Digesting D2C in Japan - D2C Discovery #1

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Hello. Welcome to the first-ever Market Brew. This newsletter explores transformational themes across Japan's food and beverage industry.

Whereas Market Shake is about cutting-edge categories, like alt-protein, Market Brew sees wider. We'll explore topics such as craft spirits in Japan, how to find an ideal F&B product test market, and much, much more.

Our first post investigates the rise of D2C businesses in F&B in Japan and the channels that support them. The next three posts will explore this topic through interviews with experts, so stay tuned.

What is D2C?

Direct-to-consumer (D2C) businesses cut out the middle man. They sell their products directly to consumers online. This differs from traditional models where manufacturers sell to distributors, wholesale or retailers. D2C businesses handle production, packaging, sales, marketing, orders, shipping - everything - themselves.

It’s worth noting there is some ambiguity around the term D2C. As business models and sales channels evolve it’s becoming harder to define. For example, import businesses doing direct sales may define themselves as D2C, though they don’t make the products themselves.

D2C is not new. But it became the business model many F&B companies pivoted to during COVID-19 lockdowns. This D2C renaissance saw giants do roaring online trade. Kraft Heinz is one example. They began selling customized condiments from a D2C site they set up in 2020.

COVID-19 might be on the way out but the world has changed and D2C is here to stay. Analysts project the F&B e-commerce market to double in size from 2021 to 2025 (CAGR of 21%). This is fertile soil to grow direct-to-consumer businesses.

So what are the opportunities and challenges for companies adopting this strategy?

Challenges and opportunities of D2C

Opportunities

• Higher profit margins. Selling D2C means brands save on overheads (i.e. warehouse fees, transportation, etc).

• Data, data, data. D2C sales let businesses deal directly with the consumer. This means more opportunities to collect detailed data about customer behaviour and preferences.

• Closer relationships with customers. D2C brands operate online, so all communications are digital. They can build strong relationships by talking directly to customers online and via SNS. This help to increase customer lifetime value (CLV).

• Control over your brand, product and reputation. D2C businesses own the four Ps. Selling products through retail means sacrificing some of these. D2C brands can experiment with discounts, control sales flow and product placement on their webpage, etc.

Challenges

• Logistics: D2C entails managing storage, packaging, transport of goods, and more. Online businesses may struggle without dedicated space to manage their products.

• Marketing is everything. Sales hinge on being able to build brand awareness through online marketing. Investing in building an SNS presence is also a must.

• Complex business operations. Freedom to run all aspects of your business often entails...just that. Doing HR, production, marketing, etc, keeps owners busy.

• Hard for consumers to check products. Online shopping has become the norm, even for food and beverages. But consumers still worry about buying products they can't see and touch. D2C brands must build trust with consumers through communication and good-quality products.

• Post-sales customer service. Managing all your business AND returns, claims and on-the-phone support is challenging. Yet, preparing for this is essential for D2C business. High-quality customer service makes customers more likely to buy again and refer you.

What’s trending in D2C?

• The 4 Main D2C Channels. The evolution of online services now means businesses have more ways to sell D2C. The four main channels used to support D2C F&B businesses in Japan are:

  • e-Commerce: independent websites and online marketplaces, such as Shopify stores or Rakuten.

  • Q-commerce: Quick Commerce (QC) refers to the fast delivery of small quantities of F&B products. Uber is setting up dark stores in Japan to provide companies with the ability to sell via QC.

  • Crowdfunding. Crowdfunding in F&B is a growing trend in Japan. D2C companies use it to sell to customers and raise awareness about their brand.

  • Subscription Services. Subscriptions are a convenient way for consumers to receive D2C products. Regular purchases, like groceries from Oisix or wine from Swirl, work well for this model. For D2C businesses, subscriptions provide reliable and constant revenue.

• Growth of e-commerce. Japan is the fourth largest e-commerce market in the world. During the pandemic, the number of F&B services selling online increased. This has primed consumers to buy F&B online.

• Consumer engagement with online shopping is at an all-time high. Online stores allow for brands to communicate directly with consumers and vice-versa. Customers now rely on product reviews, comments, and Instagram stories to shop. D2C businesses, then, offer consumers a "natural" experience.

• Subscriptions services are booming. Not just in D2C, but for everything. Signing up to receive F&B products regularly is convenient and novel for consumers. For companies, it's a reliable revenue stream. They also keep customers engaged with "surprise" products - strong variable rewards.

• The use of pop-up shops. D2C companies use pop-ups to capture “passers-by”, hone their sales pitch, and engage directly with their customers.

D2C in Japan’s F&B Industry

Overseas D2C products are generally artisanal and reasonably priced. But, there are many affordable high-quality products on offer in Japan already. So, D2C business here tends to be for products that are a little more expensive. Large D2C F&B markets in Japan are services like Oisix’s organic groceries or sweets, like Mr Cheesecake. They target affluent customers who want a sense of satisfaction from their products.

Acquiring customers for D2C brands is a challenge. Consumers are often wary about trying new and unfamiliar products. Once they buy-in, however, they actively invest as a “fan” of your brand. Investment into customer acquisition, then, is key to success in Japan.

Mr. Cheesecake used Instagram to sell their limited edition products D2C. They carried out all transactions via Instagram's message function. This was a laborious way to communicate with customers but it earned their trust and loyalty.

Who are the players to know doing D2C?

There are plenty of interesting examples of D2C in Japan's food and beverage industry. We've handpicked a few to share, but you can unlock our list of 30 D2C F&B companies further down.

GREEN SPOON

GREEN SPOON offers a customized vegetable and smoothie delivery service D2C. They are a startup and launched in 2019. The founder struggled to eat healthily while working. He founded GREEN SPOON to offer convenient, customizable, healthy food to consumers. They use a subscription model which starts at $72 a box.

GREEN SPOON's strength lies in building premium personal experiences for customers. They do this in several ways:

• Highly customized ordering. GREEN SPOON uses a streamlined survey of customers’ preferences when they make their first order. The visual survey helps create a customized order from over 200 kinds of ingredients. Based on preference they introduce customers to new ingredients and combinations.

• SNS Engagement. GREEN SPOON invested in creating an attractive Instagram. Every month they award 31 followers with a free soup or smoothie, even if they aren’t yet customers. Their channel has nearly 40,000 followers. Customers feel more inclined to engage on Instagram by sharing photos of their box.

GREEN SPOON's strategy makes customers feel special. Their survey makes consumers feel listened to. They appreciate their bespoke boxes more for this. Being chosen for GREEN SPOON's Instagram gift is also a special experience. One that turns followers into brand fans.

MEATFUL

Nippon Ham, the largest meat company in Japan, launched D2C service Meatful in April 2022. Nippon Ham defined D2C as a strategic pillar of their business model transformation.

Meatful offers consumers new food experiences at home through new products and collaborations. They offer 4 categories of experiences.

• Wine Pairing. They partner with ENOTECA to offer sets of fresh meat and wine marriage sets.

• Meets Hokkaido. These are sets of ham and sausages, paired with Hokkaido wine or craft beers. They partner with Carl Raymon restaurant for this.

• Dry meats. Exclusive products for snacking (Jerky).

• Meat Festival. Launching soon.

One strength of their offering is collaboration. Nippon Ham leverages their brand to create several exclusive partnerships. It is even endorsed by the Hokkaido Nippon-Ham Fighters baseball team's manager.

Unlock our list of 30 Japanese D2C companies

Curious about other companies doing D2C in Japan? Unlock the kneed-to-know list of 30 companies doing D2C F&B businesses in Japan for free. Click the link below:

That’s all folks

Thank you for reading our first-ever Market Brew article. Let us know if you liked it and share your thoughts by replying to this email!

Next week we’ll be diving deeper into the topic of D2C and e-commerce in Japan with an exciting expert interview. See you next Thursday!

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