Co-operative Advantage of Doing Business: Case of JCCU

Akira KurimotoConsumer 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 l

iberalization/ deregulation Growth of fast food chains and takeout delicatessen bu

siness 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

1972 1975 1978 1981 1984 1987 1990 1993 19963.56 5.14 6.08 7.22 9.21 11.8 14.1 17.29 19.252.8 5.4 6.7 8.7 13 17.6 21.9 25.2 29.7

16.918 37.446 68.892 115.8 216.896 339.147 414.467 366.824 284.909

0

5

10

15

20

25

1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2003 2004 2005

0

5

10

15

20

25

30

35

Membership Membership Ratio

Growing Co-operative Membership (in million)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2003

0

50

100

150

200

250

300

350

400

450

Total JCCU

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

Key Business Performance Consumer Co-ops involves 24 million membe

rs or a third of households. They are controlling 5.5% of food retail marke

t. 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

0

500

1000

1500

2000

2500

3000

1973 1975 1980 1985 1990 1995 2000 2005

\ bill

ion individual delivery

Han joint buyingstore operation

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

2.9 3.0 3.0 3.1

3.6 3.53.3 3.2

3.4

2.62.9

3.1

1.1 1.1 1.0 1.0 1.1 1.2 1.31.5

1.3 1.2

1.61.8

-1.0

-1.8-2.0

-2.5

-2.9

-2.4

-1.9-1.6

-2.3 -2.2-2.4

-2.2

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

%

non-store

total

store

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

13%2%

2%

2%

67%

14%

Uncooked meal deliveryCooked meal deliveryOrganic produce deliveryFrozen food deliveryCo-op deliveryMilk delivery et al

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.