Co-operative Advantage of Doing Business: Case of JCCU Akira Kurimoto Consumer Co-operative Institute of Japan

Plan of Presentation Background of Japanese Food System and Consumer Co-op’s Key Business Performance Factors Contributing to the Successful Business Models of Home Delivery Priorities in Future Planning of Co-operative Business

Key Business Performance Characteristics of Japanese Food System Production phase Dominant small farm (on average 1 ha) Declining production capacity (aging farmers, abandoned farms, exit from agriculture) Trade liberalization and deregulation Food processors relying on imported material Low self sufficiency (80% to 39% since 1960)

Key Business Performance Characteristics of Japanese Food System Distribution phase Complicated distribution channels with numerous small wholesalers and retailers Supermarkets’ growing market share Shift in public commercial policy from protectionism to liberalization/ deregulation Growth of fast food chains and takeout delicatessen business Carrefour or Wal-Mart withdraws?

Key Business Performance Consumer co-op’s expansion during 1970 and 1990 Membership 2.9 m.→14.1 m. (x4.9) Turnover \183 b. →\2,777 b. (x15.2) Share capital \10 b. →\240 b. (x24) Stagnant growth since the 1990s Growing membership →24.2 m. (172%) Business slow-down →\3,369 b.(121%) Creating major co-ops in each province Integration through consortiums

Growing Co-operative Membership (in million )

Evolution of Turnover of Consumer Co-ops and JCCU (in JPY billion)

Key Business Performance Consumer Co-ops involves 24 million members or a third of households. They are controlling 5.5% of food retail market. Hyogo (12.5%), Hokkaido (11.1%) They are the third largest retail group after Aeon group and Seven & I group. But they are fragmented in ca. 600 co-ops showing mixed performance.

Key Business Performance Mixed Performance Stagnant store operations due to regulation and competition Joint Buying as a driving force of co-operative expansion Innovation of Individual Home Delivery supplementing/replacing Joint Buying Evolution of turnover and surplus

Evolution of retail co-op turnover by categories

Operating surplus of non-store operations offsetting deficits of store operations

Co-ops are dominating subscribed food home delivery business in 2004

Factors Contributing to the Successful Business Models of Home Delivery What is Joint Buying? A unique system of consumers’ collective buying of food and daily necessities Consumerism and ecologist campaigns gained strength in the 1960s. Housewives joined in buying clubs to obtain ‘pure milk’ at an affordable price. Spontaneous buying clubs had grown to consumer co-ops in the 1970s.

Factors Contributing to the Successful Business Models of Home Delivery Organizational Factors Han neighborhood groups for ordering and receiving products Co-op employees for delivery Out-sourcing of delivery Consortium’s role for product development and marketing

Han members collaborate in unloading and sorting orders.

Factors Contributing to the Successful Business Models of Home Delivery Commercial Factors Co-op brand for safety and reliability by reducing additives, informative labeling and simpler packaging Sanchoku (Direct transaction between producers and consumers) as an alternative to conventional production, distribution and consumption Catalogue explaining how products are grown, processed and sourced Own laboratories for securing quality

Co-op brand representing safety and reliability

Consumers meet producers to learn each other for Sanchoku.

Factors Contributing to the Successful Business Models of Home Delivery Technological Factors OCR(optical character reader) order sheets Payment from bank accounts Semi-automatic products sorting Cold chain for frozen/chilled foods Use of Internet for ordering and communication

Members fill in OCR order sheets.

Factors Contributing to the Successful Business Models of Home Delivery Financial Factors Low investment (It can be started with PC and delivery trucks without store facilities) No need for expertise for store operations which cost a lot Minimum inventories (pre-order system, high stock turnover)

Priorities in Future Planning of Co-operative Business Securing Food Safety Building Brand Equity Creating Values for Money Improving Member-Employee Communication Practicing Socially Responsible Retailing in triple bottom lines

Conclusion Co-operative must combine its advantage and business innovation. Co-operative must identify its advantage as member-owned and controlled business. In view of a life cycle, co-operatives need to continue innovation.