Nichirei - Company History

A control company formed from the shore operations of 18 fishing firms

Nichirei's predecessor was Teikoku Suisan Tosei (帝国水産統制), the central control body established under the Fisheries Control Ordinance promulgated on 19 May 1942[1] to handle the sale of marine products from ocean fishing together with ice-making and cold storage[2]. Eighteen companies, most of them fishing firms, subscribed the capital[3], and the company was incorporated on 24 December 1942 with capital of ¥50 million[4]. Its lineage ran much further back: Tokyo Seihyo, Japan's first ice-making company, was founded in 1884[5], and Kikai Seihyo, established in 1897, merged with it in 1907 to form Nippon Seihyo[6]. The mergers and absorptions that followed were the company's matrix[7], and the freezing plants scattered across the country tell that history[8]. In April 1943 it began buying and selling marine products and operating ice-making, cold-storage and freezing businesses[9].

The war cost the company 43 per cent of the ice-making capacity it held, 42 per cent of its cold-storage capacity and 31 per cent of its freezing capacity, along with its entire overseas network[10]. When the Fisheries Control Ordinance was abolished on 30 November 1945[11], the company was reorganised on 1 December as a joint-stock company under the Commercial Code and renamed Nippon Reizo (日本冷蔵)[12]. In February 1948 it was designated under the Law for the Elimination of Excessive Concentration of Economic Power[13], but the prospect of that designation being lifted soon emerged, and in March 1949 it raised ¥100 million of new capital to bring paid-in capital to ¥150 million[14]. At the same time it carried out a redundancy programme of about 1,000 people[15] — a large number by the standards of the day — and in October of the same year raised a further ¥350 million to take capital to ¥500 million[16]. In May 1949 its shares were listed on the Tokyo, Osaka and Nagoya stock exchanges[17].

From supplying cold capacity to the Allied forces to a general food company

Until the peace treaty was concluded in 1952, constraints on companies managing their own affairs remained[18], and Nippon Reizo turned some sixty surviving cold stores over to occupation use by the Allied forces[19]. Having thought of cold capacity as an incidental adjunct to fishing, the company learnt at this point how large a role cold plays in food[20], and settled on a policy that combined conviction in the growth of the cold-storage business with entry into food using that same cold capacity[21]. In December 1948 it added the manufacture and trading of canned goods, fertiliser, feed, oils and fats, and the import and export of marine products, to its stated objects[22]; in August 1951 it built a canning plant and began food production[23]. In October 1952 it started selling prepared frozen foods[24], and in May 1956 it entered the livestock business[25].

Under the rebuild led by Kimura Kojiro (木村鉱二郎)[26], the freezing division was first restored to its prewar level and then lifted to world standard through a First Five-Year Plan and a Second Three-Year Plan; after a redeployment of sites, a nationwide network of freezing plants organically linked to one another was in place[27]. On the base of that network Nippon Reizo formed its own Cold Belt[28], and abroad it had turned early to distant-water fishery resources, setting up subsidiaries and fishing bases, attracting Japanese vessels and exporting catches at sea[29]. With the freezing division as its foundation, the trading division spread into the sale of fresh and frozen fish, the manufacture and sale of canned goods, ham, sausage and frozen foods, livestock products and compound feed, and overseas business[30]; annual turnover reached $121.4M (¥44bn) in the year to March 1968[31]. Domestic sites numbered 183 in all: 10 branch offices, 136 freezing plants, 6 food plants, 24 sales offices, 5 overseas sites and a research laboratory[32].

Rebalancing profit to half freezing and half food

Cold-storage capacity stood at 370,000 tonnes as of January 1970, 13 per cent of the national total of 2.9 million tonnes[33] and more than the 148,000 tonnes of the four major fishing companies combined[34]. President Tomonaga Iwao (朝長嚴) nonetheless reflected critically on a company earning its profit from heavily depreciated freezing plant[35], noting that if the operating assets of the freezing division were restated at current value the return would fall from about 20 per cent to 4 per cent[36]. He therefore set out a complementarity of cold and food, requiring the food side to secure profit equal to the freezing division's net $6.7M (¥2bn)[37], and kept up the capital expenditure needed for it. The profit mix duly became 54 per cent freezing and 46 per cent food, a change from the days when the freezing division accounted for 93 per cent of total profit[38]. Affiliated companies numbered 51, and including them the group's real scale was sales of $237.2M (¥85bn) and profit of $7.8M (¥3bn)[39].

At the end of January 1972 cold-storage capacity was 440,000 tonnes, 180,000 tonnes more in five years than the 260,000 tonnes at the time Tomonaga took office[40]. Its share of national installed capacity was around 14 per cent, but in important areas such as the large cities and the main ports it ran at 35 to 40 per cent[41]. Five or six years earlier the company had recognised the importance of securing raw materials and had held back exports to shift its weight to an import structure; with a ratio of nine parts import to one part export[42], the revaluation of the yen brought it a foreign-exchange gain of $361,111 (¥130m) to $388,889 (¥140m)[43]. In frozen foods it led the industry with a 35 per cent share[44], and on a consolidated basis including 54 wholly owned subsidiaries, sales were $354.2M (¥128bn) and net profit about $8.3M (¥3bn)[45].

The 200-mile limit, and dropping cold storage from the name

A sense of crisis took hold inside the company that a business run on the freezing division alone offered no prospect for the future, as the 200-mile fishing regulations depressed the market for marine products[46]. In March 1977 Nippon Reizo set up a freight-forwarding subsidiary[47], and in January 1979 it established a subsidiary in the United States to collect and sell agricultural, marine and livestock products[48]. In June 1982 it moved into biotechnology[49], and in April 1984 it added the manufacture and trading of pharmaceuticals, quasi-drugs and reagents, and the production and sale of seeds and seedlings, to its stated objects[50]. Kaneda Kozo (金田幸三), who became president in April 1983, pressed ahead under that sense of crisis with strengthening the food-processing division and entering new businesses[51].

In February 1985 Nippon Reizo changed its trade name to Nichirei[52]. Name recognition, which had been around 50 per cent in the Nippon Reizo years when ice-making and cold-storage warehousing were the shopfront, rose sharply from this point and was holding near 100 per cent by the start of 1997[53]. In April 1988 the company launched an acerola drink in earnest[54], and in September of that year it acquired a Dutch cold-storage company and entered the cold-storage business in the Netherlands[55]. In December 1988 the Nichirei Akashicho Building was completed and the office rental business began in earnest[56]. In April 1989 it launched combination foods for the preparation of diabetic diets, approved by the Ministry of Health and Welfare as foods for special dietary uses[57].

Redefining the storage trade as temperature-controlled logistics

In the second half of the 1980s the strong yen and expanding food imports were a tailwind for cold-storage warehousing, and food imports in 1988 rose 31 per cent year on year to about US$30.9 billion[58]. The Nichirei group's cold-storage capacity was about 929,000 tonnes at the end of the year to March 1989, just under 13 per cent of the industry[59]. Even so, the freezing division — a mainstay that earned more than half of profit on less than 10 per cent of sales — was running an ordinary profit margin of only around 2 per cent of sales[60]. As consignments grew smaller and more varied and the frequency of movement in and out rose[61], President Kaneda said that cold-storage warehouses too must from now on follow the flow, as distribution warehouses.[62]

As a first step, Nichirei had set up the subsidiary Nihon Teion Ryutsu (日本低温流通) in 1986, networking its cold stores across the country[63] so that information on movements in and out arising from long-distance transport between warehouses could be pooled, the most efficient routes brokered to hauliers, and delivery waste reduced[64]. On the cold stores it kept adding, Kaneda took the view that investment in information functions — value added by acting not as mere storage bases but as bases that control logistics — was indispensable[65]. In April 1990 Nichirei began its logistics business in earnest[66], creating a Logistics Division within the Freezing Business Headquarters to make the system logistics it had been developing as a new business into an independent business of its own[67].

The freezing plants around the country were renamed logistics service centres and redefined as facilities of a new kind of temperature-controlled logistics — not simply cold stores, but sites able to manage in a concentrated way both the flow of goods, from the receipt of a client's raw materials and products through freezing, light processing and sorting to delivery, and the flow of information that accompanies it[68]. In September 1993 the Amagasaki integrated logistics centre, dedicated to a major Kansai supermarket chain, came on stream[69], followed in October by the Funabashi integrated logistics centre dedicated to a major Kanto chain, and the pass-through transfer-centre business began in earnest[70]. In the middle of this period, in February 1991, the Nichirei Higashi-Ginza Building was completed, and in April the head office moved into it[71].

The croquette that is not fried, and a corporate brand that would not grow

In 1991 Kaneda Kozo, then president, instructed his people to create a large-scale product no other company could imitate, even if it took three or four years[72]. In the spring of 1992 a project team was formed of about fifteen people in their twenties and thirties[73], drawn from the product planning office, the food development laboratory and the taste evaluation room, together with related departments such as sales and production[74]. From surveys of housewives the team formed the hypothesis that what was wanted was a croquette that delivered the taste of fresh frying without using oil[75], and by applying batter technology developed for delicatessen products it launched Shin Range Seikatsu Sakusaku no Korokke (新・レンジ生活 サクサクのコロッケ) in March 1994[76]. The response was strong enough from the outset to cause stock-outs, and sales of the single item reached $58.7M (¥6bn) in the year to March 1995[77].

In the autumn of 1995 the company followed it with Paripari no Harumaki (パリパリの春巻), a spring roll with a reworked wrapper[78]. For a Nichirei carrying $1.4B (¥130bn) of interest-bearing debt, however, rapid expansion of cold stores requiring large capital expenditure was difficult[79], and the trading division, built mainly on marine-product dealing, was easily swayed by market prices[80]. A corporate image survey circulated to the management meeting of December 1993[81] found that, asked whether they had a good impression of the company, respondents gave House Foods and Ajinomoto 80 per cent each, while Nichirei stopped at 50 per cent[82]. In April 1994 President Teshima Tadashi (手島忠) instructed a group of some twenty staff gathered from across the divisions to take the tenth anniversary of the CI programme as an occasion to set out the company's strengths and weaknesses and search for the corporate image it should aim at[83].