TT-412 -- 5.5m vending machines

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, March 11, 2007 Issue No. 412

+++ INDEX

- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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-----------------------------------------------------------

+++ WHAT'S NEW

Japan is rightfully known as the land of vending machines.
It's hard to say why there are so many, given that there
are already plenty of little specialty shops down every
alley. But perhaps one reason why there are no fewer is the
simple fact that this relatively law-abiding society
doesn't see vending machines as fair game for vandalism and
stealing. Else where would you buy your toys, rice,
cigarettes, flowers, beer, and adult entertainment?

Whatever the reason, the vending machine is an integral
part of Japanese life. The Japan Vending Machine
Manufacturer's Association reckons that there are about
5.5m machines in use around the country -- roughly one for
every 23 people. Most common are the 2.22m soft drink
machines, serving hot and cold beverages year-round and
reputedly consuming about 0.5% of all the power sold by
Japan's 10 power utilities in 2005! That's 4.67 gigawatts
folks...

Probably the next most common form of vending, but far less
demanding on the power grid, is the ubiquitous Gashapon or
Gacha Gacha machine. If you don't have kids, you may not
recognize the name, but think back to any visit to a
convenience store or supermarket here and recall those
squat plastic vending machines for kids toys out front. The
toys are vended in capsules costing JPY100-JPY500 each and
are usually plastic figurines from favorite TV shows and
manga.

Bandai controls about 60% of the gashapon market, with more
than 350,000 machines and sells an incredible 130m capsules
a year -- that's a lot of Chinese factory workers' output,
since most of the figures are handpainted. The runner up,
Yujin, a subsidiary of KK Takara-Tomy (just plain Tomy in
English), has a network of 120,000 machines and sells about
85m capsule figures a year. Over the last few years, both
companies have been exporting the gashapon phenomenon
overseas, with great success. Riding on the current wave of
interest in Japanese manga and anime, Tomy Yujin apparently
has machines in more than 15,000 retail outlets in the USA
already.

While the gashapon business would appear to be saturated,
a young American named Brian Tannura has managed to crack
the market for a new segment called "flat vending", i.e., the
dispensing of stickers and character cards. In the 2006 Winter
edition of Japan Inc., we cover a story of Tannura's rather naiive
entry into this obscure market and document how he has
managed to parlay some initial missteps into a network of more
than 1,000 vending machines, selling millions of licenced
character cards a year.

http://www.japaninc.com/mgz_winter_2006_brian_tannura.

[Continued below...]

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[...Article continues]

The thing about Tannura's story that provides inspiration
is that he got to where he is by observing consumer habits,
then taking some old fashioned personal risks to try out
solutions and test the market. For example, in deciding to
make his vending machines more profitable, he researched
different machine makers and found a Canadian machine
with six dispensing slots as opposed to the two- or
four-slot machines being considered by a Japanese
distributor. As it turns out, the additional slots have
been the deciding factor in making the machines and the
entire vending network profitable.

Tannura started out in Japan as a Nova teacher, but soon
chucked that in to start importing gumball machines from
the States. After several years of learning the business
and how consumers think, he moved on to sticker machines
from Canada and established his own route in Osaka.
Tannura learned early how to leverage his unique products.
He used commissioned sales people to help him persuade
property owners to take machines. He quickly managed to get
50 machines placed.

As anyone in the consumer products market will tell you, it
doesn't take long for the established players to notice a
newcomer, and it wasn't long before Tannura was on the
radar screen of several vending machine companies. One of
these was Photo-Me Japan, operated by Nippon Auto-Photo,
with approximately 5,000 photo booths placed nationwide.
Tannura wasn't sure whether to entrust his baby to a
partner of Photo-Me's size, but decided to take a punt and
did a test run of 10 sticker machines with them. The test was
a great success and Photo-Me placed orders for hundreds of
the machines.

Moving forward, Tannura reckons his biggest near-term
challenge is how to convince future partners that flat
vending is a valid retail category. While gashapon
companies license figurines and stationery in huge volumes,
for some strange reason they don't seem to have thought
there is a market in doing stickers. Indeed the
flat-vending sticker machine business didn't exist before
Tannura showed up. Because of this, Tannura is blessed
with both an opportunity and a challenge.

The opportunity is that even today, he is the only serious
player in the market with a 6-slot coin mechanism robust
enough to take repeated hammering of excited kids.
This protects him from short-lived Chinese knock-offs.

The challenge is that there is very little supply of the
characters that he needs to get the kids excited over in
the first place. Because of this, he needs to create his
own inventory, leading to high prices because the print
runs are smaller. Each time he places an order of a
million or more cards it represents substantial personal
financial risk.

But these are all familiar problems to a successful
entrepreneur and Tannura seems to relish the challenge.
He recently moved his family up from Osaka to Tokyo --
mainly because the capital city is also the capital of toy
companies and he wants to be closer to the gashapon
players. He spends most days negotiating new contracts
with both distributors and character licensees -- pushing
towards his personal goal of 10,000 installed units
nationwide. All good honest hard work for a kid from
New Jersey.

If you are a character licensing company, you might want
to consider contacting Tannura. If nothing else, he is a
friendly fellow with some great stories!
info@marketpioneerjapan.com.

*** This week's FEEDBACK section is about our Divorce
Surge column from last week. If you're thinking of getting
divorced in Japan, maybe you should read it!

...The information janitors/

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+++ NEWS

- IRCJ ends on high note
- Toxic bacteria in Japan
- Edy faces stiff competition
- SME IT market worth US$41bn
- 2007 IPOs suffer

-> IRCJ ends on high note

With a resurgent Nikkei, it's hard to remember back to
2002-2003 and the impending sense of doom that the
Japanese government and big business had about a coming
meltdown in the economy. The concern about a shakeout
causing massive unemployment led to the founding of the
Industrial Revitalization Corporation of Japan (IRCJ), a
government-run turn-around fund which was mandated to go
save big companies (i.e., big employers) and fix them.

Commentators at the time said that the IRCJ was a
boondoggle and had little chance of success. We disagreed,
mainly because we'd been given a look at the quality of
people that the IRCJ was hiring in. We found it to have
some of the best private turn-around specialists in the
country -- people being called upon by the government to
help their country in its hour of need. And it worked. The
IRCJ has just announced that it will shutter its doors a
year earlier than scheduled, after having assisted in the
turn-around of 41 companies around Japan. Clients included
Kanebo, Daiei, and Misawa Homes. The IRCJ made JPY1trn of
investments and as of March 31st this year, had earned
back profits of JPY30bn-JPY50bn. This money will go back to
the government. Not a bad result. (Source: TT commentary
from nikkei.co.jp, Mar 10, 2007)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20070309D09JFA08.htm

-> Toxic bacteria in Japan

The National Institute of Infectious Diseases (NIID) has
warned that a highly virulent strain of enteritis bacteria
called clostridium difficile has been found in Japan. The
bacteria is quite lethal and in a study of 12 Canadian
hospitals in 2004, 117 out of 1,703 patients died from the
bacteria. It is not known how the bacteria travel, although
a common element between cases seems to be that the
sufferers were treated with antibiotics and subsequently
developed enteritis. (Source: TT commentary from
japantimes.co.jp, Mar 10, 2007)

http://search.japantimes.co.jp/cgi-bin/nn20070310a4.html

-> Edy faces stiff competition

According to an article from cardtechnology.com,
contactless payment service Edy is now faces strong
competition from a number of other players. The Edy service
is run by a company called BitWallet, and was established
in 2001 by Sony, NTT DoCoMO, and several other firms. It
was the first successful contactless payment system in the
market. One reason why BitWallet is under pressure is that
DoCoMo has decided to go out and load its own contactless
prepaid cash service, called iD, on all phones now sold by
the firm -- millions a year. Further, railway operator JR
East is tying up its contactless ticket and e-cash service,
Suica, with 100+ subway, bus and other transit operators in
Tokyo. The article also says that 12,000-store Seven-Eleven
will launch a new payment service called Nanaco, later this
year. ***Ed: BitWallet says it's confident of its future in
the market, if only because right now more than 90% of
payments made by consumers in Japan are done with cash.
Through its 49,000 registered merchants, Edy did 15m
transactions in just February 2007 alone. (Source: TT
commentary from cardtechnology.com, Mar 9, 2007)

http://www.cardtechnology.com/article.html?id=20070309FKF5MHY5

-> SME IT market worth US$41bn

According to New York based Access Market International
(AMI), Japanese SME firms employing 1-999 employees
collectively spent about US$41bn IT products and services
in 2006, up 7% from 2005. The top sectors invested in by
the SMEs were security and storage, markets worth US$954m
and US$1.8bn respectively. The AMI numbers came out of a
set of surveys conducted by the company direct with SMEs in
Japan. (Source: TT commentary from tmcnet.com, Mar 7, 2007)

http://tinyurl.com/2popvd
Or, http://www.liveurl.org/index.php?AQt7UmyVfA

-> 2007 IPOs suffer

Whether it's the lack of sexiness of the offerings or just
the general skittishness of investors we don't know.
However, 10 of the 27 IPOs done so far this year are
underwater [prices lower than the opening price]. The
puzzling thing is that many of the companies going public
are of reasonable quality. One recent example is that of
IT firm Soliton Systems, a solid profit earner with some
good products and IP. The company debuted last Friday on
the JASDAQ at JPY1,973 a share, up from the IPO price of
JPY1,850. But then suddenly the stock slipped back to end
the opening day at just JPY1,585. (Source: TT commentary
from nikkei.co.jp, Mar 10, 2007)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20070310D09JFA13.htm

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

***------------------------****-------------------------***

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+++ UPCOMING EVENTS/ANNOUNCEMENTS

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+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors@terrie.com.

-> TT411 -- Divorce surge. We commented on the likely surge
of divorces to hit Japan after the laws on sharing an
ex-husband's pension change in April.

*** Our reader says: Nice article on child support in your
recent newsletter. It's amazing how even the lawyers for
some reason do not suggest attempting obvious and more
harmonious solutions. They need some education in basic
psychology and human nature.

I would offer one contradictory comment I got from a
Japanese father a few years ago. He said that it is
definitely possible to enforce child support collection if
the paying parent/father works for a reputable company, as
this father did. Although, it is such a paperwork nightmare
and child support payments are so low, that many collecting
parents/mothers just don't find it worth it. (Which he was
hoping would be the case for him.) I suppose it would
require a lawyer for help.....

Oddly, he also told me that while the divorce/mediation was
going on, and they were living separately, support payments
to the non-income earner/mother were in fact higher and
easier for her to collect, than later.

Finally, about your comment on our not seeing social
re-engineering in our lifetime, I think there are
possibilities. International pressure may grow enough that
Japan has to sign the Hague Convention, at which time the
whole family law house of cards may come tumbling down.
Over the next 5 to 10 years, a lot of attitudes could
change. Also, the increasingly successful efforts of women
to make child support collectible may help. Eventually, the
men may ask what they are paying for, and push for laws to
help them ensure contact with their children. So I am all
for stronger efforts to bring Japan into line on
collectibility of child support.

Further, from April, as men realize the financial liability
of having a marriage that will not last, men may choose
more carefully and work harder to create better marriages.
The rigid expectations of breadwinner vs child rearer may
change, and then the men will eventually want more contact
and change the laws. Of course a pessimist might claim that
this will just lower the marriage rate and the birthrate
will plummet further. But I prefer to be an optimist and
think that within a few generations we may see changing
attitudes.

...The information janitors/

***********************************************************
END

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