Soy sauce seeps into the culture
By Mariko Sanchanta in Tokyo
Published: August 9 2006 18:35 | Last updated: August 9 2006 18:35
During his summer breaks from Columbia Business School’s MBA programme in the early 1960s, Yuzaburo Mogi proudly donned an apron and scuttled between supermarkets in New York, passing out samples of meat slathered in Kikkoman soy sauce – a condiment that was then as foreign to American housewives as the concept of eating slabs of raw fish.
Today, Kikkoman, the world’s leading soy-sauce maker, has a 55 per cent market share in America, where its iconic red-capped dispenser is found in most homes.
Mr Mogi, the affable 71-year-old chief executive of Kikkoman, says the reason soy sauce evolved from being an obscure and exotic seasoning 50 years ago to an essential component of the American diet is precisely because employees such as him spent countless hours in suburban supermarkets, passing out free samples of local food doused in the sauce to hungry housewives.
“There are two important factors for success. First, letting the customers taste soy sauce for themselves via demonstrations,” says Mr Mogi, who became the first Japanese national to graduate from Columbia’s MBA programme in 1961.
“The second is developing recipes for local food using soy sauce. Even if consumers like the taste, without knowing how to use it they would not buy it. We used home economists in the US and in Europe to develop new recipes for us.”
Although Kikkoman’s roots are quintessentially Japanese – the company traces its origins to a cottage business in Noda, on the outskirts of Tokyo, established in 1630 by the widow of a samurai – today it generates half its total operating profit from overseas markets. The US market alone accounts for about 85 per cent of its total international operating profit, and it was one of the first Japanese companies to establish a fully integrated factory in the US in 1973.
Kikkoman’s success in finding new markets to enter shows how an indigenous food brand can reach beyond its shores through a carefully planned marketing and research strategy.
Yet today it faces challenges. Sales growth in the US has started to slow as the market has become saturated. Sales in Japan – Kikkoman’s single biggest market – have also been slipping by around 2 per cent a year since 2000 amid changing dietary habits and the fact that more Japanese women are shunning the idea of housewifery.
“In the past, Japanese housewives bought soy sauce in food stores and used it as a base for miso and noodle soups in their kitchen,” says Mr Mogi.
“But now, because more women are working, cooking times have become shorter and they do not have enough time to make noodle soup bases. Demand is shifting from away from soy sauce to soy-sauce derivative products, and in the US the same trend is starting.”
Kikkoman’s sales are growing by 10 per cent a year in Europe, where many workers are showing a preference for pre-made sushi over the traditional cheese sandwich at lunchtime.
“In Europe, I expect to see a double-digit growth in sales for the next decade or so,” says Mr Mogi. Sales are also brisk in Russia, which is enjoying a sushi boom with around 200-300 restaurants having sprouted up in Moscow in recent years.
Because there is a direct correlation between the number of Japanese restaurants in any country and the amount of soy sauce consumed there, Mr Mogi actively promotes the merits of Japanese food and the healthy Japanese diet.
“By eating sushi, people recognise the existence of soy sauce,” he says. Kikkoman estimates that in 2004 there were 24,000 Japanese restaurants overseas, and forecasts this figure will double by 2009.
The next region in Kikkoman’s sights is Asia, but it represents the biggest challenge as each Asian country has its own soy seasoning.
“The Asian market belongs to a soy-sauce cultural zone,” says Mr Mogi. “Each country has a different kind of sauce and different tastes. For example, fish sauce is the staple in Thailand, Cambodia, Vietnam and in Indonesia they use a sweet soy sauce.”
China has the greatest sales potential for Kikkoman in Asia, although its products in the market cost about five to six times as much as local soy sauce. The company built a small factory outside Shanghai in 2002 with a local partner and since then sales have grown steadily, although volumes are still dwarfed by those of the US and Europe.
“We have to wait for another decade for our products to take off in China and before we make a large-scale investment,” says Mr Mogi. “From 2015 onward, Asian markets will lead sales growth. We don’t want to compromise our quality – we are waiting for Chinese consumers to start buying. The overall volume is still small but it will grow as the Chinese economy expands.”
To reach a better understanding of consumer tastes across Asia, last year Kikkoman established its first research and development laboratory outside Japan at the National University of Singapore. “Because Singapore is a cultural melting pot, hopefully we can identify and develop new products for Chinese consumers in the Asian market,” says Mr Mogi. “Singapore can also serve as a test market for India, another country that has potential for us.”
In Japan and abroad, Kikkoman is on the prowl for acquisitions to diversify its business operations. The company’s group operating profit in the current fiscal year to March is expected to increase 10 per cent to record Y20bn ($175m).
Meanwhile, its stable cashflow and the A-rating on its long-term debt by R&I, a leading Japanese ratings agency, have attracted the attention of foreign investors. Steel Partners, an activist New York-based hedge fund run by Warren Lichtenstein, is currently its biggest shareholder with a 5 per cent stake.
Mr Mogi thinks the continuing boom in Japanese food and the rise in health consciousness guarantees a future for the soy-sauce market. He particularly enjoys illustrating his point with a story involving two laboratory rats, one of which was fed an exclusively Japanese diet and one an American diet. With a wide grin, he says: “At the end of the study, the weight of the rat that ate American food was 1.5 times that of the rat that ate Japanese food. Japanese food prevents people from getting fat.”
CATERING FOR ROYALTY
Kikkoman is a prime example of a company that has to vary its product range in different markets to suit local tastes.
In the US, it sells only a handful of soy sauce variants. In Japan, though, it markets more than 100, each delicately honed for the discerning Japanese palate. In Kyushu, southern Japan, inhabitants prefer sweet soy sauce and in Hokkaido, the country’s northernmost island, soy sauce with just a touch of sugar is the condiment of choice.
The company’s sprawling factory in Noda, located just on the outskirts of Tokyo, churns out about 250,000 kilolitres of soy sauce a year, more than twice its volume in the US.
It takes about six months for a soybean, wheat and salt water mixture – the base of soy sauce, called moromi – to ferment, using lactic acid bacteria and yeast. It is during the fermentation process that the distinct flavour and fragrance of soy sauce is cultivated.
Kikkoman’s finest soy sauce is known as Goyogura, a special batch made from domestic ingredients that are brewed for the Imperial family in Japan. Goyogura is fermented for a year in huge wooden vats, located in a beautifully preserved red-lacquered factory in Noda, on the banks of the Edo River.
Unlike conventional soy sauce, which is fermented in steel vats for six months, Goyogura has a stronger, fuller flavour. But one need not be a member of the Japanese royal family to taste it – Goyogura is also available at select supermarkets in Japan for around Y700 ($6) a bottle.
Copyright The Financial Times Limited 2006
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