Japanese chain retails quality, price -- and local flavor

Japan has 1.6 million retail stores - double the number in the United States, although Japan's population is only half that of its giant neighbor across the Pacific.

It also has an antique, arcane distribution system that makes it ferociously difficult for manufacturers that are not already well established to market their goods. In moments of frustration, American and West European trade negotiators dealing with Japan have called this distribution system a nontariff barrier.

Takuya Okada, president of Jusco, a big Japanese supermarket chain, has dedicated his life to bringing his customers high-quality goods at cheaper prices by buying things in quantity, thus bypassing many of the inefficiencies of the traditional distribution system.

But unlike Japan's other major chain stores - Daiei, Seiyu, or Ito Yokado - Jusco is a federated group, with most of its stores retaining their local flavor. Some member stores are out-and-out branches of Jusco. Some are 100 -percent-owned subsidiaries. Some are partnerships between Jusco and local interests.

Headquarters in Tokyo under Mr. Okada is responsible for finances, new enterprises, products and product development, and the hiring and training of personnel. Jusco is only 13 years old, but it already does well over $2 billion worth of business. In the fiscal year ended last Feb. 20, total revenues of the group reached 661.6 billion yen, or nearly $2.8 billion. Imports account for about 5 percent of the company's business, Mr. Okada said, noting that he sends 200 to 300 buyers abroad each year.

Mr. Okada, a tall, husky man with luxuriant, neatly combed black hair, said he looked for three things in imports: first, superior quality and competitive price; second, punctual fulfillment of delivery times; third, something out of the ordinary and not obtainable in Japan.

Recently, Jusco and Safeway sponsored a fair in Tokyo, Okada said. To his own surprise, one of the hottest-selling items was American-made Coca-Cola. Japan has been bottling Coca-Cola for years, but customers said the US brew was ''different.''

But Okada said that, as if to show the fickleness of customer tastes, the Swiss multinational Nestle has been phenomenally successful in Japan because it has marketed Nescafe and other beverages especially tailored to Japanese tastes. ''It may have the same Nestle brand name, but an American customer probably wouldn't drink the beverage the Japanese customer delights in,'' Okada said.

The executive says he thinks the Japanese market is not at all impenetrable, but that patient effort over many years is needed to develop it. ''You have to know what the customer wants and you have to be able to communicate,'' he said. One Hong Kong-based company doubled its sales in Japan when it hired a Japanese-speaking sales manager, he noted.

Okada's motivation for entering the highly competitive chain-store field was different from most other supermarket operators in Japan. He was not out to crush the opposition, to overwhelm markets by a flood of cheap products. The heir to a 200-year-old clothing store in the provincial city of Yokkaichi, near Nagoya in central Japan, he realized early that to survive retail stores had to rationalize their operations and achieve economies of scale. How could they do this without losing their local flavor, their base of loyal local customers? Federation was the solution to the problem.

But first, over a period of nearly two decades, he built up a network of branches in Yokkaichi and nearby cities. On one occasion a wholesaler came to him with a proposal to sell an item for a certain price. Okada demanded the freedom to set a lower price. The wholesaler demurred, saying his other area outlets would be upset.

''Well, how much do you sell altogether in this city?'' Okada demanded. The wholesaler named a figure. ''If I by myself reach this figure, will you give me the freedom to lower my price?'' Okada asked. The wholesaler agreed. Within months Okada had exceeded the volume of all his competitors combined, and the wholesaler had to let him set his own price.

Mr. Okada's family store was named Okadaya, and its tradition, set by his grand father, was to make profits on the downswing, that is, to sell goods cheaper than others during price declines, and still make a profit.

''Any fool can make a profit when prices are going up,'' Okada said. ''But we serve the customer by lowering our prices and, because we have bought in volume, we can still make a good profit.''

The most dramatic example of Okadaya's style came during the great panic of 1920, when many shops, including Okadaya, were caught with huge inventories. Mr. Okada's grandfather was then ill. But he called his chief employees around and told them: ''Don't despair. Sell everything we have at half price. Then make the rounds of the various recession-hit manufacturers and buy as much as possible, as cheaply as possible.''

Okadaya, he said, was to have a sale like no one had ever seen. ''We will benefit the customer and we will make money too,'' he said. And so it proved.

Until Mr. Okada took over the management of Okadaya after World War II, it was successively managed by his mother and older sister. In the meantime, he had served in the Army during the war and graduated from Waseda University. His first visit to the US, in 1958, showed him the possibilities of supermarkets and chain stores.

But the budding businessman soon realized that what he could do alone on a regional basis was limited. Jusco came into being in 1969, when two other regional store owners, Kazuichi Futagi of Himeji and Jiro Inouye of Osaka, agreed with Mr. Okada on an equal merger that became the foundation of a nationwide network. Jusco's early years were tough. But as retail stores around the nation began to feel the competition from supermarkets at one end of their price range and from department stores at the other end, they realized the advantages of banding together.

The transition has not been easy for many store owners. Masaru Aga, now president of Fukuoka Jusco in Fukuoka, Kyushu, recalled to a Japanese reporter that, as head of his own store for 20 years, he had been used used to making his own decisions. He had never worked for anyone else.

Despite his trepidation, he made the plunge, and he is glad he did. Understanding these doubts, Okada stresses that he wants ''a merger of hearts'' and not just of capital. In time, many anxious local store owners, faced with the prospect of being taken over by a big chain, opted for Jusco. They reasoned that Okada, who still has a fierce local pride in being a Yokkaichi boy, would understand their feelings.

Today Jusco seems to be going from strength to strength. It is participating in Autorama, a network of dealerships set up last year by Ford and Toyo Kogyo (in which Ford has a 24.44 percent interest) to handle Ford cars. In the Jusco Autorama stores, not only cars but everything associated with them - from repair kits to stereo cassettes and even clothes for the sports-minded driver - will be on sale. Initially Toyo Kogyo-built cars will be on sale under the Ford Laser and Telstar brand names, but eventually, Mustangs, Mercuries, and Thunderbirds will be introduced. Jusco also has a joint venture with the US-based General Mills for a chain of ''Red Lobster'' seafood restaurants.

In all these ventures, Mr. Okada says, he tries to combine centralization and decentralization. Centralization gives the company efficiency. But local roots and local decisionmaking are also essential. ''Retailing is essentially a local thing,'' he says. ''Yes, we need rationalization, but we also need sentiment. Only when the two are combined successfully will a retailing operation really grow.''