Entering Japan’s Retail Market: Key Strategies for Success. Part 2

April 24, 2024
Episodes

Episode 36. Start Global Insights – podcast for exporters.

Cracking Japan’s retail market can be a challenge, but with the right approach, it offers significant rewards.

In the first part of the interview with Rupert Sutton (listen to the Part 1), an expert with decades of experience in Japanese retail we discussed the structure of the Japanese retail market.

This part of the interview dives into key strategies for businesses looking to sell their products in Japan’s unique retail landscape. We’ll explore how to understand Japanese consumers, develop a compelling selling proposition, and navigate distribution channels.

Listen to the full episode at Spotify, Google and Apple Podcasts and YouTube.

Key Takeaways

Only two foreign FMCG brands are in Japan’s Top 100: Nestlé and Coca-Cola are the only foreign consumer goods companies in Japan’s top 100 list, highlighting the need for foreign entrants to target specialized market niches.

Traditional distribution inflates costs: Distributors in Japan often take up to a 40% margin, and retailers take another 35% to 40%. This pricing structure can push retail shelf prices too high for consumers.

Distributors move boxes, not brands: Local Japanese wholesalers excel at storage and logistics, but they do not execute category marketing or active brand promotion.

Consider B2B and HoReCa first: Foreign food suppliers often achieve faster profitability by selling directly to multinational food service chains (e.g., McDonald’s, Domino’s) or industrial food processors than by entering complex consumer retail stores.

Licensing provides a lower-risk entry: Brands like Tropicana, Oreo, and Kellogg’s entered Japan successfully by licensing their products or partnering with established local Japanese manufacturers.

Cold emails fail; direct phone outreach works: Japanese retail buyers rarely respond to cold emails or LinkedIn messages. Direct phone calls in Japanese or introductions via trading houses yield better meeting rates.

Target the Right Audience

Before considering distribution, define your ideal customer. Don’t just focus on market size, think about things like how people shop in Japan and who would be most interested in your product. Targeting a niche market with a high-value product can be more successful than competing in a broader category.

Japan's retail entry guide.

Develop a Compelling Selling Proposition

According to Rupert, going into retail requires a knowledge of the consumer, a deep knowledge of the consumer, requires expertise in branding, requires a big innovation pipeline and you’ve got to have a substantial sales force to get coverage. We have also discussed the necessity of a compelling selling proposition. It’s important to have a document that clearly outlines the features, benefits, and advantages of your product range, all translated into Japanese. Having Japanese-speaking team members can facilitate communication. Backing claims with data and evidence to persuade retailers to stock your product is also important.

Understand Retailer Needs

Retailers are interested in growing categories, not just individual brands. If you can present a strategy to increase overall category sales, your pitch will be stronger.

Keep in mind that some Japanese distributors might not be experts at marketing.

What is the best route-to-market strategy for entering Japan?

Most foreign exporters make the mistake of assuming a local distributor will handle all sales and marketing. In Japan, traditional wholesalers (Shosha) focus strictly on warehousing and multi-tier logistics.

JAPANESE ROUTE-TO-MARKET OPTIONS


1. Traditional Wholesaler:

Manufacturer -> Distributor -> Retail (High margin stacks: 40% distributor + 40% retailer)

2. Direct Trading:

Manufacturer -> Retail Chain (e.g., Costco) (Higher margin control, requires dedicated local sales pitch) 

3. Licensing / Joint Venture:

Brand Owner -> Local Manufacturer  (Lower capital risk, relies on partner’s local distribution)

4. B2B / Industrial:

Manufacturer -> Food Processor / HoReCa  (High volume raw materials, minimal retail marketing costs)   

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Trade Shows in Japan: Hit or Miss for Reaching Key Decision Makers?

The trade shows are still very effective channel to your potential local partners.

While attending a trade show can be a way to meet new contacts, it’s important to understand the limitations.

With thousands of exhibitors, it’s unlikely every relevant decision-maker will visit your booth.

Some strategies to maximize your success at a trade show:

Targeted Invitations: Reach out to specific individuals beforehand to increase the chance of connecting with the right people.

Niche Events: Consider smaller, more focused trade shows that cater to your specific industry or target audience.

Leveraging Your Embassy: Collaborate with your embassy to participate in events they recommend. This can give you credibility and open doors you might not be able to access alone.

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Consider Alternative Routes to Market

Finding a distributor is difficult because most products are domestic. Even with a good distributor, margins taken by distributors and retailers can make the product too expensive for consumers. In most cases distributors don’t know the market well and are in fact only logistics partners.

Explore alternative routes like:

  • Directly approaching specific retail chains.
  • Partnering with a Japanese company that complements your product.
  • Licensing your brand for local production.

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The Key to Success

The Japanese market is challenging, but it’s also rewarding. By carefully planning your approach, understanding the market, and working with the right partners, you can increase your chances of success. Remember, focus on a specific group of customers, highlight what makes your product special, and build strong partnerships for long-term success!

Frequently Asked Questions (FAQ)

What margin do Japanese retail distributors usually take?

Japanese distributors typically take around a 40% margin, while retailers take an additional 35% to 40% front margin. Foreign exporters must factor these cumulative margins into their pricing strategy to avoid overpricing products on store shelves.

Do Japanese retail buyers speak English?

While specialized international procurement teams at major chains like Aeon may have English speakers, the vast majority of Japanese retail category managers communicate exclusively in Japanese. Working with native Japanese speakers is essential for business negotiations.

Why is LinkedIn not effective for finding Japanese business partners?

LinkedIn has a low adoption rate among corporate employees and buyers in Japan. Business relationships are primarily built through direct phone contact, personal introductions, industry trade shows, or corporate connections facilitated by trading houses (Sogo shosha).

Can foreign brands sell directly to Japanese retailers without a distributor?

Yes. Major retail operators, including Costco Japan and Aeon, engage in direct trading with foreign manufacturers. This direct model allows brands to maintain better margin control and spend resources on in-store marketing.

Is licensing a common entry strategy for food and beverage brands in Japan?

Yes. Major global brands such as Tropicana, Oreo, and Kellogg’s entered Japan using licensing or co-manufacturing agreements with established domestic companies. This strategy minimizes supply chain risks and grants immediate access to local distribution networks.

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