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GROWTH THROUGH DIFFERENTIATION THE CASE OF MEIJI

DAIRIES CO PART 1

Since its establishment in 1917, the Meiji Dairies Corporation Group has
consistently persued the creation of new value in milk. In addition, we have created
new value not only for milk-related products but also for various other kinds of food.
For example, with the launch of Meiji Honey Yogurt in 1950 we became the first
company to manufacture yogurt in the domestic dairy industry. In 1971, we started
selling the first plain-type yogurt, which has now grown into the top brand Meiji
Bulgaria Yogurt LB81, says the President and CEO of Meiji Dairies Co Mr
Shigetaro Asano in his message towards the shareholders and customers in the annual
report 2003 of the company. Why did Meiji Bulgaria Yogurt actually succeed?
History of yogurt
History of yogurt dates back about 6,000 years, and Egyptian murals of the time
depicted a healthy sour-milk drink. It is believed that the first yogurt was produced
after lactic bacteria were mixed accidentally with cow's milk.
What is more interesting is how the dairy product spread throughout the world
because of its strong connection with the growth of major religions. Records show
that yogurt has been popular around the world since Abraham, a forebear of the
Jewish people, and Mohammed, the founder of the Muslim faith, as well as Buddha,
preached on its nutritional value to followers.
Dairy products resembling yogurt were consumed in Japan during the Nara period
(710-794). However, with the rise of Buddhism and its teachings against the killing of
creatures, vegetarianism spread, leading to a decline in the cattle population. Yogurt
appeared again on Japanese tables in the Meiji era (1868-1912). The Meiji
Restoration brought with it the habit of drinking milk and eating dairy products
processed with lactic bacteria.
This case was written by Dr.VASSILEVA Antoaneta and Dr.STOYCHEV Ivan, Proffessors at the
Institute for Postgarduate Studies (IPS) at the University for National and World Economy, Sofia,
Bulgaria. It was written as a basis for class discussion rather than to illustrate effective or ineffective
handling of administrative situations. The case was developed under a joint project of IPS and
Ritsumeikan Acian Pacific University (APU), Japan, sponsored by Japan International Cooperation
Agency (JICA)

Why Meiji Bulgaria Yogurt?


Yogurt originated in Bulgaria centuries ago and the popularity of this natural
product has grown to be famous as far away as Japan. Its development is connected
with the sheep breeding that existed on these lands at the time of the Thracians,
where shepherds made various kinds of products from large amounts of fresh milk.
Historians say that the Thracian yog meant "thick" and urt meant "milk" and that is
how the word yogurt appeared.
Some scientists think that yogurt's predecessor was a fermented milk drink called
"kumis". It was made from mare's milk by the proto-Bulgarians, a nomadic tribe who
moved from Asia to the Balkans.
Traditional Bulgarian yogurt is the only product known in the world for its longevity
qualities and special curing effects. Yogurt contais the so called healthy bacteria and
is proven to be healthy for people of all ages. Many people whose stomaches are
sensitive to other milk products can still eat yogurt. Besides being helpful to the
digestive system, yogurt is also an excellent face cleansing mask or a relief for
sunburn. Many Bulgarians apply Bulgarian yogurt after hours of sunbathing to
relieve their burnt skin.
"Numerous researchers have shown that fermented milk has strong anti-tumour
effect, which is due to its lactic acid bacteria," stated Professor Akiyoshi Hosono at
Japan's Shinsho University, who studies fermented milk's anti-mutagen impacts. In
November 1996 Japan's Health Ministry recognized a Japanese brand of Bulgarian
yogurt, Meiji, as a healthy product. Yogurt is also known for its curative effects as it
contains some anti-cancer and anti-arthritis factors. Some scholars argue that yogurt
is also effective in preventing osteoporosis.
Yogurt received its modern-day reputation as a healthy food in the early 1900s, after
Russian zoologist and microbiologist Ilya Metchnicov, who received the 1908 Nobel
Prize in Physiology and Medicine, developed the theory that Bulgarian people have a
long life expectancy because they eat a lot of yogurt. Yogurt is an important part of
Bulgarian culture, used in many different ways in its cuisine.
The Bulgarian scientist Stamen Grigorov /1878-1945/ continued the research of
Metchnicov in the French Institute Louis Pasteur. He investigated the lactic acid
bacteria which was named LB Bulgaria after his native country as recognition of
his discoveries.

International Standard of Yogurt - Regulations by WHO/FAO


Yogurt is the coagulation dairy products, which is milk and dairy products lactic
acid fermented by Lactobacillus bulgaricus and Streptococcus thermophilus. The
addition of an arbitrary/powder milk, powdered skimmed milk, whey powder, etc. is
voluntary, but these microorganisms must live in the product voluminously.
Launching of the product
Meiji first met authentic yogurt straight from Bulgaria at the Osaka Expo in the
spring of 1970. It was offered as an alternative to the sweet dessert-like yogurt
familiar to Japanese. Bulgarian yogurt had no sugar, it was rich and acidic. Meiji
Dairies contracted with the Bulgarian government and began flying in yogurt cultures
direct. The yogurt was marketed in 1973, with commercials highlighting its lack of
sweetness with lactobacillus imported directly from Bulgaria. The reaction of
consumers was initially poor, complaints about the "spoiled" taste prevailed. The
product stayed on the shelves so long, it almost did spoil.
A lot of efforts were made by the company to turn the trend. First it managed to
change the concept of yogurt consumption recommending it not only for dessert but
as an everyday product necessary for health. The endeavours of the Research division
resulted in improving the taste, making it gentle, low sweet, tasty and refreshing. At
the same time accurate and honest information on the nutritional and functional
characteristics of the milk was provided to the customers. Another source of business
value was the constant emphasis on the country of origin which proved its potential
advantage and played a cruicial role in the decisive promotion of the brand. The well
balanced and coordinated marketing strategy successfully created and cultivated a
new market. Sales finally picked up in the early 1980s. The carton was changed from
an ordinary milk carton to the oversized lid that covers the product even today.
In 1984, a new culture, LB51, was added, and marketing slogans switched emphasis
from the authentic flavor to its health qualities, emphasizing its abilities to increase
human immune functions. This proved timely as the trend towards health
consciousness was gaining steam.
In 1993, an improved culture LB81 was introduced and the Ministry of Health and
Welfare gave its stamp of approval as a healthy food. The number of Bulgaria brand
yogurt products has grown to about 30, including fruit yogurts, drink yogurts, and

even yogurt cake. Yogurt was popular largely with young people and housewives.
Men in their forties were especially reluctant consumers.
In a consumer recognition study, made in the late 90-ies, some 60% of consumers
asked to name a brand of yogurt came up with Bulgaria, double the 1993 figure. At
least 90% recognized the brand name when prodded.
At that time expanding the market and creating innovative profitable products
became a major priority of the company. Meiji Dairies managed to win over this
sector and also popularize yogurt as an all-day food, rather than just for breakfast.
Meiji Dairies Co.'s Bulgaria yogurt was boasting of double-digit sales growth, helped
by a sales campaign and advertisements appealing to more health-conscious
consumers. In 1997 Bulgaria yogurt accounted for some 50 billion yen of the
company's overall annual yogurt sales of 60 billion yen.

Product differentiation
During that period some new tendencies in consumer behavior appeared. Meiji
Dairies followed them launching its robust brand concept, which combined
fashionable trends with traditional values. The stiff competition among milk
producing companies over chilled dessert also has led them to introduce new
processing technologies and lactic acid from abroad to embark upon new product
development. The various qualities of the food and the movement toward a healthy
life are regarded as factors promoting the increase in yogurt consumption.
Health-conscious young consumers were fueling a growing craze for yogurt in Japan,
particularly yogurt containing small bits of fruit - which accounted for 25% of the
yogurt market in 1999. A survey of the Ministry of Agriculture, Forestry and
Fisheries dated from the same year, showed yogurt production for the JanuaryAugust period increased 13% year on year to 500,000 kiloliters. Young women
seeking health benefits responded well to new products and bought yogurt with aloe,
blueberries and other fruits considered useful not only for health but for beauty as
well.
Four types of yogurt are generally available in Japan: plain without sugar, a hard,
sweetened gelatin type, a soft yogurt, often with small chunks of fruit and drink type.

At first, the plain type dominated the yogurt market, but sales of sweetened yogurts
have grown lately. Sales of soft yogurt, the most recent entry in the market, have
increased by 10-30% per year, fueling the market's growth.
Morinaga Milk Industry Co. has been marketing yogurt products containing
blueberries, taking advantage of the notion that blueberries' anthocyanin pigment is
considered beneficial to eyesight.The label on Morinaga's 160-gram container, priced
at 130 yen, reads: "refreshment for your eyes."
Snow Brand Milk Products Co. sells a product enriched with milk protein, which is
believed to help bones grow. A wide range of people, including growing children and
elderly people with weaker bones, like the product.
Nestle Snow Co., a joint venture between Snow Brand and the Nestle Japan group,
introduced Nestle Everyday yogurt. It contains a lactic acid bacteria, which the
company claims will help reduce helicobacter pylori as well as invigorate the immune
system. Nestle Everyday Plain is available for 118 yen-120 yen.
One of the most popular soft yogurts is Morinaga Milk Industry Co.'s aloe yogurt.
The firm markets the product with the emphasis on aloe's properties to increase
beauty and good health. The product has confirmed fans, with more than 80%
becoming repeat customers, according to the company. In 2000 the company even
added more aloe to enhance its healthy image.
Other popular soft yogurts are Glico Dairy Products Co.'s apple-mixed yogurt, Calpis
Ajinomoto Danone Co.'s Danone Fruits Selection, and Zen-Noh Wholesale Co.'s
Yoplait with fruit. Nissin Yoke Co. has developed a yogurt containing seasonal fruits,
including a type using cherries grown in Yamagata Prefecture.
Meiji Dairies also released a new version of Bulgaria Aloe Yogurt increasing aloe
content by 10%. The product retails for about 120 yen in a 180g container. "The
product has been well received by young people who have to eat alone," a Meiji
Dairies official said. Unlike plain yogurt, whose product differentiation is quite
difficult, the variety containing fruit is likely to attract more attention from makers
because they can create new products by adding different fruits, he added.
Hard yogurts boast even more healthy features. Meiji's Probio Yogurt LG21 uses
special lactic acid bacteria, which reduces helicobacter pylori, believed to be the
cause of gastric ulcers. The product is popular with young and middle-age people.
The 120g LG21 sells for 118 yen-120 yen. An official at Seven-Eleven Japan Co., a

leading convenience store chain operator, said some middle-aged men buy a container
of the yogurt every day.
Anyway Meiji Bulgaria Yogurt LB81, named after the birthplace of yogurt, is by far
the best-selling plain type. In 2002 its sales jumped five times more than the sales in
1990 according to company information. Currently Meiji Bulgaria Yogurt sales
account for 60 billion yen annually.

Strategic branding
Plain yogurt is mostly packaged in 500g containers. For firm and soft yogurt,
however, 120g cartons are popular at convenience stores and 80-100g cartons in sets
of two or three are available greatly discounted at supermarkets.
Price also matters. For plain yogurt especially, price is important because it is difficult
to differentiate the various products. The top brands of Meiji, Morinaga and Snow
Brand, the major competitors, are often sold at reduced prices. On the other hand,
some products, which companies claim to have specific health benefits, are rarely
sold at a discount or in multipacks.
Many stores sell Meiji's Probio for 118 yen, and it carries a suggested retail price of
120 yen. Price does not seem to be a factor in consumers choosing this product.
Nestle Everyday, which also claims health benefits but is less popular than Probio, is
also not sold in multi-packs because of limited production. The yogurt is made at only
one Snow Brand factory. The company also avoids price discounts because it wants
to promote the product as a strategic brand for the long term.
Snow Brand, which is trying to recover from a food-poisoning scandal some years
ago, often sells its products at reduced prices. Prices of yogurt overall, however, are
generally falling as more companies lower their suggested retail prices to make room
for new and reformulated products. The company also started selling its Quick
Balance Yogurt which contains one-third of the standard daily intake of calcium, iron
and vitamins and sells for a suggested retail price of 120 yen per 130-gram package.
The nutrient-rich yogurt is aimed particularly at the growing number of young
women who skip meals, said the chief of the company's marketing department. It has
only 94 calories, about 10% less than a standard yogurt.

Koiwai Dairy Products Co. released its Koiwai Low Fat Fe-Ca Yogurt, containing
added iron and calcium. The 120 yen yogurt comes in a 190-gram tub. It is intended
as a breakfast or lunch product.
Calpis Ajinomoto Danone Co. has been marketing the Danone Vitalina Yogurt series
with added calcium, vitamin and vegetable fiber. The series comes in aloe and
strawberry flavors and is priced at 130 yen per 150-gram tub. Plain yogurt is
available for 120 yen.
The Nata Coco Yogurt from Morinaga Milk Industry Co, gives consumers a good
munch, company officials said. The 160-gram yogurt retails for 130 yen.
Sales of Meiji Bulgaria Yogurt, put on the market by Meiji Dairy Products Co. more
than 30 years ago, are said to be growing at more than 10% a year. The 500-gram
yogurt, priced at 250 yen, covers more than 30% of the plain-yogurt market, partly
because it is authorized as a special health food by the Ministry of Health and Welfare
and partly due to its wide recognition. The company has also developed Meiji
Bulgaria Fruits Yogurt Aloe & Konnyaku by adding aloe and konnyaku, a jelly made
from devil's tongue, which are both rich in vegetable fiber. The yogurt sells for 100
yen per 130 grams.
The brand image of Meiji Bulgarian Yogurt has been introduced to the market and
constantly strengthened by means of all the instruments of the communication-mix. It
is interesting to trace the commercials devoted to this type of yogurt throughout the
years. The introductory period marked the yogurt of home Bulgaria, although the
concept of the incessant reminding of the coutry of origin of the brand played an
important role all the time. The ads emphasized on the authenticity of the product,
originating from a distant country with beautiful nature where people eat yogurt every
day, look happy and sound and live long. Later on the healthy image solicitation was
repeated and it came to answer the current tendencies of customers healthconsciousness. During the period of stability the brand awareness was restrengthened using the beautiful faces and gracious bodies of Bulgarian girls - world
champions in gymnastics, confirming the original image of the product by the
implicit touch of something that is genuine. During the period of re-expansion the
attention has been already focused on traditional values by means of emotional
effects e.g. home, family, something that brings people together, etc. The most
important fact is that now Meiji is trying to attract the whole family to the magic of
yogurt. The other differentiating factor is that it never changed the key word of the
commercials always ending with the same sound logo of Bulgarian yogurt.
Despite the changes of the scenarios of the commercials, there remains the spirit of
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never growing old and the country of origin effect. Other manufacturers followed
Meiji, with almost similar products, but can never imitate the image of Meiji Bulgaria
Yogurt.
The company followed the same philosophy concerning the packings as well. Every
two or three years the design has been slightly changed only to meet the requirements
of the current fashion. The traditional colors and the shape of the packing remained
but it became more attractive and stylish. The concept contains the idea that the
product is of eternal value. This is confirmed by the words of the marketing manager
of the company who says, We believe the market for yogurt has significant room to
grow, and we aim to expand sales in this area, centering on Meiji Bulgaria Yogurt
and Meiji Probio Yogurt LG21.

GROWTH TROUGH DIFFERENTIATION THE CASE OF MEIJI


DAIRIES CO PART 2
Company Profile y
Meiji Dairies Corporation is Japans largest manufacturer of dairy products. In
addition to milk, its lineup has grown to include yogurts, cheeses, ice creams,
and other dairy items, as well as a variety of nutraceutical and health foods. The
company distinguishes itself through knowledge and technological expertise
related to food and health. The management places top strategic priority on
providing value-added products, services and information that are unparalleled
in terms of safety, health, and taste. Strengthening the Meiji Dairies brandnot
only through cost-competitiveness, but also by differentiating the products and
services in terms of safety and meeting consumer preference - enables it to
create sustainable competitive advantage and growth throughout the years.

Corporate philosophy
The Meiji Dairies Group contributes to a healthy and happy daily life for its
customers. The logo of the company is Always healthy always tasty.
Special feature
Amid a challenging business environment marked by a shrinking population, a
declining birthrate, and an aging society, the Meiji Dairies Group is striving to
further solidify the corporate brand and maximize corporate value. The current
medium-term management plan is formulated to achieve this goal, and is based
on the following seven major policies:

1. Concentrating Management Resources on Core Operations


2. Maximizing Technological and Product Development Capabilities
3. Increasing the Value of the Corporate Brand
4. Carrying Out Across-the-Board Structural Reforms
5. Bolstering the Product Safety Management System and Maximizing
Compliance
6. Improving of the Financial Structure
7. Promoting Group Management
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Research and |development


Constantly meeting the challenges with its know-how and advanced
technologies, Meiji Dairies started with a groundbreaking innovation in which it
was able to utilize milk, a very delicate product that is difficult to store, and put
milk products on the dining table. In 1971 it was the first company in Japan to
commence sales of plain yogurt and in this way it generated a new wave of food
culture through imagination and creativity. It has been always engaged in
research into products that are tasty, have health and nutrition functions, and
provide new value. Its three integrated research institutes the Food
Development Research Institute, the Food Function Science Research Institute
and the Technology Development Institute work together in numerous R&D
projects.

Logistic System
Meiji Dairies Co provides a supply of fresh and good tasting food products on a
24 hours day basis thanks to its comprehensive logistics system utilizing an
extremely advanced IT-powered network. It employs a fully computerized order
processing system which achieves a major shortening in the time required for
order placing, production and shipment. Products reach supermarkets and other
shops as well as customers homes through door-to-door service. The vehicle
dispatch support system and the traffic control system, utilizing a satellite,
together with the quality assurance system and the refrigerator system, four in
all, are linked up in a seamless matrix and ensure accurate traceability.
The management of the distribution system that controls orders from over 300
000 retail chain stores nationwide is another competitive advantage of Meiji
Dairies that has a critical influence on its profit generation. The corporation has
its own trading company, but its network of channels of distribution is quite rich
and flexible. It includes contacts with retail stores as well as whole salers or
direct deliveries to the end users. The timely shipments reach supermarkets,
convenient stores, food chain department stores, CVS, farmers and cooperatives,
grossery stores and even drug stores. Many foreign food manufacturers trying to
enter the Japanese market failed because they faced a lot of difficulties
connected with the specific character of the distribution policy in this sector.

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Product Line up
The company offers a wide array of products in many categories not limited to
milk based products. It also puts emphasis on anticipating future customer
needs through the development of new products. The production range consists
of diverse items including milk/beverages, yogurts, dessert products, ice cream,
cheese, infant formula/baby foods, nutritious foods, frozen foods, catering sector
foods, ets. The sphere of operations now reaches far beyond milk and is
constantly expanding.

Quality Assurance
To ensure that the company always gives the customers full satisfaction through
the provision of attractive quality products and services, it has a companywide quality assurance system in place that it constantly reviews and improves.
The production process is carried out under a hygiene control system known as
HACCP/ Hazard Analysis and Critical Control Points/. The company employs
two additional systems to further intensify its engagements in process control,
and so ensures the overall safety of the products. One of these is MES
/Manufacturing Execution System/ which interactively links management
operations and the production sites. The other element is the Refrigerator
System which stores information on intake and shipping and their movement
on a database, thus allowing the company to ensure integrated product quality
assurance.

Environmental Initiatives
All of the companys offerings, centering on milk and processed milk products,
are made possible only through the gift of nature. For this reason, protection of
the environment is a crucial mission of the company. In October 2001, the Meiji
Dairies Environment Charter was formulated. The philosophy of the Charter is
embodied in the current medium-term plan, one stated aim of which is to
promote environment-oriented corporate management geared toward
harmonious coexistence with society.

Social contribution
The greatest contribution a company can make to society is to conduct its core
business of providing products and services in a reliable manner. At Meiji
Dairies, the cornerstone of the operations is to foster healthy and happy culinary
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lifestyles of people in society by delivering products that are highly nutritious,


tasty, and safe. In this regard, the company is pursuing a variety of ongoing
initiatives. These include research into 1) nutrition and function of cows milk,
2) health effects of lactobacilli and processing technologies, 3) infant nutrition,
specifically ways to make powdered milk more like mothers milk, and 4) home
care food for the elderly. The company actively discloses the results of these
research programs, as well as information about food nutritional values and
safety, to the public via the corporate website and other media. It has two other
websites, including a members-only site, dedicated to providing a wide range of
information about child-rearing. In addition, it has set up a telephone hotline to
answer inquiries about nutrition for pregnant women and babies from up to
around three years old. The company is an official sponsor of Tokyo Disneyland
and Tokyo Disneysea.
REFERENCES:
1. Meiji Dairies Co, Annual report 2003,2004
2. Meiji Dairies Co, Catalogue 2004
3. Meiji Dairies Co, Company presentation and other company materials,
Jan 13, 2004
4. Itoh, Yasuhiro, Lectures, Course in Product Development Strategy, APU,
2004
5. Japan Economic Journal- June 2, 1981; Aug 18, 1981; Apr 3, 1984; Dec
28, 1998; Dec 6, 1999; July 31, 2000; Oct 01, 2001;
6. The Yomiuri Shimbun June 16, 1998; Jan 29, 2002;
7. Asia Pulse Nov 07, 1997;
QUESTIONS FOR DISCUSSION:
1. What do you know about yogurt?
2. Why is the number of people who eat yogurt increasing?
3. Analyse the market of yogurt in Japan.
4. What makes Meiji Dairies Co different?
5. How was the brand image of Meiji Bulgaria Yogurt created? How did the
company use the instruments of the marketing-mix?
6. How was the market created and cultivated?
7. Describe the changes of package design. Pros and cons?
8. Why did Meiji Bulgaria Yogurt succeed?
9. What are the possibilities of next yogurt market?
10. What does it need for keeping increasing yogurt market? Give suggestions
for further differentiation.

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Sales by Divisions (FY 2002)


Breakdown
Fresh Milk Products
Dairy Products
Ice Cream
Beverages
Others
Total

(Unit: million yen, %)


Ammount
Divisions
(April 1,2002 to March 31, 2003)
293.911
56.7
80.182
15.5
41.228
7.9
34.408
6.6
69.112
13.3
518.843
100.0

Source: Meiji Dairies Co, Annual report 2003

Source: Meiji Dairies Co.

Distribution Channels of Dairy Products


Manufacturers

Meiji Dairy Company


ships direct to major
supermarkets and
convenience stores

Sales Companies *

Food Wholesalers

Retailers
General merchandize supermarket
Department stores
Agricultural and cooperative stores

Food supermarket
Convenience stores
Local grocery stores

Consumers
* Subsidiary companies owned by manufacturers and exclusively handle anddistribute own brands

Source: Itoh, Yasuhiro, Lectures, Course in Product Development Strategy, APU, 2004

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