Kagome - Company History

Advice heard in the army, Western vegetables, and the turn to processing

In 1899 Kanie Ichitaro (蟹江一太郎), who farmed at Tokai-cho in Chita-gun, Aichi prefecture (today Tokai City)[1], was urged by a superior officer during his army service: Growing nothing but rice and barley will not do from now on. Take up Western vegetables. On being discharged he began growing onions, cabbages and tomatoes[2]. He saw his first tomatoes germinate that same year[3], but the tomato did not suit Japanese eating habits and did not sell at all[4]. Kanie Ichitaro chose to divert the unsold crop into processing, and in 1903 succeeded in a trial batch of tomato sauce — what would today be called tomato purée[5]. It was the first processed tomato product made in Japan[6]. In 1908 he moved into the manufacture and sale of tomato ketchup and Worcester sauce as well[7].

In December 1914 Kanie Ichitaro founded Aichi Tomato Sauce Manufacturing (愛知トマトソース製造合資会社)[8], moving from a sole proprietorship to an incorporated firm[9]. In April 1917 he registered as a trademark the Kagome mark, a hexagonal woven-bamboo lattice pattern[10]. The Ueno plant was completed in June 1919[11], giving the firm proper manufacturing equipment, and in April 1923 it was reorganised as a joint-stock company under the name Aichi Tomato Manufacturing Co., Ltd.[12] In August 1933 it launched tomato juice[13], completing a trio of product families — ketchup, purée and juice. The company creed set out by the founder was 和風協力 (wafu kyoryoku), carrying the sense of being in harmony with people and working in co-operation with them[14].

Organised contract farming, and a national manufacturer built from five merged affiliates

In 1916, to put his raw material on a stable footing, Kanie Ichitaro contracted with farming organisations in Aichi prefecture[15] and organised the cultivation of processing tomatoes. Each year the acreage, the variety and the price were agreed with the growers[16]; the entire harvest was bought at the agreed price; and the company took responsibility for instructing the growers in how to raise the crop[17]. It was a mechanism for securing, at a stable price, a raw material whose quality could be built to suit processing[18]. Contract farming continued from the founding onwards, and by the end of the 1970s it took the form of direct contracts with growers through the agricultural co-operatives and their prefectural economic federations[19]. Processing tomatoes are picked once fully ripened deep red in the field and carried straight to the factory; for juice, only six or seven minutes pass between delivery and canning[20]. Against table tomatoes, which are picked green and turn red during distribution, the difference in nutritional value was large[21].

From the Second World War into the post-war years extreme material shortages persisted[22], and the businesses connected with Aichi Tomato Manufacturing had come to be split across five companies[23]. In August 1949, taking the fiftieth anniversary of its founding as the occasion, the company consolidated its related businesses[24], absorbing four affiliates — Aichi Shoji, Aichi Kanzume Kogyo, Shiga Kanzume and Aichi Kaisan Kogyo[25] — to become Aichi Tomato Co., Ltd. with capital of $41,667 (¥15m)[26]. The head office was placed in Nagoya[27]. In April of the same year it opened a Tokyo liaison office (today the Tokyo branch)[28] and in July an Osaka office (today the Osaka branch)[29], giving it sales bases in both cities. Through the 1950s chemical fertilisers spread and Western vegetables such as cabbage appeared on Japanese tables, and Kagome built out its ketchup distribution through dried-goods wholesalers[30].

As living standards rose and the Japanese diet grew more Western, demand for sauces and tomato ketchup increased[31]. Contract farming of raw material spread accordingly from Aichi to Nagano in 1952, Tochigi in 1961 and Ibaraki in 1962, reaching nine prefectures by the end of the 1970s[32]. Plants were placed in the main growing districts: the Tochigi plant (today the Nasu plant) was completed in July 1961[33] and the Ibaraki plant in June 1962[34]. In April 1961 Kagome Building Co., Ltd. (today Kagome Axis Co., Ltd.) was established to manage the head-office building[35]; a Nagoya branch opened in July 1962[36] and a research laboratory that September[37]. Sales grew from $4.1M (¥1bn) in 1955[38], and in 1962 Kanie Ichitaro handed the running of the business to his eldest son, Kanie Kazutada (蟹江一忠)[39].

Turning down Del Monte's joint venture and facing foreign capital alone

In 1960 the Japanese government settled on a policy of capital liberalisation, and the arrival of huge foreign companies in Japan became a real prospect[40]. Around this time Del Monte of the United States, looking for a way into the Japanese market, proposed through Mitsui & Co. that the two set up a joint venture[41]; the president, Kanie Ichitaro, refused[42]. Explaining the refusal, he said that the products were exactly the same so there was no advantage in it for Kagome, and that he was confident of not losing a competition fought inside Japan[43]. Kagome had been organising contract cultivation of processing tomatoes since 1916[44], and it chose to meet foreign capital alone while keeping its grip on the raw material. As the pioneer of processed tomato foods, it had also made the brand image トマトはカゴメ — tomatoes mean Kagome — widely familiar[45].

Rebuffed, Del Monte joined with Kikkoman and Mitsui & Co. to establish Nippon Calpak in 1963 and put ketchup on the market through both partners' distribution[46]. H.J. Heinz of the United States also entered through a joint venture with Nichiro Gyogyo[47], so that in tomatoes Kagome was taking on two foreign alliances at once[48]. In April 1963 the company changed its name to Kagome Co., Ltd., bringing the product brand and the corporate name into line[49] — on the view that the brand name and the company name were better the same[50]. Kanie Kazutada, who had taken over from his father in 1962[51], took up the fight, and because the foreign entrants had no choice but to source their raw material inside Japan[52], the competition took place on ground Kagome had been cultivating for decades.

Through the 1960s the Heinz–Nichiro alliance and the Del Monte–Kikkoman alliance both lost to Kagome in the Japanese tomato market[53]. In 1972, ten years after the foreign entry, Kagome still held 82 per cent of ketchup and 64 per cent of tomato juice[54]. The single greatest reason given for that strength was that Kagome had introduced a contract system into the growing of raw tomatoes early and had secured 74 per cent of the country's processing-tomato fields[55]. The obligation to procure raw material domestically also worked as a defence against foreign entrants[56]. From 1965 onwards new entry into the industry became brisk, and Kirin took up tomato and vegetable juice from around 1976[57]. Kagome did not read this as a negative: more entrants, it judged, widened the market by that much and helped open up new demand[58].

A Taiwanese joint venture, the stock listing, and an eightieth anniversary with commanding share

In October 1967 Kagome established Taiwan Kagome Co., Ltd. (台湾可果美股份有限公司) as a joint venture with local capital[59], taking a 40 per cent stake and placing the plant in Tainan[60]. The purpose was not to supply raw material to Japan but to sell across Taiwan and export to South-East Asia and the Middle East[61], though Kagome later imported tomato paste from the venture and used it to diversify its sourcing[62]. The Fujimi plant was completed in July 1968[63]; in March 1971 Kagome Kogyo Co., Ltd. (later Kagome Logistics Service Co., Ltd.) was established as a logistics subsidiary[64]; and in April 1972 a Tokyo head office was opened[65]. Taiwan Kagome was running smoothly by the end of the 1970s, with results improving[66].

In November 1976 Kagome listed its shares on the second section of the Nagoya Stock Exchange[67]. The proceeds of the public offering went to repaying borrowings: the equity ratio rose from 16.8 per cent at the year ended March 1976 to 25.9 per cent the following year[68], and the fixed-assets-to-equity ratio improved from 153.9 per cent to 95.1 per cent[69]. In September 1978 the shares were moved up to the first section in Nagoya[70], and on 1 November that year 4,520 thousand shares were offered at ¥1,145 each and listed on the first section of the Tokyo Stock Exchange[71]. At listing the company had capital of $12.3M (¥2bn) and 1,345 employees[72]. Its establishments ran to the Nagoya head office and the Tokyo head office, the Tochigi plant and seven other plants, the Tokyo branch and ten other branches, the Utsunomiya sales office and two others, and the Aomori office and eleven others[73].

At the time of the listing, of sales in the year ended March 1978 tomato ketchup accounted for $130.8M (¥26bn), or 38.9 per cent; tomato juice for $97.5M (¥20bn), or 28.9 per cent; and sauce products for $50.2M (¥10bn), or 15.0 per cent[74]. Market shares in the same year were 73.3 per cent in tomato ketchup, 50.9 per cent in tomato juice, 27.6 per cent in sauces, 26.2 per cent in apple juice and 23.4 per cent in vegetable juice — first place in every one[75]. The raw tomatoes secured through contract growing came to 52 per cent of national processing-tomato output[76], and the appointed distributors handling sales numbered 166[77]. Sales had grown from $4.1M (¥1bn) in 1955 to $336.1M (¥68bn) in the year ended March 1978[78]. In the year ended March 1977, however, a major brewer had entered the tomato juice field, and the promotional and advertising spending that answer required pushed the operating margin down[79].

The Sky Plan's shift of raw material overseas, and the decision to build a plant in America

In 1983 Kagome began the Sky Plan, a five-year programme to remake the constitution of the business[80]. Moving quickly to prepare for import liberalisation, it cut the share of domestic tomatoes in its raw material — until then close to 80 per cent — to 30 per cent by 1988[81]. Over two years from 1982 it toured tomato-growing regions around the world in search of the country that could make the paste best suited to Kagome's products, and concluded raw-material supply contracts with Tat of Turkey and Mayowa (マヨワ社) of Chile[82]. With Taiwan added, those three origins came to cover the roughly 130,000 tonnes of paste needed for tomato products other than juice[83]. The Sky Plan set a target of becoming a ¥100bn company and reached it in 1988[84]. In May 1983 the brand mark was also changed[85].

On 2 February 1988, at a GATT Council meeting in Geneva, Japan accepted the recommendation to liberalise ten farm products[86], and import quotas were to be removed on eight items including tomato ketchup, tomato juice and tomato sauce[87]. Processing tomatoes cost about ¥50 a kilogram in Japan against about ¥10 in the United States, a fifth of the price, and cans cost roughly half as much in America[88]. In June 1988 Kagome established a local subsidiary in California and announced a plan to build its own factory there within about two years[89] and produce foodservice tomato ketchup from raw material bought inside the United States[90]. President Kanie Eikichi said, the food industry too has become a business without borders.

The move into America provoked a backlash from the processing-tomato growers then under contract to Kagome[91]. There were about 3,700 contracted farm households across the country[92], and Kagome was their largest customer, buying some 70,000 tonnes of the 146,000 tonnes grown in Japan[93]. Domestic demand for tomato juice had been falling since its 1978 peak[94] and paste imports had risen, so contracted volumes had collapsed: the contracted households, once close to 20,000, had halved, and every farm that had grown tomatoes as a sideline had dropped out[95]. Kanie Eikichi stated immediately after the American plan was reported that we will not stop producing juice in Japan, but growers in Nagano, Japan's largest tomato-growing prefecture, reacted furiously — the plant was going abroad, they said, immediately after they had been made to accept their first price cut in the name of a liberalisation whose timing had not even been fixed[96].