For those of you who have been living in a cave on the side of Mt. Fuji for the past 10 years and only come down to get the latest issue of the ACCJ Journal, the FBC is a mail order buying club that offers simple, worry-free importing of foods, books, videos, and other household goods from the United States. Their current General Store catalog lists over 40,000 items, and the Bookstore over a million titles, but they can get just about anything you want. Membership costs ¥1,000, payable with the first order. Ordered goods are delivered to your door approx. 30 days later (or in three days for in-stock books and deli items). Although most General Store items must be ordered by the case, many items are available in tri-packs or singles that can be delivered in 3 days. Splitting a case with others, including non-members, is not only permitted, it's encouraged!

For more information, call the FBC at 078-857-9001 or fax them at 078-857-9005. Downloadable catalogs and order forms can be found on the FBC internet site...

http://www.fbcusa.com

e-mail:
mail@fbcusa.com

The FBC - How did they do it?

Some of the biggest names in American business have come to Japan, strapped on their best running shoes and blasted out of the starting blocks, only to find themselves stumbling over hurdles and potholes that leave them far behind when the local favorites hit the fiscal year tape. Just ask Ford. Ask IBM.

But along comes the tiny Foreign Buyers' Club and they proceed to tear up the track, posting numbers that are phenomenal by any measure: 100% growth in each of its first 4 years. Membership over 15,000, half of whom are Japanese. An estimated 100,000 non-members splitting cases of goods with members. Expected sales in 1998 of more than 700,000,000 yen. 50 employees at offices in Los Angeles and Kobe. The product line has expanded from foods (over 40,000 items) to household products, books, videos, and deli items. This year, the first FBC Store opened in Kobe, allowing walk-in customers to buy single items instead of entire cases.

All of this from a Mom & Pop operation that started from scratch in 1987. All of this in Japan, one of the toughest import markets in the world.

So how did the FBC do it? Chuck Grafft, founder of the FBC, will tell you that it was lucky breaks and good timing. The FBC started business at a time when internationalization was the word of the day. Also, the Japanese government had just revised the import laws to encourage personal imports. Customs agents and office rental agencies were suddenly friendlier and more helpful to a young foreign start-up than they would have been just a few years earlier. Then there was the customs agent who showed Chuck how to classify his goods to meet Japan's strict duty and classification requirements. The FBC also got some lucky breaks from very favorable exchange rates.

Chuck's original idea was simple yet brilliant: charge a membership fee to generate an up-front income, and require all orders to be prepaid. The FBC then merely added them up, purchased the items in the U.S., shipped them to Japan, paid the customs duties, and delivered the items to the members' doors.

But without taking away anything from the the years of effort necessary to make that idea work, the FBC's success depended largely upon being merely the agent for its members' personal imports. Under the more lenient laws governing personal imports, the FBC did not need to submit any of the foods they imported to expensive testing for illegal ingredients, safety, etc.., which conventional importers such as Tengu Natural Foods are required to do. (Some products ordered through the FBC under the personal import laws contain ingredients which are banned under the standard import laws!)

Moreover, because the FBC only ordered what their members paid for in advance, there was no stock to purchase and maintain on shelves or in a warehouse and no risk of being stuck with unpaid orders. Finally, that success, though technically achieved in the Japanese market, wasn't achieved through Japanese consumers. The customers were foreigners, and they were simply ordering the foods and other items that they were used to buying back home. So many of the traditional problems faced by foreign enterprises with foreign products never surfaced. There was no need to educate Japanese consumers about the products, no need to learn 'Japanese ways' of doing consumer-oriented business, and no need to 'push' a foreign product through the Japanese distribution system.

In fact, until just a few years ago, the FBC discouraged customers who didn't speak English. This tacit exclusion of the Japanese made a few foreign members uncomfortable, but Chuck says that this policy was necessary because the FBC simply was not set up to handle Japanese requests and problems. There was a fear that the Japanese might be disappointed with the goods and the FBC's primarily foreign staff wouldn't be able to respond in the proper Japanese manner.

But the Great Hanshin Earthquake of 1995 changed all that. Shortly after the earthquake, with most foreign members holding back their orders, 'YouNew,' a Japanese women's' magazine devoted to imported products, ran a story on the FBC that resulted in many new orders and much needed cash. Surprise! The Japanese loved the products and the service!

So the FBC reconsidered its "English only" policy. And watched membership soar. Today, fully half of the current FBC membership is Japanese. The FBC catalogs contain ordering instructions and selected product descriptions in Japanese, and if you call in Japanese, a Japanese-speaking customer service representative will be happy to help you.

Interestingly, the Japanese members are ordering many of the same types products as the foreign members: household cleaning products, 'Bounty' paper towels, baby wipes and other paper products, diet sodas (zero calorie versions that are unavailable in the Japanese market), and children's books and videos.

Recently, 'YouNew' did another story on the FBC, complete with several pages of product pictures and an order form. Within 90 days of publication, 2000 of those order forms had been faxed to the FBC.

You can't buy that kind of advertising. And the FBC doesn't even try to, relying instead on word-of-mouth, ad swaps, free press, etc., to spread the word. Clearly, that strategy has worked. But Chuck feels that presentation is the company's weakest point and it will need to be addressed in the future. Not many people know, for example, that the FBC Bookstore has access to just as many books as Amazon, the internet mega bookstore, and may even have better prices depending on the yen/dollar exchange rate! (Cheaper shipping is the difference.)

Looking at the FBC's mail order business, one would think that an Amazon style internet site would be an ideal fit, allowing for on-line searching, ordering, payment, etc. But Chuck doesn't think so. At least not yet. When he looks at the FBC membership, he finds mostly housewives who have little or no internet experience. They prefer paper catalogs, fax machines, and talking to a customer representative on the phone. Thus, the FBC's internet site is primarily an extension of current customer services, not a sales or marketing tool. Members can download catalogs and spreadsheet order forms. Eventually, FBC members will be able to track current orders and review old orders, but placing orders and searching for items on-line in an Amazon Books like manner are not likely to happen soon.

One small but growing area of FBC operations that is part of the Japanese system is distribution, a hurdle that has knocked more than one foreign operation out of the race. Ask Chuck about the FBC's distribution problems, and he just looks at you and shakes his head. Even years later he still doesn't believe the stories he is about to tell you, such as the one about being unable to buy at any price products from Japanese distributors. Even with fresh-from-the-mint, yen-denominated folding type bank notes. It seems the distributors were not at all happy about this 'outsider' threatening their cozy 'members-only-and-we-pick-the-members' distribution club. Some distributors would not even return phone calls.

All that is in the past, however, and today, these same distributors are only too happy to sell to the FBC. It seems that time, understanding, and an economy stalled at the starting line can heal any wound.

Another problem that has stymied many a small entrepreneur in Japan is finding reasonably priced office and warehouse space. Here again, Chuck cites luck. At the time the FBC was starting up, Japan was experiencing an internationalization/import boom. Sekisui House,a major Japanese land developer, saw the FBC as a perfect fit in their own internationalization plans and helped Chuck find office space on Rokko Island, an artificial island that is Kobe City's centerpiece of internationalization. (The island is also the home of Nestle, and Procter & Gamble.) Recently, when the FBC needed bigger offices and new storefront space, the island's managers were happy to oblige one of the city's most successful symbols of internationalization.

And warehousing? Not necessary because Chuck takes advantage of a standard customs practice that gives importers a free week to process and move their goods from the port warehouse. That's more than enough time for the FBC to repackage and ship their goods.

Ask Chuck about his competition, and he'll tell you that he doesn't have any. Like an Olympic athlete, he feels that the FBC isn't running against others so much as against itself. And since doing business in Japan makes the chosen course tough enough as it is, why not share information so that everyone can win? Thus, at least once a week, Chuck can be found on the phone happily sharing information about strategy, products, cheap printing companies, etc., with someone who by anyone else's definition would be a competitor.

In a very real sense, however, the FBC is also running by itself. The other food mail order companies are working very narrowly defined niches such as organic foods, cheeses, wines, etc., while retail stores serve only their local foreign communities. But the FBC's customer base is that vast Western (mostly American) middle class that lives in Japan but wants the familiar foods available to them in supermarkets back home. One way or another, the FBC can get them all. The FBC's "niche" is 40,000 products wide and growing wider every day.

So why hasn't the Price Club/Costco or some other big American company used their considerable assets to challenge the FBC? What is preventing one of the major Japanese trading companies, chain store supermarkets or bookstores from using their connections to take away a piece of the FBC's business? Chuck's answer is simple: size. As successful as the FBC is, and as many customers as it has, it is still a very small operation. A big company simply couldn't be bothered with the relatively tiny market here for American foodstuffs and books.

Chuck is not a traditional business person. He has had no formal schooling in business, and it sometimes shows in his conversations. For him, a sale is "money coming in," and an expense is "money going out." Assets are "stuff." Does he do a product study with focus groups and cost analysis before bringing in a new product? Nope. Chuck's business plan is simple: when a customer asks for an item, get it for them. To him, FBC members are not customers for his service, they are friends. Chuck refuses to sell the FBC's mailing list to other companies, a common business practice, because "you don't do that to your friends."

Still, Chuck has lots of experience and practical advice for those who are thinking of doing the entrepreneurial thing. First, ask yourself what it is that attracts you to the game. Is it the idea of owning your own company? The risks will be great, so you'll really have to like walking on the edge. If you don't, consider becoming an agent or broker for a company that wishes to enter the Japanese market. It can be just like running your own company, but without the financial risk.

Second, identify your areas of strength and weakness and get help in those weak areas. If you're a numbers person, go talk to a consumer services person. If you are a consumer services type, find an accountant to talk to. You'll learn things about your business that can mean the difference between success ("I didn't know that!") and failure ("I don't know what went wrong!").

Also ask yourself if Japan is the right place to be doing this. Are you willing to stick it out in Japan for the length of time it may take? Entrepreneurial work is risky even in your own culture. In a foreign culture, it's going to be a whole lot harder and will require an extra set of business, language and culture skills.

How about simply following the FBC model, setting up a membership type mail order import business? Chuck says, "good luck!" noting that the FBC is not a good example so much as a good story, because the FBC's circumstances were unique.

Furthermore, the current economic climate in Japan does not favor imports right now. Consumer spending is down, as is the yen, making imports more expensive. Even the FBC has felt the impact: growth this year is expected to be a healthy 10%, but even that is well off the truly robust 30% growth of recent years. An entrepreneur starting up a mail order import operation this year will need very deep pockets, indeed, to survive.

Still, Chuck likes the entrepreneurial opportunities in mail ordering. For one thing, it can be done from anywhere. Chuck likes living in Kobe, so he set up the FBC operation there, even though 30-40% of his customers live in the Kanto region.

How is the FBC going to survive in the future? Look to the new storefront operation for the answers. Chuck wants to make the shop the most fun and friendly place in Kansai for foreign food and books. What he has in mind is the atmosphere of an old style country store or diner or bookstore. A place where people can come together, chat, browse the shelves, peruse a book, have a cup of coffee, etc. One corner of the store is set up as a sort of living room, complete with couch, TV, coffee pot, and drinks cooler. Folk are encouraged to 'come on in and set a spell!" New additions to the store include buy-by-the-scoop jelly beans and a kid's play area. Soon, the FBC will be holding cheese and wine parties on the terrace outside the company offices.

Look for new product lines that fit the FBC paradigm, such as the "Little Tikes" toy catalog, as well as wines and craft beers. There will be more specialty and holiday items, such as the Easter items that sold 10,000 units this past holiday season. And look for more children's computer software from the Bookstore.

FBC also wants to be a price leader. For example, today, everyone offers low-priced beer, but it took Daiei to lead the way. The FBC wants to do the same with all of their products. The FBC will also be improving delivery times from August, offering second-day delivery of main Deli and Bookstore items.

The folks at the FBC don't aspire to become the next IBM or Ford in Japan. They don't need the headaches. Besides, they're doing just fine, thank you, running their own race at their own pace. No one has caught them yet!

The original version of this story first appeared in the July, 1998, issue of the Journal for the American Chamber of Commerce in Japan , published by Paradigm.

Steve Porritt is a freelance writer based in the Kansai. He has lived in Japan for 23 years.

e-mail: steve@kyomedia.com

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