Chapter 15 Outline

Closing Case Downey's Soup

Downey's is an Irish tavern in Philadelphia created over 20 years ago by Jack Downey. Over the years, the fortunes of the restaurant have wavered, but the strength of some favorite menu items has helped it survive economic downturns. In particular, the lobster bisque soup was met with increasing popularity, but Downey's efforts to market it have been sporadic. Never did Downey imagine that his lobster bisque would someday be the cause of an international trade dispute.

Unbeknown to Downey, the Japanese have a strong penchant for lobster. When the Philadelphia office of the Japanese External Trade Organization (Jetro) asked Downey to serve his lobster bisque at a mini trade show in 1991, he began to think about mass production of his soups. The Japanese loved the lobster bisque. They gave Downey a strong impression that the soup would sell very well in Japan. At the time, Downey did not have a formal product line but that seemed to be only a minor obstacle.

After the trade show, Michael Fisher, executive vice president for the newly formed Downey Foods Inc., was sent on an all-expenses-paid 10-day marketing trip to Japan by Jetro. (Jetro sponsors approximately 60 Americans for similar trips each year.) Although interest expressed by the food brokers and buyers he met seemed to be more polite than enthusiastic, he did get an initial order for 1,000 cases of the lobster bisque. The only condition placed by the buyer was to have the salt content reduced to comply with local Japanese tastes. Both Jetro and Fisher considered this initial order the beginning of rich export relationship with Japan.

Fisher contracted a food processor in Virginia, adapted the recipe for the new salt content, and shipped the soup to Japan in short order. Visions of expanded sales in Japan were quickly dashed as the cases of soup were detained at customs. Samples were sent to a government laboratory and eventually denied entry for containing polysorbate, an emulsifying and anti-foaming agent used by food processors. Though it is considered harmless in the United States, polysorbate is not on Jetro's list of 347 approved food additives.

Fisher and Downey did not give up. They reformulated the soup to improve the taste and comply with Jetro's additive regulations. They had the soup tested and certified by a Japanese-approved lab, the Oregon Department of Agriculture's Export Service Center, to meet all Japanese standards. Then, in the fall of 1993, they sent another 1,000 cases to Japan.

The soup was denied entry again. Japanese officials said the expiration date on the Oregon tests had passed, so they retested the cans. Traces of polysorbate were found. A sample from that shipment was sent back to Oregon, and it passed. Two identical cans of soup were sent back to Japan and tested. They failed. Back in Oregon, a sample of the same shipment was tested again and no traces of polysorbate were found.

Japanese officials refused to allow the soup into Japan anyway. By this time, Downey's had been paid $20,000 that it could not afford to give back. "It stunned the customer," says Fisher. "But it stunned me a lot more. I was counting on dozens of reorders."

Fisher filed appeals with the US Embassy in Tokyo to no avail. "It became a bureaucratic/political issue," says

Fisher. "There was a face-saving problem. The Japanese had rejected the soup twice. There was no way they could reverse the decision."

The final irony came when a New York-based Japanese trader sent a few cases of Downey's regular (no reduced salt content) lobster bisque to Japan. This shipment sailed through customs without a problem.

Where was Jetro when Downey's soups were stalled in customs? Fisher thought he had everything covered. He followed the advice of Jetro, adjusted the soups to meet Japanese palates, and had them tested to meet Japanese food standards. Apparently, Jetro failed to inform Fisher of the apparent need for a local partner to sell and distribute in Japan. Most food companies have trouble getting into Japan, whether large or small. Agricultural products are one of the most difficult things to get into the Japanese market.

Jetro's agricultural specialist, Tatsuya Kajishima, contradicts the claim that Japan is hostile to food imports by stating the following statistic: 30 percent of Japan's food imports come from the United States. Further, Japan is the fourth largest importer of America's soups to the tune of $6.5 million worth of soup purchased in 1993. Most of these sales came from Campbell's Soup Co.

Although this venture was not particularly profitable for Downey Foods Inc., the company has been able to redirect its research and development efforts to build its domestic product line. Through its local broker, Santucci Associates, Downey Foods attracted the attention of Liberty Richter Inc., a national distributor of gourmet and imported food items.

http://www.downeysrestaurant.com

Source: Case written by Mureen Kibelsted and Charles Hill from original research by Mureen Kibelsted.

Case Discussion Questions

1. Did Downey Foods' export opportunity occur as a result of proactive action by Downey or was its strategy reactive?

2. Why did Downey experience frustrations when trying to export to Japan? What actions might Downey take to improve its prospects of succeeding in the Japanese market?

3. You have been hired by Downey Foods to develop an exporting strategy for the firm. What steps do you think Downey should take to increase the volume of its exports?