From its REVOCOOL used to transport the Moderna vaccine to food vending machines, Sanden Retail Systems is constantly looking to develop new and high-quality products
Over the past 25-30 years, Japan has seen the rise of regional competitors who can replicate certain manufacturing processes at a cheaper cost and with economies of scale, pushing Japan out of mass industrial markets. However, we still see that many Japanese firms are leaders when it comes to niche B2B fields. How have Japanese firms been able to maintain their leadership despite the stiff price competition?
Our company has factories in China and Thailand. We entered the market about 10 years or so ago, and at the time, the labor cost and the quality were low. However, recently, mass production has started in China, but instead of investing in people, the introduction of machinery was highly prioritized, and it consequently led to the improvement of the quality itself.
In terms of price, we cannot, as a Japanese company, compete directly in the arena of mass production, but the Chinese weakness is that they have to mass produce or else they cannot have a return on investment from the facility.
Japanese companies have shifted themselves to high mix, low volume manufacturing. That is the only way to compete with Chinese mass production. Four years ago, we changed our production system. Instead of using conveyor belts for transportation, we implemented cellular manufacturing system.
In the past, we had a production line with 30 people working on it and each person spent about two or three minutes assembling the product. Now we use only seven people to assemble one vending machine, and each person works on it for about 15 minutes. Now that we have over 20 cells, we can do high mix, low volume manufacturing.
I believe one of the means for Japanese companies to survive and compete against the Chinese mass production is to have high mix, low volume, high-quality, value-added products. In Japan, Toyota’s system is considered as the most suitable method of production. However, that is only for mass production, so SMEs, or Small and Medium Enterprises, like us focus on cell production and creating value added, high-quality products. For example, the DOHIEMON is our recent product. It is a vending machine for frozen food, currently we have over 4000 units and we have over 200 clients.
We do not invest in the facility; we use manpower to produce the items. The reason for this is if you use robots or automated machinery, that is good for mass production, but since we are going for high mix, low volume, customized items, you have to change the production program each time and that is time consuming, so it is easier to use human labor. It only takes 20 minutes for a worker to shift from one product to another. It is not an automated line. We place the vending machine on casters and let the workers pass it on to the next step of the process.
In the case of conventional production lines, each person spends two or three minutes on the item and focuses only on that specific step of the process, whereas with our method, 15 minutes is taken for each step, and there are seven people collaborating with each other to expedite the process. This is the unique feature of our production method.
The vending machine market is vastly growing and expanding today, and we are now seeing vending machines with electronics, gadgets and other household appliances. Are you looking to diversify your vending machine range to suit this change in dispensation goods? How do you think vending machines will change in the future?
Japan is known as “the vending machine country”. There are 2.3 million drink vending machines in Japan, but for food and other items, there are only about 20,000 units. Vending machines were synonymous with beverages in the past and were considered to be machines that sold 140-to-150-yen worth of beverages.
20 years ago, SANDEN RS was producing 100,000 vending machines that were mass produced. However, with time, convenience stores became prevalent throughout Japan and people went there to purchase drinks instead of using vending machines. The demand for vending machines was reduced and our production also declined. Luckily, we provided products to convenience stores, and that sector has grown, but the market for drink vending machines was demolished by convenience stores.
I consider vending machines as drink dispensers that are available 24/7, and such machines could also be utilized for selling foods and items, so we created a product that is dedicated to food and items dispensing.
When we made this food dispenser, we focused on frozen food manufacturers, but they were not interested at all, so we changed our strategy and approached restaurants and asked them if they wanted to freeze their food and sell it through the dispenser. We made that proposal during the COVID outbreak period when restaurants were restricted in their operating hours, but after their opening hours they could still use a vending machine to sell their food.
The second frozen food vending machine unit was sold to a ramen store. We placed a vending machine in front of their shop. This frozen food vending machine was selling frozen ramen, and it made a profit of 30,000 Japanese yen per day. It cost 1,000 yen for a bowl of ramen, so 30 of them were sold in a day. This was remarkable for the ramen shop. COVID had actually acted as a trigger and the shop was not expecting such good sales.
The media had widespread coverage of this and people started to realize that food vending machines are actually a profitable business. Since then, people have started selling things like ikura, or salmon roe, and other things using our food vending machines.
I have interviewed one of our clients who is using our food vending machine. They say that in Japan, supermarkets and convenience stores are two big means of retail, but they always ask our clients to reduce the price. There is e-commerce also, but 20 or 30% of sales is taken as commission fees. If you were to have a new shop, you would have to invest 10-20 million yen. The frozen vending machine is, therefore, another channel of distribution and that is why our frozen food vending machine has been selling over 4,000 units. We have created new sales channels for our clients.
With regards to the future of the vending machine, people have now started to realize the value which our product provides. It can also diversify to not only food, but to other products, and it constitutes a new sales channel which does not require a worker to be present.
One vending machine was selling so well that its owner decided to sell by himself, but people preferred to line up for the vending machines and did not purchase directly from him. It is an added value of vending machines that people just want to press a button to actually make a purchase. There are many possibilities for vending machines.
Earlier this year, you became the chairman of the Japan Vending Machine Manufacturers Association (JVMA). What are some of the themes that you are aiming to promote during your tenure as the chairman of the JVMA?
It is a matter of whether we can make this vending machine market become part of the cultural infrastructure of Japan. In the past, electricity was used for public phones and vending machines, but now that public phones have been phased out due to the penetration of cell phones in Japan, it is only the vending machine which uses electricity on the street.
Imagine, there are 2.3 million spots where electricity is used on the streets. This vending machine electricity point can act as part of the infrastructure, for example, this can be used to charge electricity or used with camera sensors.
This vending machine itself is owned by the beverage manufacturers, so even if Sanden RS makes an approach suggesting to use it as public infrastructure, we do not have the authority, but by acting through the JVMA, we have more power to promote our proposal and work with the government.
We are now making proposals to the government and I strongly believe that this “vending machine as infrastructure” idea is very unique to Japan and, with 5G implementation, if we have a connection port on the machine, we can help with autonomous driving. We could be the first penguins in the world to do that.
It is not only to promote the value of the vending machine itself, but it can also bring the potential benefits as part of infrastructure. As the JVMA, we are promoting these ideas. Imagine if you wanted to put 2.3 million units in a country like France or Australia! In Japan we already have that, so why not use it?
Cold chain logistics is a growing sector due to the requirements of food transportation as well as vaccines. However, there are a series of challenges today when it comes to cold chain at the moment, such as equipment breakdown, excessive heat exposure, human error and of course high costs. To help combat some of these issues, you have developed the “E-mesh Moderno”, a cloud based integrated wireless environment monitoring service. What is your vision to help create an efficient cold chain logistics system in the future?
Let me first explain the process of the cold chain. First, the producer makes the product and puts it in a freezer or a refrigerator in a warehouse. The courier company then delivers it to another location - that is a cold chain.
Initially, the product is delivered to a central warehouse and from that point, it is distributed to retail outlets and end users. Every step in the process requires refrigeration. The frozen and refrigerated food is sold at retail shops. The most important part of cold chain is to make sure the food is safe and sound when it is consumed. Until recently, frozen food sometimes melted, but nobody could trace back to where the melting happened.
With the introduction of new legislation, there is a requirement for temperature control and monitoring of frozen food right up until it is consumed. Our ‘E-mesh’ system can monitor each step of the process and determine when and how an item got damaged.
Another big issue concerning cold chain is the diminishing number of truck drivers available. There are new laws implemented which reduce the working hours of drivers in order to improve their work environment, so now it is difficult to utilize the frozen, refrigerated and ordinary trucks on an individual basis.
What we developed is a system for big dry containers where refrigerated and frozen food containers could be included and carried together at once. Through our efforts, we are now able to handle the shortage of truck drivers better, as well as the reduction of their labor hours and make sure that the food is delivered to the customers safe and sound.
Cold chain became a prevalent subject during the COVID pandemic because of the distribution of vaccines which needed to stay at very cold temperatures. Pfizer was around -70 degrees, Moderna around -20. The WHO estimates that 50% of vaccines are lost every year because of poor temperature control. We know that you created a very specific product, the REVOCOOL, which carries Moderna’s vaccine to Japan. Where do you think the technical difficulty comes from in vaccine rollouts, and how do your technologies like REVOCOOL ensure that distribution in Japan happens in a reliable and safe manner when it comes to vaccines?
In terms of a vaccine distribution in Japan, we delivered 200 units of our REVOCOOL to the Japan Ground Self Defense Force and none of them broke down. The REVOCOOL actually was not focused on the -20 degrees for the transportation of Moderna vaccines, rather it was for the transportation of frozen foods. It just happened to be applicable to the transportation of Moderna’s vaccine.
We have been collaborating with Yamato, a logistic service that uses the TA-Q-BIN service. We have over 30 years’ experience with them. At first, there were many issues, such as not being able to chill the container enough.
The reason why we can provide high quality and stability is not because of the technology, but the accumulated experience that we have. There were so many issues and obstacles, but we resolved each one of them, and that led to the creation of the REVOCOOL, so in a sense, it is the culmination of our accumulated know-how and effort.
In terms of technology, all the chilled container manufacturers use a similar type of technology, however in terms of monozukuri, experience matters, and our experience has led to the creation of high-quality, high-stability products.
You have collaborated with Japanese firms in the past to develop new products. Are you looking for any such partnership opportunities in overseas markets too?
If Yamato goes abroad, we will go abroad, too. The reason why we developed the REVOCOOL is because Yamato and other companies raised the cost of transport and because of that, the sender actually suffered a loss.
Against this backdrop, the food manufacturers started looking to do delivery by themselves, but they cannot invest highly in chilled trucks, so we proposed the REVOCOOL container to them. They could use their existing dry container trucks to make cold deliveries. The food manufacturers were very happy. We are also happy to go on with our efforts, as we are contributing to society.
In February of this year, you signed an MOU with Marubeni to utilize their recycled lithium-ion batteries as a charging base for the REVOCOOL box - could you comment on that? What are you doing to lessen the environmental effects of your products?
It requires a lot of electricity to chill. The temperature control defines how much you can reduce the amount of electricity. By switching the compressor on and off in a short period of time, you can reduce the amount of electricity used. Also, the way in which insulation is installed determines how much energy saving we can achieve. Compared to vending machines in the past, the current ones save 40% on electricity.
The lithium-ion battery is actually posing a serious issue to the environment with the penetration of EVs and hybrid cars. There are batteries that need to be discarded, but if you just discard them, that causes harm to the environment.
Our REVOCOOL does not require a high spec battery like the alternatives do. By recycling and using secondhand batteries from the automotive industry, it makes our products more environmentally friendly. That is why we had a contract with Marubeni.
You are the president of Sanden RS, which boasts a diverse international presence all around the world. Can you tell us which countries or regions you are targeting as part of your mid-term, and what strategies you will employ to strengthen your international business?
Vending machines and labor costs have a strong correlation. In the USA, the minimum wage for McDonald's workers is $18.00. On the other hand, in Japan, it is 980 yen, so the labor cost in the USA is much higher now. If you take the labor costs into account, using vending machines makes selling products less costly, so we expect that countries with higher labor costs will have business opportunities for vending machines. In Southeast Asia, Singapore has high potential, but Thailand does not. We have no chance there because it is less costly to sell by hand.
In terms of logistics, cold chain would certainly be required globally, so we would like to promote our products overseas too. Since the growing population and food shortages have been serious issues, how much we can reduce the amount of food waste is critical, and cold chain plays a vital role in this.
The most important thing about cold chain is to retain the freshness of the food. The refrigeration system works as the compressor is turned on and off. When it is turned on, it starts cooling or chilling, and usually it stays at 4.4 to 5 degrees, however, by having a tolerance of plus or minus 0.5 degrees, you can retain the freshness of the food.
If you use air freight, you can retain freshness, but it is very expensive. If you use this chilling technology with sea freight, you can reduce the price of things like sashimi and have it fresh. It is not just about freezing of food in order to prevent it from getting damaged, but it is also about maintaining its freshness. That adds further value to the product.
For example, Organ transportation uses ice and it can only last up to two hours after an accident. The actual surgery for an organ transplant costs 2 million Japanese yen, but it additionally costs 15 million yen to have helicopter transportation.
That is because although you can freeze the organ, you cannot unfreeze it and make it usable for the transplant. If you freeze it at -20, you have to take it back to 36 degrees and to do so, the organ itself could get damaged by the increase in heat.
In collaboration with GUNMA University, we are currently conducting research and development, aiming at the realization of cell preservation with supercooling at -4 degrees Celsius. In the future, we are planning to evolve this research in order to apply it to organ transplants.
We are still at the experimental phase and still studying it, but we are succeeding. If this happens, children do not need to wait until somebody has an accident. If a person passes away, you can retain and preserve the organ and use it when a transplant is needed.
We are currently aiming for the creation of a prototype on our own which allows the organ preservation and unfreezing of organs. Hopefully in the near future, this will be put to practical use. Whilst we make progress in the field of organ preservation, we will continue to focus on our existing field of the frozen food.
When do you believe this will be ready?
In October, we have an academic conference and we will announce it then, but we have done the actual testing already. This is what I aspire to. If you could preserve organs, people could cryogenically sleep and be properly rested. If a person is rested, they only require 10% of normal circulation capacity, so 10 years becomes 100 years. There is a high possibility that our technology can help to preserve human beings.
Let's say we come back to interview you again on the last day of your presidency. What would you like to have achieved by then?
My objective as the company president is to make this firm contribute to society in terms of food, medicine and other needs. It is not profit seeking; it is creating a business that is contributing to society itself. I do not want to end up as a president selling only vending machines for canned beverages.