The Journal The Authority on Global Business in Japan

The place is Ohio. The year is 1939. James “J.J.” Lawson has just opened a store at his dairy plant in the town of Cuyahoga Falls—a move that would one day transform the customer experience in Japan. But, at the time, there was no way Lawson could have imagined such a transfer of business culture across the Pacific. And he never would. Injuries from a car crash took his life in 1962, but what he started 80 years ago in the US Heartland is a key part of modern Japanese society.

Lawson’s transition is one example of how US business success led to the creation of something considered unmis­takably Japanese. While the situation at home may have soured, these brands found greener pastures overseas. We’ll take a look at three examples, starting with milk.

Lawson’s first store (Cuyahoga Falls, Ohio)

Moving to Kansai
The first Lawson in Japan opened on June 14, 1975, in Toyonaka City, Osaka Prefecture. The Lawson Milk Company had been purchased by Consolidated Foods Inc.—now the Sara Lee Corporation—in 1959, and growth of the brand led to an agreement with Osaka-based Daiei, Inc. in 1974 to bring locations to Japan.

Convenience stores in Japan are a bit different from those in the United States. Besides selling food and basic necessities, they also serve as a place to pay bills, mail letters, buy concert tickets, do banking, and even receive packages.

It’s all quite a surprise to visitors from the United States, who are accustomed to a certain model of such shops. That Lawson’s true origin was built on the American Dream is, perhaps, even more unexpected.

But Mr. Lawson’s Milk Store, with its sign showing a white jug on a blue background, was already well-known in the small Ohio town for its signature product when eggs, bread, deli meats, and ice cream were added to the shelves. Soon after, non-edible items such as soap and toilet paper went on sale, and something resembling the convenience stores of today was born.

The shop grew into a chain across the northeastern United States numbering more than 700 stores. Consolidated Foods eventually sold the brand to Dairy Mart, but when that com­pany went bankrupt in 2001, Lawson passed into the hands of Canada-based Alimentation Couche-Tard Inc. All stores were converted to the Circle K brand and that was the end.

One of the first Lawson locations in Japan

Big in Japan
Only it wasn’t. While Lawson may have ceased to exist in the United States, Daiei has turned it into a juggernaut in Japan. Of the more than 55,000 convenience stores that dot the country, some 14,000 carry the Lawson name. That’s more than the number of 7-Eleven locations (10,000) in the United States and Canada combined.

Getting there took some real business foresight and a willingness to adapt to the local market. Daiei wanted to emulate the growth that The Lawson Milk Company had experienced in the United States, but, as American Public Media’s Marketplace radio show explained in a 2018 look at Lawson’s history, the idea of the convenience store was still new to Japan in the mid-1970s. Nevertheless, the opportunity was there as densely packed cities made Japan ideal for the business model. Bigger than mom-and-pop shops but smaller than supermarkets, convenience stores could strike the perfect balance between size and convenience, making life better for consumers and business more profitable for operators.

Ken Mochimaru, of Lawson’s corporate communications division, told The ACCJ Journal that Lawson resonated well with Japan at the time because the country was undergoing rapid modernization. The country was just one decade removed from the 1964 Tokyo Summer Olympics, which had accelerated the development of railways, roads, and other infrastructure. “People were seeking greater convenience in every facet of their lives. With the changes that followed, the challenges facing society diversified as well. Lawson grew quickly on this foundation.”

That growth was quick indeed. Just three months after opening its first store in Toyonaka City in 1975, Lawson began expanding across Japan. By 1977, it had introduced 24-hour operations. Printing and copying services began in 1983, followed by bill payment—an extremely important part of Japanese life—in 1989.

“The ongoing change of customer needs through the years made convenience stores in Japan so much more than just places to shop,” Mochimaru said. “As a facility whose lights stay on 24 hours a day, it serves as a reliable cornerstone of the community. The convenience store is an essential part of people’s daily lives.”

Lawson stores can now be found in all 47 of Japan’s pre­fectures, as well as in other countries in the region, including China, Indonesia, Thailand, and the Philippines. And, in a return to its roots, the brand has dipped its toes back into the US market with two locations in Hawaii, opened in 2012.

The original Shibuya Tower Records

No Money, No Store
Another US brand—perhaps more widely known—to find itself still playing in Japan while having disappeared from its place of birth is Tower Records. The retail music giant once flourished in the United States but, under the pressures of changing habits among consumers and distribution methods, it became but a memory—a ghost of days gone by.

The first Tower Records was opened by Russell Solomon in 1960 in his hometown of Sacramento, California. Finding quick success, Solomon expanded to San Francisco in 1967 and Los Angeles in 1970. More locations appeared across the United States over the next decade, and the subsidiary Tower Records Japan was formed in 1980. The first Japanese store opened in Sapporo the same year.

Until the early 2000s, Tower Records was the de facto hangout for music lovers around the world. In addition to the United States and Japan, stores could be found in Argentina, Canada, Colombia, Ecuador, Hong Kong, Ireland, Israel, Malaysia, Mexico, the Philippines, Singapore, South Korea, Taiwan, Thailand, the United Arab Emirates, and the United Kingdom. Their motto, “No music, no life,” defined a generation and influenced numerous imitators, even today.

But due to a combination of bad investments, competition, and the rise of digital media, the company accumulated some $100 million in debt and, in 2006, filed for Chapter 11 bankruptcy and liquidated its assets.

But the Japanese stores were unscathed, as the local subsi­diary had become independent through a management buyout in 2002. Not only was it unaffected by the bankruptcy back in the United States, Tower Records in Japan became a symbol of the country’s youth culture. The massive nine-floor location in Shibuya—one of the largest retail music stores in the world—is a mecca for music lovers and hosts exhibitions in the top-floor gallery as well as live performances by popular bands. In all, Tower Records Japan operates 80 stores across the country.

Commenting on this success, Tower Records Japan Director of Public Relations Tatsuro Yagawa said that their corporate philosophy has never changed. “We are the store of the music fan, by the music fan, for the music fan. We didn’t change our strategy, but we were flexible. Focusing on customer perspective is a major strength of Japanese retailers. We change everything based on the customer, and we believe we can attribute our success to our effort of continuously adapting based on the needs of the era.”

Tower Records was forced to liquidate in the United States.

Protective Industry
As the second-largest music market in the world, Japan has long been considered the last bastion of brick-and-mortar music stores. Japanese consumers have not been as quick as those in the United States to accept digital media.

Yagawa believes this is partly due to Japanese fan culture. “Currently, we categorize music fans into two groups: regular fans and devoted fans,” he said. “Devoted fans are strongly dedicated to supporting their favorite artist, and they buy CDs as a way to support their activities.” The idol group AKB48, for example, is well known for selling millions of copies of their singles thanks to fans who buy multiple discs to show support and to get multiple chances to vote for their favorite group member in each year’s AKB48 general election. Ballots are bundles with physical copies of the music.

But the success of physical media in a digital age cannot be attributed simply to fan culture. Japan’s music industry is highly protective and holds an iron grip on the market, reinforced by strong licensing and anti-piracy laws. Japan has several small and mid-level music companies in addition to the goliaths, and all demand long, bureaucratic licensing procedures.

Streaming services such as Apple Music, Google Play Music, and Amazon Prime Music only came online in Japan in 2015. Spotify, one of the biggest music streaming services in the world, opened an office in the country in 2011 but was stuck in negotiations for nearly five years before being allowed to launch.

Tower Records in Shibuya thrives as a cultural mecca.

Pay to Play
Another factor, Yagawa said, is that physical media has high resell value in Japan, which has measures in place to protect the price of new CDs. In fact, the music industry is so well protected in Japan that it is illegal to cut prices. The saihanbai kakaku iji seido is Japan’s resale price maintenance system. Under this law, new CDs, records, cassettes, books, magazines, and newspapers made in Japan cannot be discounted under any circumstances until the date specified using the sai system—if such a date is indicated.

 

The original idea behind this system was to stop larger publishers from driving smaller ones out of the market. But it eliminated competition and opened an entirely new market comprising secondhand shops and CD rentals. As customers began to simply copy rented CDs to blank media, music companies began requiring license fees from rental shops to make up for lost revenue resulting from piracy.

These powerful restrictions made Tower Records Japan’s future uncertain. In a 1999 issue of Billboard Magazine, former resident director and chief executive officer of Tower Records Japan Keith Cahoon, said: “Legally, we can’t discount Japanese-made products. So, you have to compete on other levels.”

The company needed to make its stores part of the culture—the same way it had won the hearts of US music lovers decades before.

Nearly 20 years later, Yagawa shared that same sentiment. “We believe physical media isn’t going anywhere. With that in mind, we try to consider different approaches. How can we support our customers’ music life? How can we plan new goods and merchandise centered on music culture? Lastly, how can we can read the change in purchase behavior and procure music efficiently in a market where customer preferences have become more personalized?”

In 2018, Japan’s annual output of CDs fell below 100 million, and, for the first time, 54 percent of its media distribution was through streaming services. In a May 5 article in The Japan Times, experts attributed this in part to the nation’s beloved pop stars joining the online streaming market. Still, physical media accounted for 79 percent of Japan’s total in 2018, according to the Recording Industry Association of Japan.

Bit by bit, digital music is eroding this physical stronghold, but Tower Records Japan is holding on, thanks to its ability to adapt to how Japanese fans engage with their favorite artists.

Duskin Donuts?
One more brand that most people assume was born in Japan is Mister Donut. With a product well-tuned to the Japanese palate, it certainly feels—and tastes—that way.

But the first Mister Donut was opened not in Tokyo but in Boston—63 years ago. Its roots can be traced back to a brand still going strong in the United States: Dunkin’ Donuts, which Mister Donut founder Harry Winokur started with his brother-in-law William Rosenberg. A disagreement over expansion—Rosenberg wanted to sell franchises but Winokur did not—led the latter to go his own way.

Mister Donut in Japan, 1971

It’s ironic, because the success of Winokur’s first Mister Donut shop caused him to embrace the franchise model after all. By 1970, there were 275 Mister Donut locations in North America, and the company was acquired by International Multifoods Corporation. Under their ownership, Mister Donut grew to become Dunkin’ Donuts’ biggest competitor. At its peak in the 1980s, there were 550 locations across North America. Winokur and Rosenberg were pitted against one another, and when Dunkin’ Donuts opened its first shop in Japan in 1970, Mister Donut followed a year later with a location in Minoh, Osaka Prefecture.

Too Much Nutmeg
Mister Donut came to Japan through a partnership between Winokur and Seiichi Suzuki, founder of Duskin Co., Ltd. Suzuki had traveled to the United States to study business and, after meeting Winokur, decided to bring the donut shop to Japan.

Like others fighting for a piece of the Japanese market—including Lawson, Tower Records, and Dunkin’ Donuts—Mister Donut was meant to be an exact copy of it US operations. But Keiji Chiba, the former general manager and director of Duskin’s food industries, didn’t like the idea.

He had other plans, and they clearly worked. Mister Donut became a hit in Japan. A decade after the market entry, Chiba explained what he did in a 1982 interview with The New York Times. He tested the market by secretly building a full-scale replica of a US Mister Donut shop inside a Duskin warehouse. Duskin sales staff were asked to sample the donuts and comment on the decor. They were unimpressed.

“They didn’t like it at all,” Chiba said. “They thought the counters were too high, the chairs were too wide, the coffee cups were too heavy, and the doughnuts were too large and tasted funny. Too much nutmeg for the Japanese palate.”

So, he altered everything—including the menu. A complete makeover, with a high-class atmosphere. Donuts were always seen as children’s snacks in Japan, so they raised the prices and modeled their stores after trendy Seattle-based coffee shops—the same coffee shops that had led to the demise of Mister Donut in the United States. And it worked.

Mister Donut adapted to Japanese tastes

Trading Places
Mister Donut was forced out of the US market by competition from the likes of Starbucks and Dunkin’ Donuts, which procured the Mister Donut brand in 1990 and converted the shops into its own.

But in Japan, Mister Donut was king. Business was booming thanks to Chiba’s strategies. He purposely chose to open shops in suburban towns rather than central Tokyo. Dunkin’ Donuts had gone for Ginza. “There were hundreds of suburban towns like Minoh all over Japan, but only one Ginza,” Chiba said. Mister Donut employed popular comedians for advertisements, launched campaigns aimed at children, and lowered prices after the collapse of Japan’s economic bubble.

Today, there are more than 1,100 Mister Donut stores across Japan. Meanwhile Dunkin’ Donuts—the victor in the US turf war—found itself unable to compete and withdrew from the market in 1998.

As these three case studies show, with the right vision and willingness to adapt, Japan can be fertile ground for US companies. In fact, it might be their salvation.

Aaron Baggett is a staff writer at Custom Media for The ACCJ Journal.

Photos: Embassy of the United States, Tokyo
People were seeking greater convenience in every facet of their lives . . . Lawson grew quickly on this foundation.