By Chris Betros

When Coca-Cola Japan President Daniel Sayre meets people for the first time and they hear what his job is, he gets all sorts of interesting comments. People will tell him they only drink Coke, how much they like this flavor or that flavor, where did the idea for this or that drink come from. In a consumer products business, there is no shortage of interesting topics, especially when the brand is as iconic as Coke is.

A graduate of Rice University in Houston, Texas, Sayre went on to obtain an MBA in marketing and finance at the J.L. Kellogg Graduate School of Management of Northwestern University in Evanston, Illinois. He joined Coca-Cola in 1983. Before being assigned to Japan in 2006, he was president of the Latin Center Division based in San Jose, Costa Rica, covering 32 markets in Latin America and the Caribbean.

Coca-Cola has been operating in Japan since 1957. It operates a franchise system with 12 bottling partners. The company sells more than 30 brands and more than 850 products a year through some 1.15 million retail outlets and nearly 1 million vending machines. Brands include Coca-Cola, Fanta, Minute Maid, Georgia canned coffee, Sokenbicha blended tea, Aquarius sports drink, I LOHAS mineral water, Goonew yogurt drink, Glaceau vitamin water and many, many more.

Japan Today editor Chris Betros visits Sayre to hear more about Coca-Cola in Japan.

Your business seems to thrive on new products.

We are always testing products and packaging innovations. It’s one of the ways in which we differentiate ourselves. Our brand managers are relentless. They never stop changing flavors. Sometimes, we’ll release a new product every week; other products will be seasonal. For example, for winter we have a new Fanta snow squash strawberry drink in a ball-shaped bottle, and we have just introduced some soups for vending machines.

How much autonomy do you get from head office in terms of product introduction?

About 70-80% of time, we get a lot of autonomy, which is more so than a lot of other multinational companies. But the other 20-30%, particularly on Coca-Cola, there are very firm parameters. Most of the flexibility we get is on flavors and bottle shapes because there is a strong mandate for us to be locally relevant.

What are your best-selling drinks?

There are six drinks, which each sell more than 100 billion yen a year. They are Coca-Cola, Coke Zero, Fanta, Georgia canned coffee, Sokenbicha (blended tea) and Aquarius. Japan is one of the top five markets in the world for us.

How come some flavors differ slightly from country to country? For example, Fanta orange in Japan is not quite as orange as in other countries.

First, let me say that Coke is Coke, wherever you go. But some flavors like Fanta do differ. In Germany and Latin America, for example, the color is much more orange. We tested that here and it came across as too artificial. The Fanta orange in Japan has no preservatives, no artificial colors, and that is why it is a softer color.

Do you also adapt ideas from other markets?

Yes. For example, a blend of Coke and orange came from Germany. It’s called Mezzo Mix. One of our bottlers was over there a year ago and he loved it. He came back and we researched it. Consumers said they liked it but didn’t understand Mezzo Mix. So the brand manager came up with the name Fun Mix and it did well last summer. Another example is ginger ale. We use an upscale look that we got from Britain. With Minute Maid, most of the packaging and graphics are from the U.S.

Nowadays, many of the company’s marketing meetings are held away from HQ in Atlanta. We hold a lot of meetings in Europe. Our chairman is fond of saying that we are a global company that happens to be based in Atlanta.

Is this business seasonal?

Yes. In summer, Aquarius sports drink is our best selling product because it is a great beverage to prevent dehydration. It has minerals, amino acids. That is followed by Coke Zero and Coke. We were among the last markets globally to introduce Coke Zero but we are now the largest market in world for it outside of North America. In winter, Georgia canned coffee is our best-selling brand, while in spring, it tends to be the Sokenbicha tea.

Speaking of Coke Zero, why isn’t Diet Coke more popular in Japan?

Our bottlers said that Diet Coke would not be a big seller. We have to respond to consumers and Japanese consumers have embraced Coke Zero instead. For example, McDonald’s – which is one of our single largest customers – was our first customer to convert all of their outlets to Coke Zero last year.

What is your share of the cola market?

We have about 80% of the cola market. I am a big believer in competitive spirit and people ask me sometimes about the Pepsi challenge. I say bring it on. It creates a lot of positive interest in the category. The cola market has been growing; this year, Suntory added a Pepsi flavor, and Asahi did a green cola.

So was 2010 a good year overall?

Yes, it has been a good year for sales thanks to three things: First and foremost, was the World Cup. We put a huge push behind that. Japan did reasonably well and that did a lot for our brand. The second thing was the long hot summer and brands like Aquarius and Coke Zero benefited. The third thing was more innovation and a lot more introductions. We invested even more in marketing in the last six months than we did a year ago.

What we call sparkling or carbonated soft drinks has been the fastest growing category in Japan for the past three years. Tea has been kind of stable or declining. Bottled water is holding its own. In Japan, our portfolio of products is much bigger than in other countries. Only about 20% of our business is what people think of as Coca-Cola Co. For instance, many people do not know that Minute Maid is a Coca-Cola product. And with I LOHAS bottled water, even though our name is on the bottle, I have had people say to me: “That’s your water?”

Tell us more about your distribution system.

We are doing quite well, but there are still places where we are not in to a great extent, such as sushi bars, and that is probably as much a distribution factor as anything else. These are smaller outlets and getting distribution to them is a challenge. Distribution is half the battle in our business.

Convenience stores are still really run like mom and pop stores, which makes them like a lab with what’s going on with consumers in various neighborhoods. For example, if you go over to Nakameguro, you’ll see a vitamin water product, and go to other areas, you won’t see it all. Near universities, you’ll see vitamin water or Coke Zero, but elsewhere you’ll see more green tea, blended tea and even see differences in coffee preferences.

What is your strategy?

What we’ve done is try to be much closer to the customer. What I mean by that is when I got here, we were very much focused on three channels -- vending machines, which are the bread and butter of our business, convenience stores and supermarkets. One of the things we tried to do was expand the total outlet universe and get into more stores.

Over the years, you have had slogans like “I feel Coke,” and so on. What is your current campaign?

More and more, we are going with a global campaign, with some modifications for Japan. The campaign in English is now called “Open Happiness” meaning if you open the bottle, you’ll be opening happiness. We tried that in Japan and the consumers didn’t quite get it, so we changed it to “Happy Wo Akeyo" (Let’s open happiness) in Japanese.

This year, we ran a commercial campaign featuring singer Namie Amuro, and it was a huge success. We have just re-signed her. For water, we have the actor, Hiroshi Abe, and Japan soccer star Keisuke Honda is doing our Aquarius campaign.

What are some unique characteristics of the Japanese market?

The frequency with which we launch new products is much higher in Japan. It can be every week. What we have got better at is managing the life cycle of products in terms of right level of demand and production. One of the challenges is that some of our competitors -- and ourselves -- in the past have had a tendency to get to a number with a convenience store or supermarket operator and then flood the market with it. Well, after a drink peaks, what do you do?

How come every time a flavor I like comes on the market, it’s gone after a few months?

Retailers and convenience stores expect new products. The competition for shelf space is fierce. We have more competitors here for tea, coffee, sports drinks and water than in any other market. However, drinks tend to stay a bit longer in vending machines.

How many vending machines do you operate?

Nearly 1 million. That’s out of a total of 2.5 million in Japan. The growth tends to be more indoors. Whenever a new high-rise goes up, that is an opportunity for vending machines, particularly because workers want to stay lose to their desk. About 40% of our sales come from vending machines. The bottlers keep them full. They have created entire organizations of up to thousands of people dedicated to filling vending machines. What makes us unique is that our bottlers do not outsource the job, as do some of our competitors.

In future, more of our machines will be high tech. We have already invested a lot in cashless technology, such as the Edy card or Suica card which you can use with vending machines. Now we are looking at face recognition vending machines, while others can show advertising and various types of product and nutritional information on a screen. We will put some of those in a few in some high-profile locations next year.

Is Coca-Cola involved in many community and environmental activities?

We try to participate in a lot of events. For example, many schools ask us for support and generally, we’re happy to support them. We do a lot of work with local governments. On a community basis, we are very much involved in health initiatives, such as dietary education projects. We organize a swimming program for kids during summer, we are very active in supporting runs and marathons, inter-high school competitions, sponsoring sporting teams. Our bottlers support local soccer and rugby associations.

On the environment, about 80% of our PET bottles are recycled, while about 90% of our aluminium cans are recycled. About 20,000 employees’ uniforms are made form recycled PET bottles. We are expanding the number of hybrid distribution vehicles.

What is a typical day for you?

I show up 8 or 8:30 a.m. We have a weekly management meeting each Monday morning. There is this great mystique around the building that the management meeting will conclude like the Vatican does when white smoke comes out, as if to signal a monumental decision. All we do is share information, on sales, new products, budgets, brands and community campaigns. I love to get out in the market, once or twice a week to see what is happening, or visit one of my bottlers. I travel overseas once or twice a month.

Do you get many emails?

About 100-150 a day. I try to avoid them during the day. Email is great but has to be managed, otherwise it will take over your life.

How many staff do you have?

Here, we have about 550. We have very low staff turnover, only around 2%. This year, we hired 7 graduates from over 20,000 applications. They just blow you away, those seven, with their confidence and how well informed they were.

How has the company’s corporate culture changed since you joined it?

We are more diverse than 27 years ago, in terms of women and foreign nationals. And we are more global; 15 years ago, the annual strategy meetings would always be held in the States, whereas now, we go to Europe, South Africa and other places.

What frustrates you about doing business in Japan?

In Japan, there is still a strong need for consensus and I would suggest that consensus does not necessarily focus on the consumer. The consumer here is relentless, they know value, what they want and are extremely intent on getting more value. Some of the key business leaders haven’t woken up to that. I still think that in some regards, Japan is still too producer-focused on what is right for the business. Japan is undergoing a huge transformation on the consumer side and the government is slow to react while the consumer moves on.

How do you like to relax when you are not working?

I spend time with my family on weekends. I love to bike and read.

For more information, visit www.cocacola.co.jp

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