Yen for spices? McCormick & Co. certainly hopes so

May 01, 1994|By Thomas Easton | Thomas Easton,Tokyo Bureau of The Sun

TOKYO -- To get a taste of what it is currently like to operate a business in Japan these days, consider Stange Japan K.K., a 50-50 joint venture between Maryland's McCormick & Co., and a Japanese pickle producer, Shin Shin Food Inc.

Stange is one of two Japanese operations in which McCormick has an interest. The other distributes the well-known McCormick spices and condiments to grocery stores. Stange sells flavorings to food manufacturers.

A big part of that business is producing the flavors and seasonings used for chips and other snacks. Normally, that's the kind of cheap thrill thought to be immune to economic cycles, but in an indication of how severe the current Japanese recession really is, Koji Amagai, president of Stange (Japan), says sales of snacks have crumpled.

"This is the first time this occurred in 31 years," said Mr. Amagai. "These are viewed as more of a luxury than we thought."

Equally painful has been the sudden, severe, pressure on Stange from manufacturers to cut prices, despite the tiny fraction of a product's overall cost Stange products represent -- at most 5 percent and often far less.

That's a tremendous shift from prior years and a reflection of the efforts companies are making here to restructure every link of the food chain.

In the past, a steadily growing economy made such demands unnecessary but the euphoric annual growth witnessed from the end of World War II to the beginning of the current decade appears to have finally been tempered.

No public information is provided on how significant the change has been for Stange but there are some indications. Information published by a government-affiliated organization said Stange's sales for its fiscal year ending in late 1992 at 7 billion yen, or about $70 million. McCormick's Asian operations head James Albrecht said currently Stange's sales are running "in excess of $50 million," and if the "50" has any real relevance, sales have been significantly affected.

Conversely, the company has been a major beneficiary of one of the other major economic events affecting Japan, the high yen. Most of Stange's costs are for imported raw ingredients and the price of those has declined precipitously as the local currency has steadily increased in value.

Yet that kind of shift doesn't do much to develop business, nor to significantly distinguish Stange and McCormick from any other supplier who might have some pepper or chili powder to sell.

Since its founding in 1963, Stange has developed more than 70,000 different formulas to entice manufacturers into using flavorings. In one sense, the effort has been extraordinarily successful.

There is probably not a home in Japan that, knowingly or not, doesn't have something with a Stange ingredient in it. But the success is limited by the same issue often derailing companies popular in the west: critical differences in the Japanese market. For Stange and McCormick, there is a simple crucial factor: The Japanese don't really like spicy food.

Average consumption of spice by Japanese consumers is only one-twentieth that of Americans, said Lorne Fetzek, marketing development director.

The diet here has little red meat. Fish is consumed along with soy sauce (of which there are 1,500 producers) and a hot mustard. There are a few, very few, other condiments. It is rare to walk by a restaurant or bakery and smell anything as pungent as cinnamon, let alone a more exotic ingredient.

Similarly, given the individualistic qualities of the market, there has been little opportunity for developing a spice here that could be exported. "It is hard to transfer the concept of what a Japanese taste is," said Mr. Fetzek.

Yet Japanese preferences are evolving, and ultimately that could mean far more than today's recession. Pizza Hut and other pizza chains are moving in, and though the toppings are a little odd by U.S. standards (squid, corn, and mayonnaise), the sauce and the crust are similar, providing an opportunity for McCormick-type spices.

So too is fried chicken, buckets of which were served along with sushi and elegantly grilled meats at the annual spring cherry blossom party this week held by the prime minister.

Kentucky Fried Chicken is a U.S. customer of McCormick and the spread of it and other western fast food operators into Japan has provided an opportunity for the McCormick tie to benefit Stange, providing introductions in a world where the introduction means everything.

"To the extent McCormick has multinational customers, they use us here," Mr. Fetzek said. "Younger people are beginning to eat more Western food, and that means more McCormick spice."

Others food producers are expected. "It will be only a matter of time before you see Mexican chains and Thai chains and we will benefit," Mr. Albrecht said.

But even here, there are limits. Japan is a vast market of money and people, Mr. Albrecht said, but given the distinct nature of the existing preferences, and the difficulties of the country's infamous distribution system, "change will be gradual," Mr. Albrecht said. "If there was ever a market that won't be all of a sudden it is likely to be Japan."

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