Regarding Amazon's FMN clause in their contracts, the EU Commission is investigating its legality on digital books while other Fair Trade Commissions including that of the UK are looking into the practice in online travel agencies. In Japan, the investigation on Amazon is the first in terms of MFN.
Amazon Japan's PR Manager declined to comment to the Nihon Keizai Shimbun (Nikkei) when contacted on 30 May 2017.
According to sources who know the Amazon warehouses well, Amazon is planning to delete the MFN clause from the contracts for publishers supplying e-books and Amazon Market Place sellers.
The EU Commission closed its investigation on 4 May when Amazon.com of the US submitted a revision plan and a pledge that it will stick to the revision plan for five years.
Yamato Holdings Co., Ltd. CEO Masaki Yamuchi to Nikkei: if customers decide to leave us, then that cannot be helped.
Yamato has announced that it will be hiking prices as at September 2017. I have first-hand knowledge that the proposals they are presenting to high volume customers is for increases of around 20%. I also see that already, Amazon.jp deliveries have been handed over to TMG Group and Japan Post - at least to my neighborhood.
Yamato has been in the spotlight for some time now, ever since the Union asked for less business and more decent working hours and conditions this past spring, along with allegations that employees have committed suicide from overwork. The company is having to make changes and fast changes under the spotlight, as Yamato Holdings Co., Ltd. is a publicly listed company on the 1st Section of the Tokyo Stock Exchange.
e-commerce is not going away and B2C parcels are increasing at an alarming rate. Yamato's trucks and distribution centers are operating at maximum capacity and more at peak times, and employees have been working long hours without pay. Yamato's senior management blames "the unprecedented pace of growth in e-commerce related parcel traffic," "lack of manpower," and "changes in social insurance and other welfare legislation" as the combined cause of their woes.
But can senior managers at a 1.46 trillion yen ($13.3 billion USD) company just blame external causes for the mess they are in and get away with it?
Yamauchi：We have noted that utilities like water and gas have gone up by approximately 30%, Tokyo city bus fares by 30%, and taxis have gone up by 40% since we last raised prices.
But at Yamato, we have been absorbing rising costs by increasing productivity and enhancing efficiency while offering more value-added services and convenience to our customers. We pride ourselves on providing what has now literally become a social infrastructure to people not just in Japan, but overseas as well.
Yet recent times have thrown us straws that broke our camel's back. For example, we are now subject to much higher costs of taxes and costs due to some legislative changes. Of course we have anticipated this changes and planned to adjust to them, but the pace of change is much faster than our pace of adapting to them. We are struggling to secure enough people to handle our volumes and have reached a point where efficiency and productivity alone cannot cope with the market's growth.
We want to stay relevant to customers and continue to offer the services our customers have become so used to using. But to do that, we need to raise prices as we look further into the future at more growth and more challenges.
It just so happens that we took the decision to change our rates at this time and it is the first time to do that in 27 years.
Consolitaed Operating Profit has not grown for more than 10 years since you hit 60 billion yen ($541 million USD) in March 2006. If the pricing was right, one would think that operating profit should grow with your volume, but why has this not happened?
Yamauchi：Part of the problem is our heavy discounting for high volume customers, but the other cost boosting problem is that e-commerce traffic tends to have a high rate of failed first time deliveries due to customers not being at home. Or, there is a high concentration of deliveries for the evening time slot, which has changed the profile of our deliveries significantly. e-commerce related shipments are growing much faster than the overall market, and as a result, we are seeing a particular segment of our shipments grow exponentially and out of balance with the rest of our business. As a result, these e-commerce related shipments forced us to take on more costs and did not contribute to our bottom line as much as we had hoped.
Buying Market Share: an addictive and not productive process
You offer heavy discounting for high volume customers like Amazon Japan. What was the management logic behind allowing such practices? Yamauchi：Part of the reasoning behind it was that we were following a legacy policy of increasing market share through discounted pricing. This is exactly what we are in the process of rooting out right now, but it has become an industry rule, if you will, for parcel companies to offer steep discounts to customers who give us large volumes of shipments. This is because, in the past, when we looked at our costs for collection at the first mile, long-distance line haul, and then last mile delivery, there was no one segment that stood out from the rest other than that the first mile costs were on the heavy side. Therefore, if we only needed to make one stop to collect many parcels, we would offer discounts based on the volume as there was a benefit of scale to be had there. However, with the rise of e-commerce, the last mile costs have been growing rapidly and exponentially, due to failed delivery attempts and re-direction requests. Therefore, any efficiencies achieved at the first mile is not impacting our costs positively, and thus, the logic behind offering discounts for large volumes no longer exists. Of course, we are not ignoring the economy of scale realized by high volume customers on the first mile. There are efficiencies in fuel and personnel to be enjoyed. But we need to look at the lifetime value of our shipments to see for whose parcels high-cost issues of failed delivery attempts and re-directing occur most often. Yamato now believes in "total pricing" or total lifestyle pricing. This is where we are right now.
So the heavy discounts for high volume customers came at a time when your business was predominantly C2C based on the efficiencies gained in the first mile?
Yamauchi：Yes, that is correct. That is how it was for us when we first started with Ta-Q-Bin. It was a time when there were more than 30 players in the parcel delivery market. At the time, I believe the management's decision to approve of the heavy discounts was so that we could gain market share by securing such high volume customers.
But times have changed now. Market share is not our top priority. We focus more on offering a convenient and high value-added services to our customers and we have been investing to offer more of that.
This time, Yamato announced that you will cap the volume of parcels you receive, which is a powerful message that it is not about market share for you. When did this change in emphasis on market share come about as a management mandate?
Yamauchi：This is extremely difficult to answer. We went to buy market share when it mattered and the market was very competitive. But today, the rivals of yesteryears are merged as in the case of Nittsu's Pelican service and Japan Post.
Did Yamato specifically feel a sense of urgency when Japan Post was aggressively pursuing market share leading up to their IPO?
Yamauchi：No, not by then. There was a time leading up to that time when we felt that Japan Post was aggressively pursuing market share to show that they were growing. Around that time, we began to see prices fall in the market and the causing much confusion. We deliberately made a decision to distance ourselves from that.
For customers who want to cut costs to increase their competitive edge, there is nothing we can do if they decided to use other suppliers based on cost alone. On the other hand, we have customers who want to offer better service and products to grow their business.
At the moment, Yamato is focusing on servicing the latter group with our best efforts, and we are openly honest with the former group to say there is only so much we could do for them. And if price is all they care for, and they choose to move away from us, we feel there is nothing we could do about it.
The Yamato brand is built on the strong commitment to ongoing delivery of good service. This is what we believe in at Yamato and this is how we will serve our customers.
You have made public announcements that you will pay retroactively for unpaid overtime and will implement measures to increase the number of staff. Was the implementation of such measures delayed due to the misguided anticipation that productivity was on the rise in your operations?
Yamauchi：As you can see from the volume growth trends for Ta-Q-Bin, we have implemented a wide range of measures to improve productivity in response. That is exactly why we managed to grow our volumes to the levels we see today and have been able to manage our operations efficiently to date.
There is no mistake that productivity is on the rise. Just a quick look at the number of parcels handled per driver per hour is a clear indication of this. Productivity increase was realized through our full time drivers, the use of part time staff, and by implementing various innovative solutions over time.
Don't you think that part of the productivity increase was the result of staff not reporting their overtime work accurately?
Yamauchi：Productivity is measured by using the number of recognized active manhours and parcels processed. We monitor such activities through portable devices used by our staff, so if there were manhours we failed to capture, then such miscalculations may have occurred. We have identified areas where we failed to accurately capture necessary data, and that is why we are implementing the work style enhancement programs to steer it back to accurate figures.
No Consistency in Hiring Plans
When we look at your hiring trends, we fail to see consistency in your hiring plans.
Yamauchi：I agree that our number of new hires fluctuate between financial years, but there are times when we hire more people in anticipation of volume growth and get too far ahead on overhead as a result of actual growth being more mild than expected. We also have the team collection initiative that has boosted productivity. Such factors may influence the number of new hires for the following year to be smaller.
In the period ending March 2016, the total number of Ta-Q-Bin business employees have declined. Why did this happen?
Yamauchi：Sometimes, even if we plan to increase staff, we cannot hire accordingly. We did not plan to reduce employees, but that year saw our numbers fall not by planning, but as a result of many things. Because of this, we increased the amount of outsourcing to correspond with the growth in volumes.
Can't you increase salaries and hourly wages to secure the number of persons you need?
Yamauchi：I doubt that alone would be sufficient. For example, if we could triple or quadruple the hourly wages, there would be people who welcome that. But we have cut up the work hours into small blocks like mornings and late evenings. In some areas, it is difficult to find people who are willing to work those hours and agree to other conditions, too. Such issues result in the inevitable imbalance of hiring when comparing areas and regions.
At what point did you and your management team realize you had a crisis on hand?
Yamauchi：Both management and the head of the Union are constantly monitoring what goes on in the front lines. For example, discussions on how to reduce work hours was a joint initiative with the Union.
We announced that we would make an extraordinary payment to staff for reported unpaid overtime, but as I mentioned earlier, the point when we began to realize that reality was beginning to move farther and farther away from plans is around the summer of 2016. We abruptly began to face difficulties in hiring staff and our manpower was insufficient to maintain our business operations.
How did your operations people see the way things were up to last summer?
Yamauchi：Up to about 18 months ago, we were having no difficulty in hiring part time staff in all regions. However, from around last summer, we started seeing an obvious drop in responses to advertisement.
At the press conference, you said you were "too late in noticing" the crisis. Do you feel there were ways you could have caught it earlier?
Yamauchi：It is not that we did not notice, but rather, we saw a dramatic change come on abruptly and we were scrambling to respond. However, there is the fact that the change was much faster than we had anticipated. You can say that was an oversight on our part in retrospect.
We understand that volume increases started as early as 2013 and operations staff were under much pressure since then.
Yamauchi：I am not sure how to respond to that other than that it is true that our volumes began to grow fast and we began to see an increase in the number of failed delivery attempts as well as concentration in the late night time slot. I believe this coincides with the growth in e-commerce related parcels volumes. However, it is not until less than a year ago that we began to feel that our operational staffing was insufficient for the volumes.
How did you monitor the failed delivery attempts?
Yamauchi：We did not actually capture it as a data point and thus, it was not as visible. We began to feel that the number of failed delivery attempts were on the rise especially in urban areas as e-commerce related deliveries rose significantly. However, we only began to capture data the last two years. We also came to understand that as same day delivery began to be more popular, failed delivery attempts also began to increase.
Yamato has been investing a total of 200 billion yen ($1.8 billion US) in such mega logistics facilities as the Haneda Chronogate and Atsugi Gateway. The concept of non-stop logistics was endorsed to operate gateways in Atsugi, Chubu, and Kansai 24/7x365 where core channel transport were to be transformed into frequent shuttle operations. However, as the mega facilities operate nonstop and bulk shipments become more frequent, your front line operations for Ta-Q-Bin have remained unchanged. Isn't this gap causing the additional burden on your front line staff?
Yamauchi：Based on the traditional business model, perhaps it is easy to conceive that as e-commerce shipments increase, bulk line haul should also increase. But with e-commerce shipments, there are localized, regional warehouses, so shipments actually increase within that region and not across regions. At present, Yamato sees the potential for bulk line haul growth in B2B traffic. With B2B, there is the issue of holding inventory and inventory being in transit. So by increasing the bulk line haul, we are assisting in reducing the inventory in transit.
I urge you not to think that our mega facilities are there for e-commerce business. Yamato is focusing on this B2B channel as one of our future pillars. And we expect volumes in this channel to increase. When that happens, the gateways at Atsugi, Chubu, and Kansai will really become effective as will our bulk line haul network.
For the period ending March 2017, your operational profit target was 90 billion yen ($8.1 billion USD), but for the past ten years, your performance has been around 60 billion yen ($5.4 billion USD). What is the cause of the gap between your target and actual performance?
Yamauchi：We had not anticipated the vast growth of e-commerce shipments and changes in tax laws at the time of creating our medium-term business plan. Also, we have our Value Networking Strategy, which is to promote international and B2B logistics, but we are facing some delays on that front.
Did you expect BtoB logistics to grow more?
Yamauchi：BtoB logistics requires our customers to migrate from their existing platforms to ours, which takes one to two years to execute. The sales process is also longer and the lead times requires is longer than we had expected.
In the world of BtoB logistics, it is said that customization of logistics systems for each individual client is key. Do you see limitations in realizing B2B logistics on your existing Ta-Q-Bin platform?
Yamauchi：We want to create a platform and offer it as a standard to the entire industry to help boost efficiency across the board. If we build a system that is good for a particular customer only, that would be beneficial to that particular client, but such a system may be challenging to use for other clients and especially small and medium sized businesses. Yamato wants to create a platform that is accessible and easy to use for small and medium sized businesses.
How much does B2B contribute to your overall parcels traffic at this time?
Yamauchi：When seen in the overall picture of all of Ta-Q-Bin, approximately 10% of everything that we receive is from individual consumers and the other 90% originate from businesses. Of the 90%, B2C is 50%, and B2B is about 40%. Our target for the Value Networking Strategy is still very small at this point.
As your Value Networking Stragety with BtoB logistics at its core is delayed, why did you not think of increasing volume you take on from high volume customers like Amazon Japan to increase the volume going through Haneda Chronogate and other gatweays?
Yamauchi：That was never in the equation. If we did that, that would finish us. The beauty of Chronogate is in offering high value-added logistics services, not just pushing volume through.
The history of Ta-Q-Bin has been the history of creating new demand. As e-commerce thrives and grows, do you feel that Yamato is being challenged to change the way you manage your business?
Yamauchi：Ever since we began offering Ta-Q-Bin, we indeed have a history of creating such new services as golf Ta-Q-Bin, ski Ta-Q-Bin, and Cool Ta-Q-Bin that were made possible by management focusing on the needs of our shippers. However, what we now need to focus on is enhancing the trust we gain as a social infrastructure.
The challenges we are facing now is even giving management a sense of crisis that the trust we have built to date may be compromised or destroyed. That is why we have to shift our management focus now on our employees, who are the people who meet our customers to build and maintain that trust.
When you say "now" are you referring to the unpaid overtime pay issue?
Yamauchi：Yes. We have to once again respond properly to the changing environment and establish an operations base that enables us to sustain our trusted service offer to our customers. The only way we can succeed is through our people. We have to get back to being a company where our employees enjoy working with us. And to realize this, we have to reduce the volume we take in temporarily and we are seeking support from customers who can understand that.
Customers who are only making deicisons based on price will leave us and that cannot be helped. First and foremost, we have to get back to where we were. Then, we will proceed with our Value Networking Strategy and other strategies to face new frontiers. Utilizing new technology will enable us to expand our shipping volumes. We have no intention of shrinking our volumes forever.
### Masaki Yamauchi Profile ### Yamauchi joined Yamato in 1984 and became an Executive Officer in 2005. In 2008, he became CEO of Yamato Logistics Co., Ltd. and then CEO of Yamato Transport Co., Ltd. in 2011. In 2015, he was promoted to CEO of Yamato Holdings Co., Ltd.
The original interview was published on Nikkei Business Online on 29 May 2017 in Japanese only.
The Nikkei Marketing Journal released the survey results of its joint survey of "Stores I Want to Recommend." Approximately 230,000 people responded to the survey and rated 348 store brands in 22 different categories.
Surprises were abundant in the findings...
Tween Men Prefer Baskin Robbins and Mister Donut Above All
The results for tween men shows that they are not shy to go into sweets shops alone or with friends, unlike their older counterparts.
Their favorite stores that they would recommend to friends were:
Seven Eleven enjoys a whopping 57 months of consecutive, month-on-month revenue growth on existing store basis. And Seven Eleven was the only brand that ranked among the top 10 for all age groups in both genders. The chain has had ongoing relaunches of such staples as rice balls and pre-cooked food as well as limited editions in beverages, frozen foods, and prepared food.
Mister Donut is not just a donut shop, but offers noodles, fried rice, and dumplings in addition to their signature bottomless cups of coffee and cafe lattes. Two donuts and a cup of coffee comes under 500 yen ($5 USD). Combined with endless refills of coffee, it is a more cost-effective destination than Starbucks or fast food chains.
Though Mos Burger is not the cheapest or largest fast food chain, for both men and women in their 40s, Mos Burger topped the list. For more than 30 years, the chain has been buying vegetables directly from its over 3,000 contracted farmers and displays the names of the farms the vegetables came from in every store. The chain is also famous for its founder and CEO insisting that all executive officers including himself, spend one day a year working in a store. The CEO himself flips burgers for a day in a kitchen in an actual store. He is also very hands on when it comes to developing new menu items and will personally taste test all proposals.
Consumers have commented "If I go to Mos Burger, I feel I can eat more vegetables," and the Nikkei reports that the chain is seeing its clientele of older men growing as they become more health conscious. Mos Burger by far outweighed McDonald's.
Fashion Seems Doomed
What struck me was that not one fashion brand made the top 10, except for UNIQLO and MUJI. For women in their 60s and above, department store Takashimaya came in 9th with 33.7%, but for younger women in their 20s, 30s, and 40s, UNIQLO coming in 4th at 54.9% for tweens and MUJI coming in 2nd (53.0% for 30s) and 6th (39.1% for 40s) are the only fashion and apparel related brands.
Even popular cosmetics brand Jill Stuart came in 140th in overall ranking. The results obviously show that Japanese consumers are spending on food and beverages, household items, and a "third place."