Chapter 11. Marketing and Advertising Strategy: What’s it all about?
Chapter 11. Marketing and Advertising Strategy: What’s it all about?
The wine division had been promoting wines for many years but the expansion of the line of alcoholic beverages and the purchase of two wineries represented Mercian’s attempt to catch-up with Suntory.
But Suntory was an entirely different animal. Since the 1890s Suntory’s core competence had been alcoholic and non-alcoholic beverages. The company is owned by the Torii family who established their winery in 1899. Suntory built Japan’s first whisky distillery in 1923 and is considered Japan’s finest whiskey producer. Suntory had been in the wine business since the 1920s, developing into a sophisticated marketer of liquor and wine. In 1963, although Suntory entered the beer brewing industry as a latecomer, initially producing a draught beer in 1967, the company quickly became recognized as a major contender in the competitive beer market. Suntory also developed a line of non-alcoholic beverages. In 1984 it engaged in a licencing agreement with the premium ice cream producer Häagan-Dazs, one of its numerous ventures with foreign producers in the food and beverage industry. In 1985 Suntory entered a partnership with Château lafite Rothschild and also purchased Château Lagrange and over 50 percent of Château Beychevelle. Suntory Vineyards and research center are located in Yamanashi Prefecture where the other large Japanese wine producers’ vineyards are located. Suntory’s wine is said to be made entirely from their domestically cultivated grapes.
Suntory’s corporate investment in advertisement and marketing was substantially more than Mercian Inc.
Suntory’s Marketing Strategy: sipping sophistication, sipping elegance
In terms of marketing and promotion Suntory concentrated its huge marketing and advertising budget on wine, whisky, beer and soft drinks. The advertising and marketing campaigns for wine and whisky focused on the arts and culture since the 1920s when the Torii family began supporting educational and social welfare programs. As the years progressed, Suntory’s patronage came to encompass the full-fledged funding of the arts and literature and wildlife conservation.
Corporate identity is immersed in a potpourri of cultural activities and Suntory’s philosophical theme “Enjoyment of Daily Life,” together with its advertisements, cleverly exploited its corporate identity to promote its products. As an example, a well-known Japanese author approached Suntory in the 1980s suggesting that he do a commercial for whisky in Japan. His theory was that Suntory and writers were intimately related because both were the producers of “culture.” The spot was successful. The writer’s recently published novel received valuable publicity and the writer’s calm soliloquy about the “Enjoyment of Daily Life” stamped an indelible literary image on a bottle of Suntory. Other writers have since joined his ranks, further enhancing this image. A scene in the American film Lost in Translation replicates the television advert with the protagonist, played by the actor Bill Murray, sitting in a chair, holding a glass of Suntory whisky and mouthing a few words in Japanese.
The Suntory Museum of Art was opened in Tokyo in 1961 and the Château Beychevelle International Center of Contemporary Art was opened in 1989. In 1986, Suntory Hall was inaugurated in Tokyo and is regarded as one of the finest concert venues in Japan. The 2,006 seat hall was built to commemorate Suntory’s sixtieth anniversary of its whisky production and the twentieth anniversary of its beer brewing operations. The hall also includes a 450 seat recital hall. Suzuki copied Suntory by opening an art museum in 1990 in Nagano Prefecture naming it the Mercian Musée d’Art Karuizawa.
Mercian’s Marketing Mix: cheap and cheerful
Suzuki’s strategies were designed to: (i) expand the portfolio of mid to high-end imported wine and spirits; ii) purchase wineries in famous wine producing regions (iii) develop wine-based drinks, targeting young women and men with limited income. With the exception of Martini and Pommery, most of the new products targeted younger and less sophisticated consumers. Catching up with Suntory proved a strain on the wine division staff. Consequently, marketing was uncoordinated, haphazard and expensive. My recommendation that marketing and promotion of a brand over the long term would be cost effective received a cool reception.
In 1988 Suntory, which also operated a flower business, released a wine instilled with the essence of flowers in bottles that were painted with specific flowers such as cherry or lemon blossoms. While Suntory was marketing the flower infused wine Mercian was marketing wine in milk cartons (“bag in box”) and several other drinks targeting young women. Vino 5 was a concoction of wine diluted with fruit juice and water and packaged in a pint-size carton and sold mainly in convenience stores. I was asked to compose catch-phrases in English for stickers on the cartons, which became a hobby.
Even though consumers may not understand the meaning of the words, expressions created from a foreign language bring an image of internationalization and promote a momentary escape from reality. French, English and German were popular languages for catch-phrases. Among foreign males the black tee shirt with the logo “Asahi Super Dry” in Japanese characters is very popular but most are unaware that Asahi Super Dry is a lager with a 6 percent alcohol content that was launched on the market in 1988 by one of Japan’s three main brewers. At the time, most lagers had a 4 percent alcohol content. I composed the following phrases for Vino 5 specifically for the Japanese:
Drink to me only
Love on the rocks
Drink to lovely nights
Cheers to oshare nights (oshare is “stylish” or “fashionable”)
Forever you Forever Me.
Vino 5 and We
Alive with Vino 5.
The spirits division also asked me to create some phrases for the label of a new brand of shochu. I composed several but I did not expect any of them would be given serious consideration. However, several weeks later, to my surprise, the division handed me a small sample bottle of the new brew. One of my phrases, “25 Cask- Aged Shochu” was printed on the label, a highlight of my job at Mercian.
Mercian was one of the four major producers of shochu and was steeped in the tradition of producing spirits and whisky for the working classes and had consumer-recognition as a producer of excellent shochu. But Mr. Suzuki’s strategy called for the reduction of shochu production because he considered it to be a cheap, unsophisticated, blue collar drink. I saw this strategy as a major miscalculation of the future shochu market because the strategy did not consider the growing popularity of shochu-based drinks among Japanese youth.
A Private Tour of Mercian’s Winery
Although the Martinis had visited the Mercian winery and vineyards in Yamanashi
Prefecture, they never mentioned their impressions. However, Elizabeth included in her letter thanking me for dishes I had sent to her that she and her husband had visited the Suntory winery: “When we were in Japan we went for a tour of the Suntory Vineyards. Louis was very impressed by their vineyards, research and wine that they made from their own grapes, not the blends, etc.”
I visited Mercian Winery for a private tour offered by the senior manager and wine-maker. Until Suzuki stepped in Mercian’s budget for R&D was small compared to Suntory’s because Mercian was engaged in other businesses while Suntory’s core competence focused on alcoholic and non-alcoholic beverages. Mercian’s winery and the vineyards were on a smaller scale compared to Suntory’s and the wineries in the Napa Valley.
The tour was a peaceful walk through Japan’s wine making history but it also explained the struggle of oenologists in Japan to cultivate grapes for wine in a humid climate. I saw the new steel fermentation tanks and the modern grape crushing machinery but I could see the need for Mercian to top-up its wine with concentrated grape juice from Rumania and Bulgaria, the least expensive option.
California Here I Come: A Visit to Martini
In September 1989 I convinced the director to send me to Los Angeles and the San Francisco Bay Area for a ten day market tour of liquor retail outlets to interview store managers and photograph the shelves so that the wine division could see how the brands of wine were being displayed. Since there were few shops in Japan that focused on wine the survey would reveal which wines were popular and how floor space was utilized.
After arriving at Los Angeles Airport I first went to a DHL depot to collect two large maps of the Bordeaux and Burgundy wine growing regions which the French Wine Association’s office in Tokyo had shipped to me when I asked one of the administrators if there were any maps of the regions. He graciously offered to send them to LAX. The maps are very beautiful and adorn my kitchen wall.
I booked a room at an inexpensive hotel in Los Angeles. To cut costs I stayed with my parents while I was in San Francisco. Fortunately, the proprietors of the up-market wine shops in Beverly Hills and the large outlets in San Francisco and suburbs allowed me to take photographs of their establishments and conduct interviews.
Before departing Japan I had contacted Louis Martini to inquire if I could pay a brief visit. We arranged to meet at the Louis Martini Winery for lunch. The weather was warm and dry and the vineyards were almost ready for the harvest. Elizabeth and Louis welcomed me with a basket laden with fruits and vegetables from Elizabeth’s garden. They requested more copies of the cookbook and then escorted me to the winery’s large garden. There were no tourists around when a caterer laid out a delicious lunch for the three of us on the picnic table.
After lunch the Martinis gave me a special tour of the winery before taking me to their home. I recognized the building immediately because I had walked passed it almost daily during my years in St. Helena. Louis proposed that he take me to some of his vineyards to show me some varietals and I hopped onto his pick-up truck for a tour. Louis explained that the Martinis owned over 900 acres of vineyard in the Napa-Sonoma Valley.
When we returned to his home Louis took me to his wine library where bottles of wine produced over the years were stored according to the year they were produced. Asking me the year I was born he presented to me a bottle of Cabernet Sauvignon he had made that year. It was a generous souvenir and a finale to a memorable day.
After returning to Mercian I presented the wine director with an album filled with the photographs taken during the survey along with the receipts for expenses. The entire trip cost $2000, including airfare, which was certainly cost-effective. He and the female kacho were dumbfounded that I had actually executed the marketing survey exactly as I had proposed because they had suspected that I had taken a holiday. They took me to Mr. Suzuki’s office to present the album and to detail how wine shops and large liquor outlets were using floor space and the wines that were most popular among American consumers. Mr. Suzuki, although surprised, seemed pleased with the effort but I do not know how the survey was used or if, indeed, it was used at all.
In December 1990, the wine division met with Louis Martini’s agent to discuss the sales in 1990 and to forecast sales for FY 1991. The agent was told that the stock of Martini wine was no longer sufficient because of growing sales of California wine and that Mercian was expanding its California presence in the market. The Martini agent offered to introduce Mercian to other California wineries that produced cheaper wines than Martini.
We did not tell the agent that we were approaching Gallo, California’s largest wine producer and also considering Robert Mondavi which was being imported and distributed by another Japanese company. Gallo was known at the time as a producer of jug wine for mainly home use and was in a lower price range than Martini. Since Markham wines were comparable in quality to Martini wines and in the same price category, it was improbable that the Martini label would remain a constant in the Mercian portfolio. The agent invited me for lunch to suss out Mercian’s future plans but I preferred to simply enjoy the cuisine. Coincidently, Gallo purchased Martini in 2002 but the Martini family continued to manage operations.
Moving to new headquarters and a corporate name-change was an expensive proposition. Regardless, Mercian continued to expand the wine business, acquiring Calpis Co., the producer of a yogurt-based drink which I drank regularly in the same fashion as Americans drink Ovaltine. There was a synergy because Calpis’ core product was the yogurt-based beverage, produced through the fermentation process. Calpis also had purchased top-of-the-line California boutique wineries. Mercian eventually engaged in third-party ventures with Gallo and Mondavi and, pushing full-steam ahead, invested in Australian wineries and the importation of Italian wine.
Corporate Strategies Frustrate Corporate Development
Within a year after entering Mercian I became increasingly concerned about the company’s corporate strategy and questioned the use of budgets. There was also palpable resentment and anxiety amongst the old-timers who regarded Suzuki as an interloper who was bored and frustrated with his lack of responsibilities at Ajinomoto and had taken on Mercian as a “toy” to mould into his version of a Suntory. Staff also grumbled that Mercian was acting as Ajinomoto’s real estate agent because of its recent purchases of Markham in the Napa Valley and Chateau Reysson in the Bordeaux. The dilapidated Markham was undergoing a total overhaul with the replanting of the vineyards and the installation of new production equipment. Chateau Reysson was also being given a complete face-lift.
I could only guess that the reason for Mercian Inc engaging in other businesses entirely unrelated to wine or to shochu and blended whiskey was that Suzuki was also committed to Ajinomoto’s interests because he was partially dependent on Ajinomoto’s corporate lenders. However, fish feed and pharmaceuticals did not have a symbiotic relationship with wine. What was Mercian’s core competence? Was there a marketing mix or a marketing muddle?
Walking on Ice
When Mercian’s foreign clients remarked that as a consultant to foreign producers attempting entry into Japan I would become a millionaire I replied that the Japanese were walking on a thin layer of ice, alluding to the overheated economy. Although in the minority, there were Japanese who also were deeply concerned about the over-heated markets. I gauged the economy to be engulfed in an illusion of prosperity.
At a wine and food event in September 1989 I met the well-known food illustration photographer Ken Huang whose company Fotony served the large Japanese food and drink corporations. He generously invited me to his studio to watch him shoot a layout for the magazine Vegeta. When I saw the complexity of the process I realized that food photography was not only a technical feat but an art form as well. In December I received the copy of Vegeta which carried the photos he shot when I was at his studio and a beautiful book of his photographs which he had authored. Enclosed was a letter with his latest news. He ended, “This year the Japanese economy in general has been prosperous. And so are we. A thick bonus is expected to be paid to workers throughout the country.”
Writing on the Wall
Japanese businessmen were misinterpreting the 1988 bubble as a benchmark for future rapid growth in consumption. Unaware, or perhaps in denial, that the economy was over-heated and that the markets would not be able to sustain the momentum, they continued to plough capital investment into the expansion of their group companies and the diversification of their businesses. Mercian was illustrative of this era.
As Mercian’s president, and later its chairman, Suzuki represented the company at corporate events and entertained corporate clients while delegating daily operations to division managers. He attended only high-level corporate meetings on strategies which were planned at the division levels. He was fairly isolated from internal affairs and it appeared that significant information relating to operations was being filtered out by middle management. Suzuki would have been wise to take more control of the restructuring of the company and corporate management.
By June 1990 I sensed the beginning of a bumpy ride for the Japanese economy and keenly felt that Suzuki was diversifying into activities that were exposed to the impacts of an economic slowdown. Anxious to hit the ground running and play catch-up with Suntory Suzuki was overestimating the pace of consumption and the rate of growth of the markets he was targeting. Although some of the business risk was spread by expanding the animal feed business and adding other products to Mercian’s portfolio, the diversification also served to muddy the waters during the beginning of a bumpy economic period by going beyond the company’s traditional core competencies. Furthermore, Suzuki’s ambitions for Mercian Inc. pulled former Sanraku staff out of their comfort zone. It was not a winning formula.
Within three years, the number of staff in the wine division had increased to twenty. Four of the original staff had either retired or had been sent to work in branch offices, which was considered a humiliating step down the corporate ladder.
And although Suzuki could rely on Ajinomoto for some support and on loans from the major metropolitan banks, he could not rely on the management unless he observed operations and studied Mercian’s accounts directly. Regardless, even in the best of times it would have taken a number of years to develop Mercian’s business as a premier wine producer in the same league as Suntory.
Through my work I was experiencing an era of opulence as a consequence of ultra-low interest rates. Mercian represented Japanese companies that expanded and diversified operations after the bursting of the asset-inflated bubble without considering the consequences such as the deflationary impact on consumerism as well as a maturing consumer market and aging population. Mercian was an example of:
A company’s rapid over-diversification during the bubble years, the miscalculation of Japan’s economic stability and the impact of the continuing recession on the domestic consumer market during the 1990s.
The problems experienced by a subsidiary’s parent company when taking over the management and operations of a company that had operated fairly independently for many years and which had a separate corporate culture and different objectives.
The problems encountered by foreign producers entering the Japanese market through a third-party distribution system.
I recognized that Mercian Inc. was in a no-win situation and that the learning curve had peaked. I wanted to remain working in Japan mainly to view directly the unfolding drama but I knew that I would be hard pressed to find as challenging a job in a company that would include me as a normal staff. Furthermore, I suspected that I would struggle to gain employment in liquor producers-importers because I would be regarded with suspicion and not entirely trusted as a former employee of Mercian Inc. I reluctantly concluded that I should return to the United States and apply to the USTR because I had accumulated skills which I assumed were pertinent to the objectives of the agency.
While at Mercian I had come to understand that even though I had been hired to perform roles that were not performed by the other employees, I was still considered a recent employee and perhaps an interloper. Nevertheless, I realized the value of being regarded as a foreigner because I could bend corporate rules when necessary.
In June, to my colleagues’ surprise, I announced my intentions of returning to the United States for personal reasons. Mr. Suzuki kindly wrote a positive letter of recommendation.
In 2010 the Tokyo Stock Exchange delisted Mercian Inc for false reporting of net worth. The issues which led to Mercian’s failure are discussed in the final chapter.