Distribution Channels ANTONIOS BIG NIGHT IN TOKYO Presented

Distribution Channels ANTONIO’S BIG NIGHT IN TOKYO Presented by • Antonio Patron Boenheim • Thierry Zedda • Katsuya Nakamura • Renata Peregrino de Brito • Simi Gambhir March 29, 2004 Group A-14

12 Hours of Agony Group A-14

First Day: Tokyo Sightseeing A Castle!!! The Bullet Train!!! Group A-14

First Day: More Sightseeing Tower of Tokyo!!! At a Sumo Match Group A-14

Second Day: “The Interview” At the Interview Trying to find my hotel Where the @$%/ is that hotel? At my cheap hotel room Group A-14

Second Day: Night out Flowers Alcohol Front Desk You can find everything “around the Corner” Smokes & Condoms Food & Coffee Forgotten or unavailable Items Group A-14

Just around the corner… Beer Flowers Underwear T. paper Food Cigarettes Group A-14

Ubiquitous Vending Group A-14

Marketing Context What is AUTOMATIC VENDING? • Example of nonstore selling (direct selling, direct marketing, buying service) • CONVENIENT! • 24 hours, 7 days a week • Low service cost • Can serve a captive audience Group A-14

Marketing Channels 0 -level Manufacturer 1 -level Manufacturer 2 -level Manufacturer Wholesaler Consumer Retailer Consumer Group A-14

Financial Data Sales and Breakdown by Vending Machine (2002) # of Vending Machine in JP 5. 6 m Persons per Machine 23 Sales $66. 7 b Sales from Vending Machines in Japan GNP $71 b: Philippines $66 b: Chile $57 b: Czech $56 b: Pakistan $54 b: Peru $51 b: New Zealand 40. 0% 1. 5%: Foods • Beverage • Alcoholic beverage (Source: International Financial Statistics Yearbook 2002) 28. 2% Cigarette $22. 6 b 24. 0% Tickets, etc $13. 8 b $1. 5 b France 6. 8% Germany U. S. Other (Source: Japan Vending Machine Association) Japan Group A-14

Preferred Channels by Selected Brands Vending Machine Beverage Market in Japan Convenience Shop 41% Coca-Cola Grp 20% 52% (Sales share% by channel) Supermarket Other 25% 14% 15% 23% 10% 1% Dydo Ito-en 88% 20% 35% 11% 30% 15% (Source: Weekly Diamond Japan) Group A-14

Preferred Channels A Brand that Uses Vending as a PRIMARY Channel FABO is a local Japanese producer of canned coffee Group A-14

Financial Data Vending vs. Supermarket Channels Retail Price (Yen) 120 (Yen) Discount by Retailer Profit 14. 4 Location Fee • Marketing • Logistics • Lease or Depreciation Profit 27. 6 • Other 60 Vending machine Channel Retailer’s Margin 18 Product Cost 24 12 120 (Yen) 108 (Yen) 6 • Marketing • Logistics • Other 18 Product Cost 60 Supermarket Channel (Source: Japan Vending Machine Association) Group A-14

Financial Data A Good Investment! • Annual Revenue per Machine in Average: 1. 1 million Yen ($10, 000) (Source: Weekly Diamond Japan) • Durable years: 5 years • No terminal value • Discount rate: 7% (K Yen) Cash-in Flow Discounted Payback: 2. 5 years IRR: 34. 3% 110 117 NPV: 125 785 135 144 Net 154 154 . . 154 154 (Year) Cash-out Flow Machine (500) • • Vending Setting Cost 0 1 2 3 4 5 Group A-14

Why does this work? Critical Factors for Success • Geographic • Economic • Socio-cultural • Technology Are these factors applicable to other countries? Group A-14

Geographic Constraints Population Density (per km 2) What impact does this have? High cost of land + only 30% of land can be utilized Low stock kept at the home Frequent buying Convenient channels V. M. utilize small spaces efficiently & profitably Source: Food and Agricultural Organization of The UN Group A-14

Economics High inflation rates can lead to: 2075. 9 ~ ~ (%) 66. 0 ~ ~ • High stocking • Continuous price changes Changes in Consumer Prices • Currency change Brazil Columbia U. S. Netherlands France Japan (Source: IMF International Financial Statistics) Group A-14

Socio-cultural Crime: Robberies per Capita (2000) Low vandalism and respect for public property leads to…. • Machines not confined to private spaces • Further potential for expansion Source: http: //www. nationmaster. com/cat/cri Group A-14

Socio-cultural “A Shared Refrigerator Between Neighbors” - Katsuya Nakamura Group A-14

Technology Helping sustain Japan’s vending culture Wireless communication between machine and owner • Monitor sales activity • Inventory control and refill scheduling PRODUCT REPLENISHMENT REQUIRED Group A-14

Technology SMART PAYMENT Mobile phones and smartcards increase convenience and purchase of expensive items SMART MACHINES • ID checking for underage consumption • News and weather information • Up next? Digital kiosks (ATM, Internet) Group A-14

So what happened? Sad & Lonely A Familiar Place Magazine! Lots of Beer Fortune Group A-14

Fortune YOU DIDN’T GET LUCKY IN JAPAN! • JOB – don’t give up but start thinking of a title for your research project • HEALTH – stop eating at Maria’s Cantina • LOVE – you won’t get lucky if you take a girl to a vending machine Group A-14

QUESTIONS? Group A-14