Soy Sauce King

Sauce of success
The Economist, 8-Apr-09

How Yuzaburo Mogi of Kikkoman helped turn soy sauce into a global product

AT THE International Trade Fair in Chicago in 1959, visitors were delighted by the salty-savoury taste of roast beef marinated in a novel condiment called soy sauce; slices were being given away by young Japanese men. What the nibblers did not know was that the foreigners were not merely demonstration staff but workers at the saucemaker’s new American unit, who wanted to see at first hand how American consumers responded to their product. Among them was Yuzaburo Mogi, a 24-year-old student at Columbia Business School and the scion of one of the founding families behind Kikkoman, a soy-sauce manufacturer which traces its origins to the early 17th century.

By the time he reached the top of the firm in 1995, Mr Mogi was well on his way to transforming it into an international food business and turning an obscure Asian seasoning into a mainstream global product. “We tried to appeal to the non-Japanese, general-market consumer,” says Mr Mogi, who speaks fluent English—a rarity among Japanese bosses. Kikkoman is now the world’s largest maker of naturally brewed soy sauce. Foreign sales of its sauce have grown by nearly 10% a year for 25 years. Its distinctive curvy bottle has become commonplace in restaurants and kitchens the world over, alongside other condiments such as Italian olive oil or French mustard. Interbrand, a brand consultancy, ranks Kikkoman among the most recognisable Japanese names in a list otherwise dominated by carmakers and electronics firms.

Indeed, this family-owned Japanese firm is unusual in several ways. In 1973 it became the first Japanese food company to open a factory in America; Mr Mogi was running the American division by this time. Whereas many Japanese firms eschew mergers and acquisitions, Kikkoman has been active, buying American and Japanese companies in the course of its expansion. (In January Kikkoman adopted a holding-company structure which will make acquisitions easier, among other things.) Mr Mogi speaks with pride about corporate-governance reforms he has instituted, including succession planning. Since 2004 the firm’s presidents have come from outside the founding families. And rather than being centrally run from Tokyo, Kikkoman is known for devolving power to the bosses of its foreign subsidiaries.

Under Mr Mogi’s leadership Kikkoman’s sales have grown to more than $4 billion a year, of which soy sauce accounts for 20%. Most of the firm’s revenue now comes from selling other food products, in Japan and abroad. Kikkoman is the biggest wholesaler of Asian foodstuffs in America, with similar operations in Europe, China and Australia. It sells canned fruit and vegetables in Asia under the Del Monte brand, and one of its subsidiaries is Coca-Cola’s bottling affiliate in Japan. Foreign sales account for 30% of revenue but 55% of operating profit, three-quarters of which comes from North America. By some measures Kikkoman is the Japanese firm most dependent on the American market.

The recession has hit Kikkoman’s profits, but it is relatively well protected. “In a recession, demand shifts from restaurants to household consumption,” Mr Mogi explains, so what his company loses in one market it makes up in the other. Another concern is the value of the yen: the exchange rate against the dollar has gyrated wildly over the past 18 months between ¥90 and ¥125, and is now around ¥100. But Kikkoman buys most of its soyabeans and wheat from America and Canada, so a stronger yen actually reduces its costs. On a cashflow basis the company is unscathed, says Mr Mogi. But the strong yen extracts a toll when the revenue is consolidated in the corporate accounts, he laments. A further frustration for the company is the recent trade quarrel between America and Mexico, a small but growing market for the firm. Last month, after Mexican truckers were banned from America’s roads, Mexico retaliated by slapping tariffs on many imports from America, including a 20% duty on soy sauce, which Kikkoman makes at its factory in Wisconsin.

Kikkoman’s move into America in the 1950s set the template for the company’s foreign expansion. America was the perfect place to venture abroad, says Mr Mogi. It is open to new things and is willing to incorporate novel ingredients into its cuisine. During his time at business school Mr Mogi travelled across America, visiting Asian restaurants. There were very few: in New York he found only eight Japanese eateries. Kikkoman, he realised, had to adapt its sauce to the local cuisine if it was going to succeed. Kikkoman promoted soy sauce in America by hiring chefs to concoct recipes that incorporated the sauce into classic American dishes. The firm then sent the recipes to local newspapers, prompting housewives to cut them out and shop for the ingredients. In the process it started to position soy sauce not as a Japanese product, but as an “all-purpose seasoning”, as a housewife puts it in Kikkoman’s 1950s television advertisements. The same words can still be seen emblazoned on its bottles.

What’s the company’s special sauce?
In 1961 the company picked up many new customers by introducing teriyaki sauce—a mixture of soy sauce and other ingredients devised specifically for the American market as a barbecue glaze. Kikkoman is now devising products for South American and European tastes, such as a soy sauce that can be sprinkled on rice—something that is not done in Japan. In Europe and Australia, where consumers are suspicious of biotechnology, Kikkoman’s sauce is made without genetically modified ingredients. Mr Mogi is also taking Kikkoman into a foreign market rather closer to home: China. It is a more difficult market to enter than America or Europe, because soy sauce is already part of Chinese cuisine and cheap products abound, often chemically synthesised rather than naturally brewed. Mr Mogi hopes to establish Kikkoman’s sauce as a premium product aimed at wealthier buyers. His early recognition of the importance of adapting his firm’s product for foreign markets is Kikkoman’s real special sauce.