How was the distribution revolution led by Daiei?
Perhaps many people over a certain age associate the so-called distribution revolution in Japan with Daiei.
Daiei was founded by Mr. Isao Nakauchi in 1957. Then it grew into a nationwide general supermarket, and in 1972 its sales reached the highest in Japan, overtaking Mitsukoshi. In 1980 it advanced further and achieved sales of 1 trillion yen, the first time for a retailer. How was the distribution revolution led by Daiei?
After World War II Japan developed as a manufacturing power. Therefore, manufacturers had a strong influence on product distribution and had control over product pricing.
Nevertheless, Mr. Nakauchi, who became famous as “the bargain king,” thought that it would benefit the consumers to sell the products at the lowest prices possible and tried to realize the low-price sales across the board. However, this led to conflicts with electric appliance manufacturers and cosmetics manufactures that were promoting the integration of distribution in order to prevent a fierce price competition at the retail stage. Above all, particularly Matsushita Electric, which wanted to maintain a fair price, and Daiei, which wanted to realize the low-price sales, severely clashed. This conflict was called the Daiei vs Matsushita war and even led to the continued suspension of transactions for 30 years.
Daiei, which showed rapid growth as the flag bearer of the distribution revolution from 1960s to 1970s, built a chain operation with its high volume of sales as its weapon, gained strong negotiating power against manufacturers, deprived manufacturers of price determination rights, and established the foundation of the distribution system led by retailers. This achievement by Daiei is certainly significant.
When people talk about the distribution revolution, they tend to focus only on the power game aspect, implying the retailers’ deprivation of price determination rights from manufacturers in the distribution system. However, if we look again at the meaning of the distribution revolution concept, we start to see a different aspect.
In Mr. Nakauchi’s lecture notes in his final years, he often mentions “Daiei’s PB (Private Brand) is the Japanese version of St Michael of M&S (Marks & Spencer).”
M&S is a traditional general retailer in the U.K. In fact, Daiei entered into partnership with M&S for nine years from 1978 to 1987, learned the know-how of PB development from M&S, and tried to transfer the knowledge to Daiei.
For Mr. Nakauchi, the true distribution revolution was not about competing for the leading right to determine the price of the products made by manufacturers but was about the development of the PB, namely manufacturing. I think this was his idea. In the end, if they had to depend on the products that were made by the manufacturers, they could not say that they had acquired control over distribution, even if it was called the distribution revolution. Thus, I think that he came to think that the true meaning of the distribution revolution was to realize the development of PB, which are original products by the retailer. It was M&S which established such a retailer-led distribution system in the U.K.
M&S was founded in 1894 in the city of Leeds in the U.K. by the Polish Jew Michael Marks. He started with a stall in an open market which dealt with only one-penny products. Then he developed his shop on a large scale.
However, when World War I started, transactions with suppliers in other countries ceased. Then, they started to focus on products made in the U.K., which would be called St Michael, their PB name.
Initially they mainly dealt small articles such as handkerchiefs, but after World War II, having gone through World War I, they dealt in various apparel goods, daily commodities, food, etc. and developed into a general retail store selling all these products as PB. St Michael of M&S was not necessarily a brand that pursued low prices but rather one to make people feel the “value for money” with low prices for the quality, and was supported widely by British consumers.
Meanwhile, in 1961 Daiei also started to sell instant coffee, which was their first PB product, and worked on PB from early times. However, the initial PB development aimed to compete with the price determination power of major manufacturers, and the focus was on selling a similar product in the same product category at a low price. Quality of products took second place. This gave the image of PB in people’s mind that it was cheap and thus poor quality. In the middle of the 1970s, when consumer needs diversified and quality started to be valued rather than price, Daiei’s PB started to reach its limit. It is considered that Mr. Nakauchi then looked at M&S, which was successful in quality-oriented PB development, in order to introduce the new PB business model. However, there were twists and turns concerning the partnership.
Trial and error in the original PB development
Initially Mr. Nakauchi, who was significantly influenced by the management philosophy of the American supermarket, was thinking about striking a partnership with Sears, Roebuck and Co., which was a large distribution company and said to be the originator of PB development. However, at that time, Dr. Seiji Tsutsumi, who led the Saison Group, struck a partnership with Sears ahead of Mr. Nakauchi.
When beaten Mr. Nakauchi turned his eyes to Europe, he found M&S. In fact, at the end of 1910s, the then chairman of M&S, Simon Marks himself, also travelled to the U.S. and learned about PB development of Sears. Although Mr. Nakauchi abandoned a partnership with Sears, which was an advanced PB company, he tried to learn from M&S, which had developed their original PB strategy in the U.K., and give a new direction to focus on quality in Daiei PB development.
Thus, Daiei and Saison Group, which were leading the Japanese distribution business from 1970s to 1980s, were similarly focusing on full-fledged PB development. But later, these two companies would follow completely different paths in their PB strategy history.
Mr. Nakauchi learned quality-focused PB strategy from M&S and tried to transfer it to Daiei. Unfortunately, however, this attempt did not succeed. More details can be found in my paper (2014), which can be downloaded online. But to make the argument simple, Mr. Nakauchi’s intention and idea were not correctly conveyed to the then Daiei management, and Daiei PB development was passed on to the individual merchandizers on site and did not develop in such a way to be constructed as a unified corporate brand concept.
In the end, Daiei could not escape from the idea of PB as a tool to offer low-price sales and could not establish a PB with a unique identity. In that sense, Mr. Nakauchi’s goal of the distribution revolution was not realized.
Meanwhile, Dr. Seiji Tsutsumi, who led the Saison Group, had a strong will to cultivate the PB as its original brand. Dr. Tsutsumi, who ran Seibu Department Stores and introduced budding luxurious European brands one after another to Japanese consumers, establishing the image of Seibu of fashion, gradually started to doubt the business model where the product price would increase significantly just by adding the brand logo. So, he tried to develop an original PB at Seibu Department Stores, but he realized that it was impossible to do that in the department stores, where suppliers had strong control. Therefore, he promoted the PB development ambitiously in the supermarket business Seiyu, which was under the umbrella of the Saison Group.
Dr. Tsutsumi hired external creators, such as designers, and placed them in the core of the PB development team to bring his thoughts and ideas into shape. Please refer to my paper (2022) for a more detailed history around this. He was committed to the unique PB development based on the idea that offering low-priced products by lowering the quality is not the way to go for PB but rather it is better to focus on quality and reasonable price as the new proposal to the consumers, and that should be the PB.
As he continued such effort, based on the idea that they wanted to deny the brand authority and symbolical foreign brand name, the brand name Mujirushi Ryohin came into being in 1980.
Succession of the foundation principle
Mujirushi Ryohin, which was one of the businesses of Seiyu, became independent in 1989 as Ryohin Keikaku Co., Ltd.
It was during the peak of the financial bubble in Japan at that time, and luxurious brands immediately spread. In the meantime, consumers who questioned the spending style valuing a brand name logo rather than the substantial value of the product started to strongly support simple and quality-oriented products offered by Mujirushi Ryohin.
The market for Mujirushi Ryohin expanded by being independent as Ryohin Keikaku, and since the early 1990s simple Mujirushi Ryohin designs became popular in the U.K. In the early days, Ryohin Keikaku opened multiple stores in the U.K., and toward the end of the 1990s it opened stores in other European countries. At present, they have stores abroad mainly in Europe, the U.S., and Asia. More than half of all the stores are located abroad.
For people abroad, simple MUJI (foreign brand name) products, which highlight the material and frill-free design, have a Japanese exotic feeling and are also seen as a next-generation product group related to SDGs and sustainability.
It can be said that the thoughts and principles of Dr. Tsutsumi for Mujirushi Ryohin have been passed on to today. In fact, members of the advisory board, which has continued since the foundation, are acting as a guardian of Mujirushi Ryohin principles and protecting the thoughts and principles of Ryohin Keikaku manufacturing and passing them on.
Moreover, a working manual called MUJIGRAM was created for the employees of Ryohin Keikaku. Management principles are passed on to the employees by incorporating the thoughts of Ryohin Keikaku in practical work such as how to treat customers, how to make proposals, and how to understand the needs and values of consumers.
Today, the concept of purpose management is drawing attention. Companies are facing questions like what their purposes are and what kind of reason of being they should have to contribute to society. Under the principle of “pleasant life and society,” Ryohin Keikaku is not only developing and selling Mujirushi Ryohin products, but also participating in social business by proactively offering its corporate concept. How should Mujirushi Ryohin continue? The question raised by Dr. Seiji Tsutsumi is still being posed to the current Ryohin Keikaku. Ryohin Keikaku is a very interesting company, also from the perspective of the creation and tradition of a corporate principle.
My current research topic is the history of Daiei and Saison Group, which I have discussed so far. I pay attention to the retail companies which were active in the 1980s and study their history. People sometimes ask me, “What is the point of studying the history of fading companies like Daiei and Saison Group now?” There are many researchers who are engaged in cutting-edge research on online retailing business. So, I think it is not so bad to have a researcher who delves into the past. Therefore, I would like to continue studying supermarkets of the 1970s and 1980s.
I was born in mid-1970s. So, I remember that general supermarkets and department stores were not only for shopping but also an out-of-the-ordinary space where various entertainment facilities and restaurants were attached and made me feel excited as a child. It could be just nostalgia. However, in current times, when online shopping behavior has become common, I feel that it might be meaningful to write about the general supermarkets and department stores, as they were exciting places for children.
Historical research tends to be seen as just tracing past events. However, if we trace history carefully, we see a different aspect from the standard point of view and can make new discoveries. Studying history is like time travel, and the interesting part of it is that through analyzing history there will be a dialogue between the past and the present. I am just a fledgling researcher, but I would like to study further so that in the future I could discover something that could reverse the viewpoint of the history of Japanese retailing business.
* The information contained herein is current as of September 2022.
* The contents of articles on Meiji.net are based on the personal ideas and opinions of the author and do not indicate the official opinion of Meiji University.
* I work to achieve SDGs related to the educational and research themes that I am currently engaged in.
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