Chapter 7: Sanraku Snares Glenfiddich: A Third-Party – Party
Chapter 7. Sanraku Snares Glenfiddich: A Third-Party – Party
Getting to know the third party in the party: non-tariff barriers
The salesmen at the branch offices were old-timers whose territory covered most of the Kansai region. Before Suzuki’s takeover they had been selling mainly Sanraku spirits, Mercian wine and the small portfolio of imports to bars, restaurants, small retailers and department stores. The Martini trip eased communications with them from corporate headquarters and I was invited to participate at events in Osaka with the branch manager.
The success of the Martini visit served to instil some confidence among Sanraku staff that I was able to operate confidently in their environment. I accompanied salesmen on their visits to the liquor outlets and liquor wholesalers. I also engaged regularly at wine promotion events, giving me the opportunity to visit numerous retailers to gauge market access by foreign producers and consumer buying patterns. But the most enlightening excursions were to the wholesalers. Through these visits I learned about the distribution system which foreign producers regularly attributed to the barriers they encountered when entering the Japanese market.
Until the late 1980’s the wholesale-distribution system was feudalistic and very insular. The relationship between importers-wholesalers-retailers was based on networks that were established between the parties prior to the war and which were to continue after the war. The relationship gradually relaxed, not through deregulation, but through the changes in the wholesale business.
I accompanied the wine division sales kacho on some of his visits to wholesalers to discuss new imports and to hear the wholesalers’ forecasts about sales to the retailers and on-premise establishments. The wholesalers’ offices were sometimes located next to their storage units outside of Tokyo and we took long subway rides to the destinations because private cars were considered too expensive for personnel on the lower rungs of the corporate ladder. One memorable visit was to a wholesaler’s office on the outskirts of Tokyo. Dressed in a kimono, he sat on a cushion on the tatami floor next to a round hibachi, which is a large charcoal burner lined with heat proof material, serving both as a heater and as an ash tray. The salesman sat on a cushion while I, a respectful female, kneeled on a cushion. The scene transported me back to pre-Second World War days as the salesman chatted with the wholesaler, both of them puffing away on Peace cigarettes. But it was only a brief encounter with the past.
I learned that foreign producers usually entered a third-party distribution arrangement with Japanese companies who generally shared the costs of promotion while marketing and distributing the goods. The distributors may manufacture products that are similar to that of the importers. Likewise, distributors may not be involved in the same business but are linked through equity and directors to the large trading companies, who act as the importers. Foreign liquor and wine producers usually depended upon the third-party distribution system.
The importers’ agents met the shipment at the port of call to take the goods through customs and the wholesalers collected the goods to store in warehouses because often the importers’ facilities were not large enough for the inventories. The wholesalers delivered the goods directly to the retailers and to on premise establishments on behalf of the importer, in this case, Sanraku. Besides duty, the wholesalers’ costs were incorporated in the price of the imports.
The salesman expressed surprise when the kimono-robed wholesaler proudly showed us bottles of wine sporting his own label. The times were indeed changing. The national wholesalers (there are also regional and local ones) were also entering the wine market during the bubble years with their individual labels. Foreign producers were beginning to contact wholesalers directly to sell and distribute their brands while wholesalers were also contracting foreign producers to produce wine for their own labels. The foreign firms were located mainly in Hungary or Romania where production costs were far lower than in the more popular wine-producing regions. The quality of the wine was questionable but the price per bottle undercut both domestic and imported brands because price did not include the wholesalers’ fees. Nevertheless, the wholesalers’ long-term relationship with their importer clients dictated that goods were delivered as promised. The signs that the old distribution system would gradually change in favor of the consumer were undeniable but not because of government deregulation but because wholesalers wanted a piece of the market and were competing with the importers for whom they were also providing services.
Suntory was distributing a top-end champagne, Ballantine Whisky and Freixenet Cava. From 1988 – 1990 Sanraku, in order to expand its presence in the whisky and wine market, negotiated contracts with Glenfiddich Scotch Malt Whisky, Champagne Pommery, Torres Rioja and Babycham. I participated in all of the negotiations.
Sanraku was approached by the agent for William Grant and Sons, an independent family-owned distiller, to import and distribute Grant’s blended whisky. But Suzuki did not stop at a blended whisky and managed to sign a deal with the company to import and distribute its popular Genfiddich single malt Scotch whisky, the first single malt to enter the Japanese market. It was a coup for Sanraku because the distiller was said to be the third largest Scotch whisky producer in the world with over 10 percent of market share.
Alexander Gordon, the Chairman of Glenfiddich, attended the Glenfiddich launch in Japan with his wife Linda in March 1989. The budget for the high-profile four-day launch of the brand was sizable by any standard but Suzuki was intent on upgrading Sanraku’s image of a domestic producer of wine, base alcohol, low-end whisky and shochu.
The four-day event was choreographed similarly to the Martini visit. Mr. Gordon (known as Sandy) was escorted to various branch offices as the figure head of Glenfiddich. I had anticipated attending only the initial reception but the Gordon’s itinerary was revised at the last minute and I was asked to accompany the Gordons during their trip. I was also to chaperon Linda while Sandy attended functions.
Glenfiddich was a major client and since I knew nothing about whisky production or of Scotland other than kilts, bagpipes and shortbread I envisioned high-level anxiety and sleepless nights. The Gordons arrived in Tokyo on 4 March and went directly to the Okura Hotel, a five star hotel comparable to the Imperial Hotel where the Martinis had stayed. The director of the liquor division, who also had been a director at Ajinomoto, spoke English and chaperoned the Gordons but much of the time I was with the Gordons alone.
A series of formal functions announced to the liquor trade the entry of Glenfiddich.
The initial reception at corporate headquarters was attended by media and photographers. Mr. Suzuki welcomed the Gordons and Sandy responded in kind, posing with Suzuki for photographs. In the evening Mr. Suzuki hosted an elaborate dinner serving Glenfiddich and cheese as the final course. Sandy was duly impressed.
The following day I arrived at the Okura at 8:50am sharp ready and waiting for the Gordons when they stepped off the elevator. The liquor division director collected us in a car to take the Gordons to Meiji Shrine, a park and Shinto Shrine in the center of Tokyo and then left me to show them around Tokyo, while he returned to the office.
With the exception of business meetings, wherever he went, Sandy wore binoculars and was raising them constantly to his eyes. Curious, I asked him what he was looking at and he pointed to birds. He was an avid bird watcher and travelled all over the world to view birds. His revelation was most welcome because my husband was a member of the Audubon Society in the US and after I entered Mercian, I became a member of the Wild Bird Society of Japan. I had no time to participate due to the workload but because I had lived in the countryside in both Japan and the United States I was familiar with certain breeds of birds and, therefore, able to relate with Sandy through a common interest. The anxiety level began to dissipate gradually. Suzuki hosted yet another lavish meal that evening.
The next morning we were chauffeured to the Hakone hot spring resort for more sight-seeing with the liquor division director acting again as chaperone. I was very familiar with the area because it was only a few miles from Mishima and my husband and I had stayed in the same hotel where his father had stayed in the 1920s. The Gordons invited me to their hotel room for a drink before meeting the director in the hotel restaurant. The room looked out over a vast garden and Sandy went outside searching for birds. He served Linda and me a special Glenfiddich Scotch. On subsequent evenings I went to their hotel room for a Glenfiddich cocktail hour before dinner.
The liquor division director joined us for the trip to Kyoto by bullet train for more sight-seeing followed by a visit to the Sanraku’s Osaka sales office where Gordon appeared at yet another launch reception hosted by the branch manager whom I had met with Martini. Sandy was taken to large department stores and liquor shops to view Glenfiddich displayed boldly on the shelves and to speak with sales staff about the future marketing of the brand.
The day after we returned to Tokyo it was arranged that I would escort the Gordons to my “home town” of Kamakura, driven in Mr. Suzuki’s silver Mercedes by his personal chauffeur. It was my first and last ride in a silver Mercedes. Since the liquor division director did not attend I suggested that we divert briefly for a visit to Engakuji and the grave of my closet friend. When the car arrived at the entrance for vehicles I announced the Hibi family name to the gate keeper who waved the driver through without paying the entry fee. The chauffeur remained in the car while I escorted the Gordons to the ancient graveyard and Mrs. Hibi’s grave. It was the first time that they had visited a Buddhist monastery. Enraptured with the natural beauty of the ancient cemetery and the monastery grounds, they appreciated the opportunity to see the graves of venerable politicians and writers. Sandy was looking constantly through his binoculars at birds while Linda snapped photographs. We wandered around Kamakura where I introduced them to Hachiman Shrine before heading back to Tokyo for yet another dinner.
The next day I attended Linda while Sandy was at a function. We met a Mercian senior executive and a William Grants and Sons representative for lunch at a famous tempera restaurant in downtown Tokyo. We sat on high stools before a bar where the tempera chef cooked the ingredients in front of us and served each piece to be eaten while piping hot. I was seated between Linda and the Mercian executive who did not speak English. The tempera looked delicious but I was unable to touch the tender morsels that were piling up before me because I was interpreting Linda’s and the executive’s conversations. By the end of the lunch I had managed to gobble three pieces of cold tempura in order to impress upon my friends that I had eaten at one of Tokyo’s exclusive tempura restaurants. After lunch I guided Linda to the nearby Asakusa Kannonji, Tokyo’s oldest temple, built in 628AD. Mr. Suzuki hosted another dinner that evening and since I did not have to interpret I could enjoy the meal.
On the final day, the liquor division director who was a devout Catholic took the Gordons to the St. Ignatius Church in Tokyo where he was a parishioner. Word had it that he was appalled that I had taken the Gordons who were Christians to a Buddhist monastery. To apologize for my blatant lack of regard for their religious beliefs he took them to his church.
Before their departure to Hong Kong, Sandy and Linda visited corporate headquarters to thank Suzuki and his staff for their warm hospitality, expressing their confidence that Sanraku would provide fine support for Glenfiddich in Japan. They presented me with a copy of The Diary of an Organist’s Apprentice at Durham Cathedral 1871-1875 and invited me to visit them in Scotland at their home outside of Glasgow.
Shortly after the Gordon’s departure I returned to some of the outlets to see if Glenfiddich was still being presented in the same way. Not surprisingly, the bottles were displayed alongside the bottles of domestic blended whiskies.
Foreign companies, while regarding Japan as a potentially lucrative market were concerned that the distribution system hampered penetration and considered that importers who also produce similar products were the fastest route to entry. However, relying on importers who produce competitive products may not be entirely in their interest. Although the initial entry may be successful, sales may dwindle due to circumstances that could have been avoided if, prior to entering into an agreement, the foreign companies had sent staff to Japan to observe how the potential importers were marketing and distributing their foreign clients’ products in conjunction with their own goods. Additionally, doing some research on the importers’ corporate management and corporate strategies concerning the development of their domestic business would provide a better understanding about a future relationship, which can be costly in terms of output for advertising and marketing, 50 percent of which is often assumed by exporters.
Gordon delegated the responsibility for monitoring operations to the William & Grant agent. The agent’s territory covered the company’s Asian markets and trips to Japan to assess Sanraku’s marketing and distribution of Glenfiddich were intermittent. If the agent had visited the same outlets where Gordon had been escorted in Tokyo, Osaka, and Kyoto, shortly after Gordon’s departure, he may have questioned the presentation of the first single malt whisky to enter the Japanese market.
Nine years passed before I contacted Sandy Gordon in December 1997 when I was visiting Edinburgh to consider Scottish universities for doctoral study. He recognized my voice immediately and advised me to apply to the University of Edinburgh’s School of Management. I waited until I received my doctorate in 2002 to contact the Gordons again with an invitation to dine at my flat to celebrate. Since Linda was unwell and unable to climb stairs Sandy invited me to his home for lunch, which he cooked and served. I spent six hours with the Gordons, eating a delicious lunch of vegetable soup, salmon and apple pie, sipping Glenfiddich and looking at several volumes of photographs of our excursion. I was amazed to see that many of the photographs were of me with the Gordons who stated that the brief tour was one of the best trips they had ever taken. Sandy expressed disappointment regarding the sales of Glenfiddich in Japan and that Suntory was slated to become the distributor.
Babycham: my one and only?
In 1989, Hiram Walker Allied Vintners which was a part of Allied Lyons (now a part of Pernod Ricard) approached Sanraku regarding marketing and distributing Babycham. Allied Lyons was the world’s second largest producer of wine and spirits, including Ballantine’s whisky, which was being distributed by Suntory. The company owned Showerings, the British company that was producing Babycham and Britain’s third-largest producer of pear cider. The sparkling cider with a 6 percent alcohol content was packaged in 800 ml green bottles with a cute chamois logo on the label. In Britain the drink had an aura of the 1950s when men took their dates to the neighborhood pubs for an after-dinner drink. The popular phrase “I’d love a Babycham” was used for years to market the drink.
Members of the wine division, including myself, were unfamiliar with Babycham but after a tasting the consensus opinion was that Babycham would be popular among women aged 18–30, or older, but for different reasons than in Great Britain. At the time, there were few foreign imports on the market of fruity flavoured carbonated low-alcohol drinks targeting women who could not tolerate higher alcohol beverages and who were not beer drinkers. Babycham would be the first pear cider to enter the market. I suggested that the green bottle with the chamois logo on the label was a vital marketing tool because it was cute and “British” and would definitely appeal to young women as much as the cider. We decided to give Babycham a test run.
Sanraku announced to its branch offices that samples of Babycham were to be tested for two weeks to calculate the drink’s popularity. At the end of June, Jack Cupples, the Showerings International Marketing Development Director visited the wine division with the director of Hiram Walker Japan to discuss the logistics of distributing samples of both the sweet and dry Babycham to various outlets. At the meeting I emphasized that the chamois label and green bottle would be key to the marketing campaign and that the inclusion of a small token with the logo would serve to promote the product at the early stages.
The wine division salesman whom I had accompanied to the wholesalers and I took Cupples to department stores and bars in the Tokyo-Yokohama area. One bar in Yokohama which did business with Sanraku catered to a young cliental, serving cocktails and wine. It was a mini-den of iniquity. Cupples gawked at the décor, an array of lewd statues of naked female figures with upper torsos devoted to pigs’ heads and large breasts, horse heads mounted on large breasts, and statues of mythical animals painted in psychedelic colors. A Harley Davidson motorcycle was on display for good measure. The bar manager was serving Babycham and seemed optimistic about future sales.
As I had predicted acceptance of the brand among young women was positive. The following October, Cupples accompanied David Gwyther, Showering’s Managing Director, to the formal launch of Babycham and for meetings with the wine division to discuss the fall promotional campaign.
The visit was choreographed similarly to the Martini and Glenfiddich visits but since Babycham was not regarded as a luxury brand or as a wine, Suzuki was not as involved with the proceedings. I was elected to attend to the Showerings directors, escorting them first to Tokyo and Yokohama retailers, including bars and convenience stores where the green bottles of the pear cider were on full display. I took them to Osaka to meet with the salesmen in the Sanraku branch office. It was my third liaison with them and together we guided Gwyther and Cupples to various outlets, recommending marketing strategies and the types of outlets and on-premise establishments where Babycham would experience good sales. The Osaka branch manager hosted a dinner for them which included, of course, a libation with Babycham.
The following day was spent in Kyoto for meetings with salesmen at the Kyoto branch and for lunches and dinners at traditional Japanese inns. The elegant Japanese cuisine was accompanied with Babycham. An afternoon focused on sight-seeing courtesy of the branch manager and his salesman, first to several famous Zen Buddhist monasteries, followed by a tour of the War Museum known now as the Kyoto Museum for World Peace. The exhibits included Japanese submarines and aircraft with the former version of the Japanese flag painted on their sides, torpedoes, various types of Japanese military hardware and uniforms from the Second World War. There was also the body of a British fighter plane that had been shot down over the Pacific. The two British and two Japanese men were too young to remember the war and although they seemed very interested in the displays, I could not discern their private thoughts as they walked through the exhibition together.
After returning to Tokyo, the directors were entertained with a lavish dinner at which Suzuki presented them with gifts to commemorate their visit to Japan and to celebrate Showerings’ subsequent relationship with Sanraku. Mr. Suzukuki had asked me to purchase a suitable gift for Gwyther and I chose a large book of Japanese prints, which seemed to please Gwyther.
In March 1990, Cupples paid a fourth visit for a meeting with the wine division followed by a dinner hosted by the director of the wine division. He targeted convenience stores and on-premise establishments as the most important market for Babycham and visited more bars in Yokohama that were said to be popular among young office workers. Sanraku also opened a booth for Babycham at Japan’s largest annual food and drink exhibition. Afterwards we went for a meal with a wine division employee to an Italian restaurant to toast with Babycham and eat pasta.
Cupples tried to control the promotion and marketing as much as possible, requesting monthly statistics on sales and detailed reports on Showerings’ marketing campaign. Showerings had invested considerable capital at the initial stages, assuming over 50 percent of the expense for promotional materials, which included pens stamped with the chamois logo and flyers in Japanese. Nevertheless, if Cupples had returned to Japan to monitor sales at the outlets and on-premise establishments in the cities where he had been escorted, he would have seen that Babycham was not the only fruit-based, low alcohol drink on the market and recognized that that there was the risk that his product would be in danger of being lost among other similar drinks which contained the same alcohol content and which had been launched by domestic producers, including Peachtree Fizz.
[In March 1991 H Clifford Hatch, the finance director of Allied-Lyons resigned after auditors disclosed that the books carried ‘abnormal’ exchange losses totalling £150 million. David Gwyther and Showerings marketing director Gray Oliver also resigned from Showerings amid a shake-up of board members.]