Gekkeikan

Sonia Totten is the founding member of FBN Japan.  Suzy Bibko is Editor-in-Chief of Families in Business magazine.

The Gekkeikan Sake Company has been a family business for almost four centuries and is currently in the hands of the 14th generation. Good management style and a pioneering spirit have helped them rise to the top in sake production

When it comes to family businesses and to business-owning families, they are all so unique that it is never very meaningful to make generalisations. That said, business families all over the world appear to share the qualities of resilience and some degree of innovation. Such is the case with the story of Gekkeikan Sake, with its remarkable rise to the number one position globally in sake production and sales, and its strategic use of management and production technology to defend this position. With market reforms in Japan just around the corner, the Okura family will have to mobilise their capabilities once more to ensure their lead is retained.

Gekkeikan Sake Company was founded over 365 years ago, when Jiemon Okura established the Kasagiya sake brewery in Kyoto's famed "Fushimi" district. This district was known throughout Japan for its abundant supply of high-quality underground water, an important ingredient in sake brewing. This, combined with Fushimi's advantageous geographical position as a stopover along a well-travelled route, ensured the brewery could flourish.

The business continued as a small sake brewery, passing through successive generations by way of the eldest son. An aberration in this tradition occurred for the first time in the 11th generation, when the second son took over the business in 1886 due to his eldest brother's unexpected death. Despite being only 13 years old when he took the reins, Tsunekichi Okura boldly set out to expand the business, mainly through the introduction of modern technology. This proved to be a major turning point in the brewery's history.

In 1905, the name 'Gekkeikan', meaning 'crown of laurel', was introduced as a new brand name in the brewery. The name was chosen because it symbolised victory and merit, perfectly complimenting the brewery's victory in becoming the leading manufacturer of sake of the finest merit. In 1909, drawing on its technological success, the company established the Okura Brewery Research Institute, now known as the Gekkeikan General Research Institute. There, for the first time in the sake industry, brewing methods were scientifically analysed.

During the next 93 years, Gekkeikan flourished – embracing technology, creating new products and branching out with offices in the USA and Korea. In 1987 the company officially renamed itself as the Gekkeikan Sake Company. Ten years later, in 1997, they celebrated their 360th anniversary. Today, the company continues to be the leading sake brewer in Japan.

Ownership
Gekkeikan is still owned and operated by the Okura family. Passing through successive generations, mainly via the eldest son, the company is now run by the 14th generation. Currently, the President of Gekkeikan is Haruhiko Okura, the eldest of four 14th generation brothers. His youngest brother has recently joined him at Gekkeikan, in the accounting department.

Family tradition holds that the eldest Okura son usually inherits the majority of assets, although other brothers and sisters take some shares – a considerable sum today due to the fact that the company is so old and has been so successful. Each generation has thought very carefully about the process of inheritance so as to avoid conflicts among family members, especially over assets. Due to inheritance tax reasons, Haruhiko owns only 5% of the company. He explained, "Inheritance tax gets incredibly high if the amount of shares owned is above 5%, so we have dispersed our stock among different entities, including a holding company. Thus, I only own 5% of Gekkeikan due to technical reasons. In reality, though, Gekkeikan is strictly under the Okura family's control."

Teaming up with technology
Up until 1886 when Tsunekichi Okura took over at Gekkeikan, sake production had been based solely on workers' and craftsmen's senses and know-how accumulated over the years. Tsunekichi, however, decided to replace these methods with something different: modern technology. Haruhiko explained what this maverick approach meant to the business: "As a result of Tsunekichi's vision, he was able to develop bottled sake without using any preservatives in 1911." Considering that sake had only been available in barrels until then, this product was seen as a ground-breaking development and was a driver of further growth. Bottling sake was also a strategy that aimed to expand sales channels in the large Tokyo market. Gekkeikan was able to overturn the dominance of the Nada region in sake brewing, and its efforts to introduce top-quality sake to a nation-wide market, along with its technological innovations, were the keys to its success. Haruhiko added, "Our technological innovation was the first attempt in Japan and it obtained a good result. Technological reformation triggered this area of Japan (Fushimi) to become one of the finest and popular places for sake production."

This modern approach to business continued even after Tsunekichi's death. "Tsunekichi made sure his successor, my grandfather, obtained deep knowledge of modern management", explained Haruhiko. "My grandfather enlarged the business and made Gekkeikan the top sake producer in all of Japan. Like his predecessor, he valued technical skills and scientific research of sake production, and continued to modernise the business. In 1961, he finally achieved the development of an 'all-year brewery', producing sake in all seasons." This solved the problem of the shortage of successors for the job of head brewer. It also took the brewery to the top. "In 1945 we had already been at the top in terms of sales, but we became top both in name and sales in 1961 after this technological achievement", recalls Haruhiko. "We really had a strong will to accept new and innovative things."

But things didn't stop there. Recently, Gekkeikan's namazake (non-pasteurised sake), which can be transported at room temperature, and yumai-zukuri (a new brewing method) have received considerable attention in the industry.

The company has embraced technology on other fronts. Gekkeikan has been a pioneer in sales promotion and advertising. In 1930 it erected a large neon billboard – a revolutionary approach to advertising at that time. Also, the company produced a series of public relations films that were the forerunners of today's corporate promotions films.

Business strategy
Gekkeikan feels that the secret to its success rests on more than just an acceptance of technology. Rather, a pioneering spirit has helped it to maintain its top position in the sake market. In all areas of technological development, sales, marketing and corporate management, Gekkeikan has always made and carried out strategies that anticipate and quickly respond to the times. The research institute is a prime example, resulting in many new and effective technologies for the business and industry. In the sales divisions, each branch is given independence to develop its own sales strengths as a way of reinforcing marketing and responding to the diverse needs of consumers.

Diversity is important to Gekkeikan's growth. In addition to sake, the company sells plum wine, shochu (distilled spirits) and amazake (fermented rice drink). It also imports and sells German wine and beer, and French wine. Of these strategies Haruhiko said, "We have always taken the initiative in launching new products that anticipate lifestyle changes." The company has also set up an industrial value-added network with Gekkeikan at the centre. This network has made ordering between brewers and wholesalers more efficient, and also has proved useful in product development and production.

Challenges ahead
However, Haruhiko realises that there are challenges ahead that will affect Gekkeikan's present business strategy. He explained: "Out of the many challenges we face today, the most significant is the deregulation and ever-changing sales route caused by it. Today, Japan's alcohol industry requires a business license in three phases: a production license, a wholesale license and a retail license. After 2003, however, the government is going to liberalise the retail license. As a result, the sales routes will be scattered from the present local retail shops to supermarkets, convenience stores, discount shops and the like. So, we will have to come up with new strategies to deal with an ever-changing sales route. This is where we are putting much of our effort today.

"Some say that the number of local retail stores will decrease to half or even one-third of the current figure, and that will affect the management of typical wholesale stores. Furthermore, this will affect some manufacturers in due course, and those who are unable to prevent such an effect will not be able to avoid integration, destruction and mergers for survival. These practices will no doubt become common in the near future."

The Japanese food boom overseas is also important to Gekkeikan's sake business. In the USA, sake sales are growing by 10% each year on average. It is estimated that at least half of the consumption takes place in homes and this percentage is increasing. Traditionally, Gekkeikan was available only in Japanese restaurants and specialty import shops. However, these days, sake is found in many Chinese, fusion and fish cuisine restaurants throughout North America. Haruhiko said, "I am sure that the demand for sake will augment along with further expansion of Japanese food, especially sushi. In the past, the European market was rather conservative but now we have found increased interest in our products in places like Sweden, Norway, Poland and the UK. We are also growing in Southeast Asia and East Asia. To meet these greater world demands for Gekkeikan, we established a brewery in California in 1989 and a sales office in Korea in 1997".

In these international markets, the company hopes that concentrating on sake production will ensure it's spot at the top. Haruhiko said, "What I have to do is concentrate on our core business – sake production – rather than expansion. I think we'll be better off remaining as we are for now, although we do endeavour to undertake further geographic expansion by riding on the wave created by the Japanese food boom."

Family philosophy
When Haruhiko became president of Gekkeikan in 1997, he enacted three basic philosophies to help guide the company and its employees:

- quality: offering consumers worldwide top quality products to meet their tastes;
- creativity: meeting new challenges creatively through innovative management and technology; and
- humanity: enhancing employee's knowledge and abilities to encourage the realisation of their individual potential and a sense of fulfilment.

He felt this was important to do, especially since the family had no written creed or rules.

These values have also had a positive effect on the relationship between family and non-family employees at Gekkeikan, resulting in a warm and friendly atmosphere at the company. Haruhiko said, "One of our basic philosophies, "humanity", reflects the degree to which we value employees. When I was in the process of composing our basic philosophies, I asked some of the older employees who knew my grandfather and great-grandfather the following question: what were their key messages? They replied that they used to tell managers and directors to take good care of employees. Gekkeikan still has a very warm and homey atmosphere compared to other companies of similar size. I used to work as a banker after I graduated from college, but when I came back to work for Gekkeikan, I felt the warmth and friendliness right away."

Mr Murakami, General Manager, Public Relations Department, a non-family member, further explained, "I am aware of the solidarity of this company. When I first joined, the 12th generation master was still at the top. He was a charismatic figure who developed the company to another level. His management style was similar to that of other family-owned sake brewers in the sense that it was very structured amd hierarchical in nature. Managerial issues were rigorously controlled by upper management, which yielded a firm, stable working environment necessary at the time."

"However, this kind of atmosphere changed dramatically when the 13th generation, the present chairman, took over the business, and that's when I started to notice differences between our company and many other family-owned sake brewers", recalled Murakami. Mr Keiichi Okura (the 13th generation and tody's chairman) felt that, despite the style of management of his ancestors, better communication among all employees was important for Gekkeikan's future. He introduced a bottom-up management style, together with new approaches for horizontal communication within the company.

Murukami explained, "The new chairman often repeated 'we have to grow out of this family business disposition and act as professional individuals'. Through his effort to communicate interactively with employees of all levels, he succeeded in transforming its management style from a charismatic fashion to a rather open and professional approach. This brought a very positive result in our company atmosphere and connection between employees and managers.

"The 11th generation went through hardships and worked very hard to enlarge the business. From his own experience, he naturally engrossed a debt of gratitude to the surrounding people, local community and society in general. He knew naturally that 'one cannot be successful on his own', and this mentality has been passed down for generations from directors to employees."

Haruhiko reflected, "Today, the difference between family and non-family is not important in our management. We just do what's best for the company."

Because of Japan's present economic situation, what is important right now is to strengthen its management and carry on a framework that enables prosperity in the future, said Haruhiko. The company has just released an action plan, aiming for strengthening of its brand and chose 'For Your Lifestyle Taste' as its corporate brand statement. This brand reinforcement plan consists of four pillars.

- Increase the market demand for sake and augment its business.
- Augment and strengthen other non-sake alcohol businesses.
- Drive forward with international business/markets.
- Innovation and development of non-alcohol related businesses.

Based on these pillars, the company will develop a business strategy and structure that coincide with consumers' lifestyles. Under this brand reinforcement plan, the company has set a sales target of ¥75 billion (€651 million) in the year 2010.

The next generation
As Haruhiko's eldest son is only 13 years old right now, he said it was difficult to think far enough into the future to when the next generation will take over. Nor is he sure he wants his son to enter the business. "In my family, the 11th and 12th generation masters were charismatic figures", explained Haruhiko. "The 11th generation master made the turnover to be tenfold, and the 12th master made it one hundred times. When my father, the 13th master, took over the business, everyone compared him with his ancestors and that gave him constant pressure to surpass his ancestors. I'm sure it was not easy to live with such high expectations. Because of his own experience, he made sure I didn't go through the same thing when I took over in 1997. I can feel his efforts in making my position comfortable. I, too, don't want to put pressure on my kids, and I don't want to force them to join the company if they don't want to. I want to accept and support their desires and volition."

Despite these concerns, Haruhiko nevertheless wants to pass on to future generations what his ancestors have passed on to him: "Throughout our 365 years of history, 'quality first' has been the most important slogan. What our ancestors left us and what I want to pass on to future generations is the continuation of a good brand image. People have said "it must be a good product if the Okura family made it", and I want this kind of brand image and reputation to continue."