Conference on Competitiveness

TORIDOLL Holdings Corporation, Marugame Udon business unit（Marugame Seimen Inc.）

Why can't other companies do what Marugame Seimen is doing?

It's not that other companies can't do it, but rather they don't want to do it. That's what makes Marugame Seimen unique.
For example, Marugame Seimen doesn't use a central kitchen. Udon noodle restaurants are the type of business that really want to use a central kitchen. But Marugame Seimen doesn't. It takes about 15 minutes to boil Sanuki udon, but customers are served without waiting because the store starts boiling udon before taking orders. This requires accurate demand prediction. Marugame Seimen intentionally does irrational things that others are reluctant to do, so there are no rivals trying to adopt the same approach.

How does Marugame Seimen achieve its low prices and high profits?

As for low prices, Marugame Seimen actively invests in certain items. It makes me wonder all the more how the company manages to make profits far above the average in the udon restaurant industry.
Marugame Seimen's strategies are excellent because of more efficient time management. For example, I think the customer turnover for udon restaurants is higher than for fast-food chains. The average spending per customer is low, but the hourly average spending per seat is double or triple that of other restaurants. Tempura cooked at the store also contributes to sales. As a healthy food, udon helps increase the frequency of customers coming to the restaurant and attracts people of all ages - from children to the elderly.
Combining all these factors, Marugame Seimen has created a business model that achieves high profits and low prices while making sound investments.

The udon noodle craftsman system serves as the core of Marugame Seimen's human resource development. How did the company come up with this system?

I would have to ask President Awata about this question, but let me try to answer from my own perspective.
Marugame Seimen's unique operations, such as not using a central kitchen, inevitably create inefficiencies that require human skills to compensate for them. This makes investing in human resource development strategically necessary, and training craftsmen leads to delicious udon. I believe this is how a positive cycle is created.

Regarding udon noodle masters, each store has a noodle craftsman, but Marugame Seimen has only one master. Does this pose a key person risk?

What I think about this question is this: "A person with more than one clock never knows the exact time." Taste is critical for Marugame Seimen and it cannot be quantified. I think it's easy to control the taste of each store under the supervision of a single master.

Summary

Summary I love Marugame Seimen's business strategies. I am excited by the company's "rational irrationality." Many people have had the idea of launching a restaurant chain with udon noodles, but Marugame Seimen does the very things that these people would never think of doing or be willing to do. The company appears to be irrational in some respects, but when looking at the whole picture, Marugame Seimen demonstrates very rational approaches. I am impressed by the company's wonderful strategies.

Milbon Co., Ltd.

Milbon's business model is providing advice to beauty salons, thereby improving their services and boosting the sales of Milbon's products. But I wonder if this consultation service could be established as an independent business.

Milbon provides the opportunities and strategies for beauty salons to expand their revenues and profits. I came up with the same question and asked President Sato about it. He said Milbon's advice for beauty salons brings positive outcomes only when combined with its products developed from the customer perspective.
New technologies are the key to increasing revenues and profits for beauty salons. Take rapidly advancing hair coloring technology for example: Milbon's products and technical guidance enable beauticians to achieve the same coloring results as top hair stylists. In other words, this value cannot be created through consulting alone without using the products.

Could Milbon lose its unique strategies focused on hair care products by expanding its business to cosmetics?

I think this question points out that Milbon's product focus may be weakened by this expansion.
Milbon's main business is not selling products but offering beauty salons the opportunity and knowhow to increase their revenues and profits. The key value of beauty salons lies in knowing how product value can be delivered to customers and what makes customers want to use the products. Milbon has this knowhow. Through joint product development between KOSÉ Corporation and Milbon, KOSÉ can obtain something new in collaboration with Milbon, while Milbon can create a new market without eroding its existing market share for hair care products. So I think Milbon's expansion into the cosmetics field is consistent with its current strategies.

How do you think leading companies like Milbon, equipped with well-established strategies and the mechanisms to implement them, can grow further without changing their strategies?

I agree that Milbon's strategies are well established. Looking at its performance, Milbon has maintained a high level of growth over the long term. This proves that the company has created unique values and delivers them to its customers. In terms of its future growth potential, Milbon can be expected to advance into overseas markets, as President Sato mentioned in the video. Milbon aims to apply its well-established domestic strategies to other countries without making changes, which is quite unusual. In many cases, Japanese companies in the lifestyle field modify their domestic strategies when entering overseas markets. But Milbon is attempting to make inroads primarily into Asian markets using its successful strategies as they are. The company's investor relations have also set ambitious goals for overseas markets, and I believe Milbon has great potential.

Summary

Milbon defines clear and unique customer values, clarifies its trade-offs, and narrows down its businesses, thereby creating room for further growth. The company is thoroughly implementing the basics of Professor Porter's competitive strategy.

YOHO Brewing Company

Taste is probably the most important factor when buying beer, but promoting products through events requires manpower and time, and these costs do not appear as a key factor in purchase decisions. How far should promotions be pursued? Should other companies go so far as to follow YOHO's practices?

If only as a beer company YOHO held events to promote its beer, it would only be natural to raise these questions. But YOHO thinks in a rather different way. YOHO chooses beer as a means to value happy experiences and entertainment and offer joy in daily life. In short, the company's main business is entertainment.
In addition to events, YOHO does other amazing things in its daily operations. Let me share one of them.
One customer who was a member of an Antarctic expedition contacted the company to cancel his yearly subscription for its beer delivery service because he would soon be deployed to Antarctica. The staffer responsible inquired about the departure date, and on that day, YOHO's employees left Nagano, where they work, for Narita Airport to see the person off with a gift of "Yona Yona Ale" beer, giving "eeru," or a cheer, to the customer heading off to a new, faraway destination. YOHO accumulates these kinds of promotional activities to create what President Ide describes as a "spiral" cycle of business.

Craft beer is a small-lot, large-variety product, so many beer fans view craft beer as something different from the commodities produced by major beer companies. While expanding sales channels for beer can spread product values more widely, doing so may also pose the risk of commodification. What do you think is the best way to strike a good balance?

If YOHO's sole aim were to sell craft beer, then such a concern would arise. For example, some Japanese sakes with a distinctive character are valued for their rarity. YOHO sells the culture and experience of craft beer, so increasing the number of customers is not a threat to the business. The company can fully benefit from a growing number of fans.

Could YOHO's outsourcing of beer manufacturing to Kirin Brewery lead to the outflow of its manufacturing and marketing knowhow? For Kirin, could this outsourcing lower the sales of its own products? Can YOHO and Kirin maintain a win-win relationship?

In terms of Kirin Brewery, the scale of YOHO's sales is smaller, so I don't think Kirin is worried about the impact on its own products. Rather, Kirin has the advantage of increasing its fixed asset turnover ratio.
For YOHO, there are two factors behind this move. First, the company chose to outsource its production because YOHO grew so rapidly that it lacked the financial capacity to build a factory. The company could have built a factory to internalize its production amid continued growth. But the question arises as to whether it is better to invest one's resources in a new factory or to use them for something else. This leads to the second factor. I would prefer to create a place where many beer fans can enjoy drinking in the craft beer culture.

Summary

Manufacturers say their focus will shift from products to experiences in the next 10 or 15 years, and YOHO is the very company offering experiences. With the market unlikely to expand in the future, the company can earn profits by narrowing down its focus and creating distinctive communities. YOHO is a model case for a new era of manufacturing.

Rakuten Bank, Ltd.

Compared with the other prize winners, Rakuten Bank seems to have low barriers to imitation. Through electronic payments, Google and Apple have easily achieved economies of scale by attracting new groups of customers. What are the barriers to imitation for these rapidly growing payment services?

Needless to say, Rakuten Bank is a bank. What makes a bank different from Google and Apple is that a bank provides payment services as one of its service activities. Rakuten Bank is unique among online banks in that it is positioned as a main bank, not as a secondary bank, and as such offers a wide range of banking services. For example, Rakuten Bank has a high loan-to-deposit ratio. With a deep understanding of what customers need in their lives, the bank can easily find opportunities to offer them loans, so it focuses on financing as well.

Rakuten Bank has achieved rapid growth through synergies within the Rakuten Group. Where do you see the potential for future growth?

The banking industry talks about such things as "customer retention" and "cross-selling." But retention doesn't necessarily satisfy customers. In general, customers will not act unless they see clear value. In the case of Rakuten Bank, it attracts customers by offering value to Rakuten Group members, such as providing reward points and other incentives. In this way, the bank can successfully retain its customers.
As for cross-selling, President Nagai said it means customer referrals. For conventional banks, cross-selling involves financial services, but Rakuten Bank refers its customers not only to finance but also to businesses related to life in general. This is where I see the potential for the bank's future growth. For near-term growth, I think it is important for the bank to turn light users into heavy users within the Rakuten Group, rather than reaching out to outside customers.
Another important feature of Rakuten Bank is its large number of young customers. This is also where I think Rakuten Bank has growth potential, given that conventional bank customers mainly consist of middle-aged and older people who have accumulated a degree of wealth.

I can understand that improving operational efficiency has made Rakuten Bank better than other banks, but what makes Rakuten Bank different? What is unique about the services offered by the bank other than interest rates, compared with other firms?

On the surface, Rakuten Bank is better, not different, in terms of interest rates and reward points. The bank has excellent business strategies because it chooses to clearly differentiate itself from other banks, for example, by internalizing its system. The bank is different in that it hires a large number of engineers to design user interfaces and do various things independently.
In terms of convenience, Rakuten Bank provides all kinds of services available in a single app, and makes improvements based on actual data, while examining what user interfaces work best and what generates reactions from its customers. The bank's in-house engineers help address these challenges quickly at low costs. In Japan, there is a lot of talk about digital transformation nowadays, but many companies just leave it all to IT vendors, rather than including it in their strategies.
Digital technology lies at the core of online banks' competitiveness. Rakuten Bank invests heavily in digital transformation, in addition to internalizing its human resources, and this is something Japanese companies should learn from.

Summary

Trade-offs are among the basics of business strategies. Rakuten Bank provides a wonderful example. Many businesses are paying attention to and entering the online banking market. Rakuten Bank's strategies, designed to take full advantage of its online business expertise, is well deserving of the Porter Prize.