Bringing Home the Bacon at the Foreign Buyers' Club

Back to Contents of Issue: October 2002

Where in Japan can you find the Californian vision of 'high-tech, high touch', popularized by writer and life-style guru, John Naisbitt? Answer: Rokko Island, Kobe, where the Foreign Buyers' Club hangs out.
by Alex Stewart reports
THE FOREIGN BUYER'S CLUB, or FBC to its friends, is a grocery fulfilment company with 20,000 members, making it Japan's largest foreign grocery mail order/online company. Annual turnover is $7 million, and around 60 people work for it on a full or part-time basis. Next to its largest rival, Costco Warehouse, it is still only a mom-and-pop store. Costco, according to its publicity, "became the first company ever to grow sales from zero to $3 billion in six years." But if anything, FBC has the stronger philosophy, based upon a sense of personal connection to its customers. It values lifestyle over growth. The result is a niche business, which has proved very difficult for others either to emulate or to enter. The slogan of FBC is 'Food and Fun from Home.' When you step into FBC's office, which also doubles as a neighborhood store, you feel the fun straight away. It's as if you've entered a set for one of those impossibly bright and zany Hollywood films about kids. It's a feeling of youth, family and zest for life. That feeling helps to explain the ultimate vision of its founders, Chuck and Kelly Grafft. Chuck says FBC is like an old-fashioned general store in the center of town that has the "smell of coffee, a pickle barrel to lean on, a wood stove and there on the counter, unobtrusively, is a platinum i-book running it all." The company is also an interesting alternative model to study at a time when dissatisfaction with global multinationals and globalization itself is spreading. Following the Andersen/Enron debacle, 'big' seems to be on the retreat, and the pursuit of global dominance is being exposed in a series of lawsuits, revealing that some companies stopped at nothing to encourage and reward their key executives. They legitimized their activity by reference to the shareholder capital model, which aligned the interest of management and shareholders. FBC could not be more different. The Graffts started in their Kobe living room in 1987, shortly after they arrived in Japan with a missionary calling. Chuck was working for Time-Life, and both were missing the treats from home. Finding that others had the same problem, they organized a bulk food ordering system for themselves and their friends. It soon turned into a business, so strong was the demand, and it took off in 1992 when the office moved to Rokko Island, an artificial island, intended by the Kobe government as a sort of offshore foreign settlement. FBC was considered a key piece in the 'infrastructure' to attract foreign businesses. The next high point came in 1997 when a Japanese national newspaper ran a feature on FBC that detailed how to order items, attracting a flood of enquiries from consumers. As a result, today approximately one-third of FBC's customers are Japanese, and all sales material is written in Japanese and English. Internet advantages The advent of the Internet provided further momentum for growth. FBC was an early adopter -- around 1995 -- but was relatively slow in Chuck's view to offer a shopping cart on its Web site (www.fbcusa.com). That came in 1998. The delay reflected the company's sense that the Internet medium was still too impersonal compared to the color and feel of a catalog filled with family snaps of Chuck and the girls (four daughters and Kelly). So he says, "We used to say FBC is not a Web site, but we have one." Now up to 50 percent of purchases come through the Internet. Chuck admits the couple probably didn't spend enough time trying to give the FBC site a personality in the early days. To counter that, they began advertising for volunteers to be "Web moms." The idea was that the volunteers would tell them how to make the Web site more fun and friendly, just like the catalogue service. There was an enormous response, and the Graffts eventually had to give tests to select the most suitable Web moms. Eight were selected, representing six nationalities. They are now starting to send in suggestions. FBC is used as a case study by MBA students from the University of Southern California and the University of California at Berkeley on annual field trips to Japan. Chuck is a contrarian and runs a pretty contrarian business model, making it at first glance an unlikely company to study next to FBC's next-door neighbor, Procter and Gamble, for example. Chuck notes that large and successful companies like to describe things in the assurances of management training speak, reducing complex decisions to simple formulae. Chuck, who combines the titles of both president and 'Dad' on his email signature, had no formal business training, and holds an unflattering view on management theories. "For every management theory," he says, "there is another one competing head on with it." For example, he says, managers who espouse focus and core competence have to deal with the need in real life to be flexible and adaptive. For FBC, the business philosophy is simple: Make the customer feel like a friend. That, rather than the profit margin, is the bottom line. Even so, I wondered would Chuck have benefited from going to MBA school? "They're cool places to meet people," he chuckles. Perhaps Japan has served as Chuck's school. He likes the Japanese management term kaizen, which means 'to improve or change.' He uses the word to describe his obsessive desire to improve the service for customers. At the same time he worries that he may push his staff too hard with his determination to make things better. Management philosophy aside, out in the real world there are big sharks feeding in the same waters as FBC, whose executives for the most part are trained at MBA schools. I wondered how FBC could survive, let alone prosper, as these companies bring their management science, huge capital resources and global reach to bear around the world. Costco is representative of the threat, and it sent the biggest shiver down the FBC spine when it announced its entry into Japan in 1999. The basic business had similarities with FBC -- selling goods to retail consumers in bulk, but from warehouses and with a membership system. Chuck's reaction was to call the director in charge of international marketing and find out if they could cooperate. In a spirit of looking for mutual opportunities, FBC introduced Costco to its main shipper in Japan. Chuck is now confident enough to openly criticize Costco for the inflexibility with which it treats its customers, forcing them often to fit Costco's requirements rather than the other way around. Without doubt David has an advantage over Goliath in this respect, but would it not help to expand a little faster, and how about branding? How can you ensure that competitors don't step in and take your territory? One thing keeping them at bay is the difficulty of running a successful mail-order grocery business. The business depends on a high level of personal interaction with customers, Chuck says, and margins on groceries are not high. In fact, Chuck says, "I wouldn't choose this business if I was looking for an opportunity today," but he adds that "it's fun." Further afield As our interview unwinds it turns out that the story is more interesting than these initial comments suggest. Last year a logistics company in Hong Kong approached the couple about establishing the FBC brand in Hong Kong. The Hong Kong company liked the model, but did not have the confidence to go it alone, partly for the reasons Chuck had pointed out about slender margins and the high level of personal contact. However, the decision to work with FBC, rather than rip off its business model, is also a recognition of what FBC has: a 15-year operating record, and the hard-to-copy infrastructure -- its catalogue production, vendor relationships, customs and excise know-how, and freight forwarding center in Los Angeles. It also has the computer technology to run it all -- and most importantly, the human 'software.' 'Brand' is not mentioned, Chuck notes. The Hong Kong business is now up and running after teething problems. The business is using the same formula of friends serving friends: the community touch supplied by women from the expat community, who run the front office and find customers through their social networks. Hong Kong is FBC's first outpost outside Japan. The relative speed (though not ease) with which it was set up has encouraged Chuck and his team to consider developing the formula for the rest of Asia as well. Ulaanbaatar in Mongolia is set to be the next destination. Not perhaps a classic international roll-out strategy, but by now the reader has got the idea that things at FBC do not go in straight lines -- outside pressures are just as likely to determine the direction, backed by that all-important sense of whether something feels like a service run by friends for friends. So just as Costco is getting settled into Japan, FBC is spreading out into the rest of Asia. As the world seems prepared for a period of navel gazing about the strengths and weaknesses of global business management, the FBC model has the feel of a more reliable, and no less striking, alternative. @ Alex Stewart is a contributing editor to J@pan Inc.

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