AuthorRupert Sutton

A war of sour grapes. First salvo fired in Asian trade battle

Is there protectable intellectual property in an agricultural product?

It is a moot point. Whilst there are agricultural patents in the US, plants must have been bred asexually and have unique DNA. In the EU by contrast plants obtained through conventional breeding processes are not patentable.

The Japanese government begs to differ. In April a new law, the Plant Variety Protection and Seed Act came into force. It aims to protect the leakage of Japan’s fruits and plants to neighbouring markets.

sushi police to protect against alien Japanese food
The sushi police anime

It is all too reminiscent of the sushi police, another lampooned initiative to curb the spread of ‘fake’ Japanese food around the world.

Shine Muscat grapes can retail in Japan for over JPY1500 (US$12) a bunch, have high sugar content and are renowned for their sweet, floral flavour. The breed was originally developed by horticulturists at Uehara Grape Research in the 1980s. 

Shine grapes quickly became a local delicacy, a fact which did not go unnoticed by neighbours in China and Korea who started growing their own versions – for even higher prices!

Japan’s agricultural ministry believes it has lost over $200m due to its seedlings being grown overseas. It now has a list of 2000 fruits and vegetables whose seeds cannot be exported.

How this is going to be enforced, I cannot imagine. 

Is the Japanese Government acting in the industry’s best interests? I am not sure, there is an argument that if goods are too expensive, few buy them regularly.

A better step, if the agricultural ministry wants to protect IP, is to avoid generic brand names. ’Shine’ grapes will be hard to register in most jurisdictions.

New RTM model (plus glitzy footwear) turbo-charge McQueen’s international sales

According to Citibank, revenues at Alexander McQueen soared to over €500m in 2020, five times higher than 2010. Named after its outlandishly creative founder, the brand has become a global icon. 

In 2020, despite coronavirus, it opened 22 new stores including Las Vegas, Miami and Tokyo.

“We’ve mainly been focused on flagships in China, the US, Korea, the Middle East and Japan, locations that are very strong with local clients”

CEO Emmanuel Gintzburger

The company has dialled down its wholesale business, switching its route to market strategy by opening more retail concessions. In Tokyo for example there are now six. It has also changed its EC model taking greater control of inventory and pricing with banners like Net-a-Porter and Luisaviaroma.

It is also experimenting with the second hand market, partnering with resale platform Vestiaire Collective. Parent company Kering SA owns a stake in the start-up (valued over $1billion by the way!) The Vestiaire Collective allows customers to buy and sell “authenticated ” pre-owned luxury fashion.

“The objective is to scale up, work across channels, categories and age groups,” explained Gintzburger. 

Whilst being renowned for making the Duchess of Cambridge’s wedding dress, McQueen’s high octane trainers, adorned with glitter and bright, colourful shapes are one of several hero products powering sales. 

Kering’s acquisition of Alexander McQueen is paying off handsomely. The group owns a portfolio of fashion brands, such as Saint Laurent, Gucci, Bottega Veneta, Pomellato and Ulysse Nardin. At the time of writing Kering’s share price is up 46% year on year.

Nestlé plunges head first into crowded plant milk market

Nestlé announced the launch of ‘Wunda’ a home-grown non-dairy milk brand this week.

It would have been a ‘do we, don’t we?’ decision for executives. On one hand the category has exploded from $3bn in 2012 to over $7bn this year. (It shows no sign of stopping either) On the other it’s a segment where few are making money.

Plant or non-dairy milk is to the food industry what electric cars are to the automobile market.

There’s Tesla-Oatly, poised to IPO at a staggering $10bn, followed by scores of other brands from heavyweights like Danone, entrenched regionals like Sanitarium (‘So Good’ in Australia), Vitasoy (HK/China) not to mention a plethora of gutsy rivals.

Nestlé faced the same conundrum as BMW or Mercedes, in the end they couldn’t just sit and watch idly.

Nestlé’s choice to launch Wunda in France, the Netherlands and Portugal first is deliberate. France is historically a super-strong Nestlé market; and most of the non-dairy milk action is focused on English speaking markets. Nestlé wants to avoid being in the competition’s headlights.

Look carefully at the packaging and there’s no Nestlé logo. Why? Many consumers associate the company with milk. The french version here doesn’t say milk (‘lait’) either. French rules reserve that distinction for animal milk products only. 

Personally I like the brand name. It ticks many boxes on my international naming checklist. (Check out my book if you’d like to know more!)

However, I would have liked to see more product claims. ‘Bon sans tout’ (‘good in all’) is flat and promises little in my opinion.

So I think the challenge will be with the trade. How is this going to grow the category? Getting listings and promoting on and offline will be expensive. Retail buyers will be rubbing their hands. 

The crowded non dairy milk category in Japan, 2021

I hope the CEO is not expecting pay back anytime soon.

Fast growing coffee brand Caffitaly fattened up for sale?

Coffee consumption, especially in-home, has surged during the pandemic in almost every market.

Pod coffee capsules, once the reserve of First Class and celebrities have become mainstream. In the large European markets and Australia up to 30% of households have a machine. The global pod coffee market is worth over $8bn and predicted to exceed $14bn by 2027.

Cleverly, Caffitaly has ridden piggy-back on Nespresso’s success; and hasn’t invested heavily in machines nor building customer club databases.

The product is good and there’s a decent range of varieties. 

Positioning wise, who doesn’t believe the Italians make good coffee?

Caffitaly is private equity owned. Alpha Group, a French firm specialising in leveraged buyouts, acquired a controlling stake in 2017. Given the 5-8 year horizon PE tends to work on, and the favourable market dynamics, a trade sale has to be on the cards.

So it’s no surprise Caffitaly has launched a major new ad campaign. Ostensibly the target is Italian coffee lovers but I suspect the investors are hoping other corporates take note too.

“It’s not coffee. It’s Caffitaly,” (Non è caffè. È Caffitaly) campaign kicks off this spring.

Over 80% of Caffitaly’s $150m turnover is International and there’s a new CEO. Giuseppe Caserato is an ex-PG veteran who has worked in a clutch of markets. 

Certainly here in Asia-Pacific there is mountains of growth upside. I can think of several businesses who’d love to learn more about ‘it’s not coffee, it’s Caffitaly.’

Food Delivery giants dog fight over German table scraps

Über Eats will launch in Germany this spring aiming to break Just-Eat’s dominant share.

Just Eat delivery driver takes a well deserved break in Germany
Takeaway.com (Just Eat)

Whilst Über Eats is in 45 countries, the company has not always found international plain sailing. In 2019 it exited South Korea and then India in 2020 along with several other smaller markets.

Just Eat’s German revenues soared 81% in 2020 to over Euro 374m. One reason is Deliveroo exited the market, four years after entering. It found competition was intense with local rivals Pizza.de and Foodora (now owned by Just Eat) well entrenched.

Über’s business model in Germany is to contract minicab firms who employ couriers. It’s the same system Über uses for its cab riding business. Über fired opening salvoes claiming Just-Eats commissions are ‘too high’ with consumers and merchants seeking ‘alternatives’. 

Will the Über name generate any ‘German’-halo brand empathy? I’m doubtful.

Globally few food delivery operators are making money. Doordash, leader in the US, is in the red. In fact yesterday Doordash announced new commission rates (i.e. increases) hoping to get merchants to pay up to 30% per order. 

Meitun the leader in China just eked a small profit. 

In March Deliveroo’s IPO was served half baked to investors. Its share price is now trading at a 40% discount. Investors worry that authorities will insist on fixed labour contracts and pension contributions, incongruous to its gig economy model.

Über Eats aims to break even in 2021, though the German foray looks likely to be expensive. Globally its revenues exceed US$4.5bn making it the largest western home delivery brand. Meitun by comparison is 4 times the size. 

Beyond Meat grabs a big mouthful at Sainsbury

Los Angeles based Beyond Meat is ramping up its European business with deals in Sainsbury and Waitrose as well as new listings in Austria.

Beyond Meat factory, Netherlands

In June 2020 the company signed a joint manufacturing deal with Zandbergen to produce its burgers and sausages in Europe. This was its first production facility outside the US.

Zandbergen is a privately owned, chilled and frozen meat business based in the Netherlands.

Later in 2020 Beyond Meat announced a production agreement with the Jiaxing Economic & Technological Development Zone near Shanghai. In China Beyond Meat has focused on signing deals with QSR chains.

Dig below the headlines and whilst Beyond Meat’s revenues exceeded US$400m in 2020, a solid 36% growth on 2019, the business posted losses in excess of US$50m. Actually for the last 5 years it has yet to produce a profit. An increase in SGAs contributed to the losses, according to the Financial Times.

I imagine one reason for signing joint manufacturing deals is to minimise capital expenditure, as well as be close to strategic customers like Sainsbury & Waitrose.

Beyond Meat IPO-ed at $25 a share and now trades around $135. However, analyst consensus is currently slanted towards hold-underperform, according to the FT.

Naked Wines streak past American competitors

Naked wines, formerly known as Majestic wine, is a UK online wine merchant. The company now says its biggest market is the US.

Chief Executive Nick Devlin relocated to the US in 2017, a move that appears to be paying big dividends.

The business which claims to be the ‘the #1 Wine club in North America’ works directly with ‘the world’s best wine makers,’ benefiting members with big savings.

Naked Wines benefited enormously from the Covid pandemic, its subscriber base grew 50 per cent to 885,000. US sales grew a phenomenal 75% to top £150million. Clearly digital marketing and ecommerce is a core competency.

As a comparison Virgin wines, well known in the UK market, has total revenue of around £80million.

Looking forward, Naked’s biggest challenge will be to retain the loyalty of its subscriber base and hang onto the most profitable members, who are appropriately nicknamed ‘Angels’.

Japanese Miso strides up the superfood charts, but can it last the pace?

For a food whose origins date back to China and 7th Century Japanese Buddhist monks, Miso isn’t a precocious culinary upstart.

Miso paste

Last year in Japan there were 480,000 tons sold, nearly 50,000 tons more than 2013. Given the static demographic headwinds here that’s some achievement.

Sales have been boosted by Miso’s growing health credentials. A doctor on a well known TV station has been waxing lyrical about its benefits and even public broadcaster NHK states that Miso is the ‘source of long life.’

Power to the beans!

Last year Japan exported around 100k tons of Miso and other condiments, the biggest markets were the US, China and Korea. In Europe, perhaps surprisingly the UK topped the charts, a nod to Washoku’s British penetration.

Miso is an easy word for foreigners to pronounce, unlike many Japanese food descriptions and is served de rigeur in iconic bowls. This has made the category memorable. Whether consumers can recall any Miso brands is less clear.

The challenge as with many Japanese foods, is that most brand owners have little category growth expertise.

Take Marukome, the market leader. They established a Thai subsidiary in 2013 and earlier this year announced plans to launch an ‘Antenna’ shop in Bangkok. It’s a great idea but the naming of the outlet ‘Hacco Labo’ will mystify most (Hacco is the Japanese word for fermentation).

Marukome Thailand’s Miso advertising

Japanese producers need to do more to emphasise the authentic origins of their product. And quickly to avoid being copied! Itsu is a London based Washoku chain, owned by British entrepreneurs, who are already selling a range of Miso products in up market supermarkets. I am not even sure it’s made in Japan.

Itsu Miso

There is no shortage of Miso innovation in Japan. Recent trends have included sweet Miso, freeze dried and also liquid varieties marketed on a freshness platform. The venerated TV doctor recommends red miso.

Let’s see if the Japanese Miso industry can keep up the pace.

Netflix’s new street food series is mandatory viewing for every food and beverage marketeer

Netflix have just launched a series on street food. It contains important insights into the mindset of stall operators, the intimate relationship they enjoy with their clientele and of course the importance of taste and constant innovation. 

What is less well acknowledged, but equally important, is that several consumer brands have made this channel central to their success.

I found the first episode featuring a wiry, 73 year old Thai chef, called Jay Fai, fascinating.

Jay Fai

The programme takes us through Jay Fai’s culinary journey, from first experimenting with the wok, taking a loan to open a stall, going upmarket with large tiger prawns to developing a crab meat omelette, one of her signature dishes. We learn the importance of ‘rich and tasty stock’, attention to detail in ingredient preparation and constantly listening to customer feedback. 

The food photography was stunning with mouth watering shots of boiling curries and drunken noodles, all deftly prepared on flaming charcoal.

The street food business involves unsociable hours, a 7 day work week not to forget the heat and humidity. Landlords and Government regulations are a constant headache. However Jay’s passion and energy shine through.

Over the years I’ve sat in focus groups and heard consumers replay their associations with food, consumption occasions and brands. Some of the most indelible involve street food. One reason is taste, the food is freshly cooked and served immediately. Another is the social aspect, it’s an informal, relaxed and familal environment with friends, relations and children.

Recently, the perception of street food has improved dramatically. Far from being cheap and dirty, the best outlets have become culinary destinations for locals and tourists alike. A number of street food chefs, like Jay Fai have won Michelin awards. Like craft beer breweries have become renowned for novelty, street food is at the cutting edge of experimentation.

As a westerner coming from a country with very little street food (Britain’s closest would be fish n chips or perhaps Balti in Birmingham?), street stalls never struck me as an important Sales or influencer channel. My thinking was narrow minded and misguided. 

Milo on a street stall, Thailand

Later when I worked in Nestle Malaysia did I see first hand the huge business Milo enjoyed because of its penetration with vendors. Soy and chill sauce, mayonnaise, cooking oils and stocks were also big. Brands like F&N’s 100 Plus and beers like Tiger have this channel in their DNA.

Watch out! Costco Japan snaps at the heels of industry giants Aeon and Ito Yokado

How times have changed! 

Early in my Japan career I remember when Costco’s arrival into the retail market was sneered at, even dismissed by the cognoscenti. “It will fail,” they said, “Japanese don’t buy bulk, their homes are too small.” 

Costco Japan Amagasaki continues to break shopper traffic records
Costco Amagasaki, Japan

Well in 2019, twenty years after its first arrival, Costco Japan has sales over JPY500b (US$4.4b) and is poised to enter the top 10 ranking.

Anyone who has been to their stores over the weekend knows a long queue awaits at the car park. Some of their bigger turnover outlets average a million shopping carts a week; Costco has become a destination shopping venue. 

It runs a laser focused operation: 3,500 SKUs per store (an Aeon or IY GMS average 4-5x more); pallet only displays; and negligible POS. Staff numbers are far lower not to mention rents. Costco Japan has 26 stores, all located in low cost suburbs.

Costco Japan, fresh food & meats

There is over US$200m revenue from membership fees, members number over 6m households, a massive 80% renew. 

When Costco Japan started, direct trading was almost unheard of. The cross shareholding links between retailers, trading houses and large wholesalers were a closed shop. Costco started bringing in well known brands from overseas which forced suppliers to review trading arrangements. Costco likes exclusive packs and many big brands produce exclusive SKUs, further driving traffic.

Toblerone: Costco Japan exclusive SKU (it was massive!)

Whether Costco is the best way to expose a new brand to the Japanese shopper is debatable. The retailer’s supply chain focus is so acute that popular items can be out of stock and slower sellers are never invited back. The company also strongly encourages suppliers to use its “Club demonstration services” – which is a separate business unit, and reportedly expensive.

Costco Demonstration Services

Most of the publicity about Japan’s changing retail landscape has focused on Amazon which is over 3x bigger. However, in food and household products where Amazon Japan is struggling to build scale, Costco has been much more successful.

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