumers did not buy into the idea of fresh from the farm as it is contradictory to the fact that the date on the yogurt cups are about 2 to 3 days late and yet they are being touted as fresh. Consumers would have to be reeducated regarding the Delissa brand and products.

Typical view of a yogurt advertisement in Japan. Distribution/Ordering Another factor to make changes was the distribution and ordering process flow that requires vast improvements. The lag time of about 4 to 5 days in order to reach the final sale outlet is too slow. In relation to the previous item mentioned on freshness, a faster flow could enable Delissa to eliminate this notion of non-freshness and also lower the average rate of product returns. The order forms would have to be converted to become a supplement for receiving of the goods. Phone orders would have to be enabled to expedite the delivery into the stores. Experiment in implementing pre-ordering procedures to the areas with low permeability.

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To start considering using door-to-door sales as done by local products. This in another sense will create job opportunities to the locals of the area thus in a way will help in providing free marketing by WOM and it will be a tool in influencing locals to consume or recognize the brand since social factors will also influence the consumer behaviors. Japanese Culture Considering that there are huge gaps between Swedish and Japanese culture, especially on the language barrier, a reliable Japanese or local Assistant Manager to the Swedish head of project in Japan for Agria should be hired. This local assistant manager will provide the bridge towards the gap between Nikko and Agria. Franchise contract could then be further fine tuned with the focus on ironing out objectives and targets for both parties understanding.

Alternative Plan after 2 year planning

Post-Action Plan Audit An audit will have to be conducted after the implementation of the abovementioned action plan in order to gauge its effectiveness. It is a known fact that Japan would not be an easy market to tackle as they have a unique culture and strong internal Japanese expertise and businesses. If the findings of the audit are still not encouraging and the Delissa market share remains at levels below 3%, then an alternative measure will have to be taken. One direct reaction is to terminate the joint-venture with Nikko since they (Agria) could never know what was really happening on the ground because communication (language) problems forced Agria to rely on Nikko and also the fact that Nikkos distribution network does not expand strongly beyond the outskirts of three major metropolitan areas in Japan (Tokyo, Osaka & Nagoya). With the strong competition in mind, it is also recommended that Delissa do not continue to go against other mass retail market brands and products. Instead, Agria together with Nikko should channel the Delissa towards other niche. Identify Niche Market - Lower Volume and Higher Margins The niche market recommended is the luxury high-end market of restaurants and hotels in Japan. Delissa will be positioned and repackaged as a very high end product focusing their sales directly to wholesalers that supply to hotels and restaurants. Hotels and restaurants serve yogurts in their menus and also as ingredients in producing desserts.

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This market may be a smaller market compared to mass retail market but it enables Agria to lower production volume and cost while simultaneously increasing profit margins as the yogurt prices can be revised and hiked to project the affinities of the high end market. Some amount of investment from Agria can be lowered as production volume decreases. However, the hotel and restaurant market has still the potential to develop. Agria and Nikko will have the opportunity to build up from a smaller platform and grow concurrently along the hotel and restaurant market niche. As the market grows and business thrives, the profit form this market can enable Agria and Nikko to delve into the mass retail market again in future.

Conclusion
Agria has serious problems in its implementation of the Delissa brand and product in Japan. The problems have been identified from basic target market identification to distribution and ordering. Measures have been recommended to be taken in order to alleviate the low market share problem faced by Delissa. The initial step is to implement the 2 year planning to refocus on the intended target segment market. Considering the difficulty faced in venturing into Japan, if the immediate action plan fails to provide satisfactory results, then the alternative plan will have to be implemented. It is a radical plan to move out of the mass retail market and downsize to concentrate on a niche market of supplying to luxury hotels and restaurants. This market provides the avenue of lower production volume but higher profit margin. As the market grows and profits are recouped, Agria and Nikko (or other partner) can then venture into the mass market again. If all the above still does not meet target success, then it is advisable to pull out while still keeping the loss at the minimum.

END

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