Unexpected Commonalities between US Market Challengers: Dassai’s Asahi Shuzo and SMBC Group

I hear that Asahi Shuzo has built a brewery in Hyde Park in New York State, launching production of your premium sake Dassai there in April 2023. Why did you take that step and how did the project unfold?

The international market is hugely important to us. We’ve experienced firsthand and grown as a result of the fact that the bigger the market, the more possibilities for survival emerge.

I took over the brewery in 1984 after my father’s sudden passing. Back then, Asahi Shuzo was only the fourth largest sake manufacturer in Iwakuni City, which is a city in Yamaguchi Prefecture, and our sales were nosediving. How could I make that small scale into a strength? My solution was to develop Dassai. It took six years of experimenting with junmai daiginjo sake— the top grade of sake, made from highly polished rice—before Dassai finally emerged in 1990 and won the hearts of consumers.

At the same time, I decided that if Asahi Shuzo couldn’t compete in the local market, I would choose a bigger battleground, focusing instead on Tokyo and markets nationwide. We began exporting in 2002, which was an obvious choice in terms of achieving further growth. Now we export to over 30 countries, and exports accounted for around 43 percent of our FY 2022 sales (JPY 16.5 billion).

Wine is made around the world, right? There are wineries even in Yamaguchi Prefecture. One of the reasons that wine became internationally popular was that spread of local production. So I’ve long been telling everyone around me that Japanese sake too needs to be made close to its overseas markets.

Then in 2016, the Culinary Institute of America, one of the world’s foremost culinary schools, suggested that we build a sake brewery in the United States and start brewing there. With so much information and culture coming out of the West, if we wanted to compete in international markets, this was a chance that we couldn’t afford to miss. I began planning how to build the brewery, and here we are today.

Amazing. You really walked the talk, didn’t you? As it happens, Japanese banks are also moving into Western markets, but most of their clients are Japanese companies operating there. Was it always Asahi Shuzo’s intention to sell to Americans?

Yes, it was. When we started exporting, we discovered that Dassai was more popular with Americans than with Japanese living in the States. When Dassai started to take off over there, it wasn’t in Los Angeles, which has the largest Japanese association in the country, but in fact New York. That said, the share of Japanese sake in the US alcohol market is less than one percent, so there’s a lot of room for growth.

I believe that the SMBC Group too has launched a retail bank targeting retail clients resident in the United States. That was a very bold move for a Japanese financial institution, wasn’t it?

Yes, our digital retail bank Jenius Bank, which has no physical stores, was launched this year (2023). Our policy is to actively challenge ourselves with new projects beyond the conventional bounds of finance—or, as our Group CEO Jun Ohta is constantly telling us, to “break the mold.”

To promote such projects, we have set up a monthly CDIO meeting as a place to make snap investment decisions on new digital business. The inventor of the idea for the new business pitches it to us, and we—myself, CEO Ohta, and other members of the management team—decide on the spot whether the Group will invest. We actually decided to invest in the US digital retail bank as a result of the pitch given by an employee stationed in the US at one of those meetings. It took a lot of hard work by 275 people (as of the end of June 2023) around the United States to bring the idea to fruition.

Why did you decide to enter the US retail market?

There were two major reasons from a business perspective. First, as with alcohol, the US market is massive and continues to grow. Digital deposits in particular are recording double-digit growth, far above the rate of increase in Japan. If the project can secure even a one-percent share of the US retail market, that would make it a substantial business even in terms of the SMBC Group as a whole.

Second, the difficulty of securing a banking license in the United States limits the number of new players. In Japan, players from other industries are getting into banking—we now have Rakuten Bank and Seven Bank, for example—but in the United States, there’s no Amazon Bank or Walmart Bank. In the SMBC Group’s case, though, we were able to set up Jenius Bank as the digital banking division of Manufacturers Bank(*), a Group subsidiary operating in the United States.

(*) The name of Manufacturers Bank has been changed to SMBC MANUBANK in November 2023.

That said, it certainly isn’t easy to establish a digital bank from scratch in a massive foreign market like the United States. We could never have done it without the huge commitment of our expat staff, local staff, and the project team. The original digital bank proposal was a 10-page document put together among our expat staff. They apparently had to overcome significant hurdles at the stage of local market research and preparations—difficulties that I’m sure you’re also very familiar with!

Jenius Bank is the first digital bank for retail customers that the SMBC Group has set up in the United States. Most of the staff were hired locally, and they operate completely differently from the usual SMBC Group style in everything from the organization and team makeup to how the business is run and even working practices. Going ahead, the local team will continue to drive the business, creating points of contact with customers through the Jenius Bank mobile app and using data to improve the customer experience. If we provide the user interfaces and financial products at which the SMBC Group excels, we believe that customers will choose us regardless of where the bank is from.

I see—so that’s how it came about. I think that Dassai’s strong sales too are due to the internet and digital technologies evolving and spreading and providing consumers with access to information that has led them to proactively choose delicious sake.

The same phenomenon is happening in banking. Until now, information asymmetry created a huge gap between the information held by the information provider—in other words, the bank—and the information held by the consumer. As a result, most consumers used the financial products that the bank recommended. As the internet and digital technologies have evolved and spread, that information asymmetry has diminished and consumers are actively choosing financial products for themselves.

Your conviction that standing still means going backwards and that it’s important to keep taking on new challenges has led you to step boldly into a new market. Your philosophy seems to have a lot in common with our “break the mold” slogan.

No, no, I couldn’t lay claim to such sophisticated thinking! I’ve really operated on instinct, doing whatever it takes for Asahi Shuzo to survive. My experience suggests, though, that you can’t survive maintaining the status quo.

That also holds true for banks. The advance and penetration of digital technologies has seen profits from traditional bank operations gradually dwindle. These days, if banks want to survive, we need to be continuously innovating so as to respond to customers’ increasingly diverse and sophisticated needs.

Major banks, however, still have that traditional fear of failure, so they tend toward a path dependence whereby their decisions are shaped by past experience. I just noted that profits from traditional bank operations are falling, but it’s a very gentle decline. As a result, you get some people who think only of their own business careers and avoid challenges, aiming to escape before the bank starts to sink.

So your emphasis on breaking the mold is an effort to change that traditional culture?

Exactly. To break free of that old mindset, we came up with the concept of “Empower Innovation,” which focuses on accelerating innovation, as the basis for a mechanism that encourages a positive risk-taking attitude, and we’re working to reform the culture of the whole Group.

More specifically, we are helping to get new businesses off the ground much faster by, for example, strengthening open innovation on a global basis, setting up a corporate venture capital program for direct investment in startups, and holding the CDIO meetings that I was talking about earlier. Efforts to reform our corporate culture include a program for producing new CEOs by selecting employees to head inhouse ventures regardless of their seniority, as well as an internal social networking service to encourage employees to propose ideas for new business.

If Dassai keeps on essentially selling itself, sooner or later Asahi Shuzo too will find itself with employees who aren’t particularly interested in trying anything new. I can see a time coming when we have to take the same kind of drastic measures that you’re talking about.

The story of Asahi Shuzo’s escape from a management crisis to achieve major growth has been widely reported in the media, attracting a lot of attention. Your sales soared in the last 10 years from JPY 3.9 billion in FY 2013 to JPY 16.5 billion in FY 2022—an increase of more than 10 billion yen. What has driven that growth?

Our determination to continue to grow and to make delicious Japanese sake. And just getting on with doing what needs doing.

They say that the greatest strength in business management actually lies not in the surprising or brilliant move, but rather in not relying on that plus-alpha element. You stopped employing a master brewer, with your employees instead using digital data to make your Dassai sake. How do you see the balance between traditional methods and digitalization and mechanization?

We quantify the brewing process to the greatest possible extent, and we also use machines for any process in which machines offer more stable quality than a manual approach. The aim is not just efficiency, but rather to visualize sake production so that knowledge is no longer exclusive just to master brewers and a few other technical staff, ensure stable quality, and increase reproducibility.

In fact, we have over 200 production staff, far more than other breweries—around four times as many as other breweries the same size. For example, for our Dassai 23 series, in which we sought to craft the ultimate junmai daiginjo sake, we polish away 77 percent of the original rice grain, using only the heart. When we wash the rice to restore the water content to its original value, we strictly control that water content to an accuracy of less than 0.3 percent. Because the water absorption rate cannot be controlled precisely by machine, we wash the rice by hand—which obviously requires considerable time and labor.

If we had insisted on using traditional techniques, Asahi Shuzo could never have grown this far. Neither, however, would that have been the case if we’d gone for full automation, because the machinery could not have kept pace with our rapid growth and our constant improvements and refinements.

Right. If you’d opted for full automation, you would probably have struggled to keep up with the capital investment needs to replace machinery. Combining data, machinery, and manpower sounds like it was the secret to your impressive growth.

Can I ask how the SMBC Group has responded to digitalization?

We started back in 2012 when we set up the IT/Internet Strategy Task Force and began creating a future vision of the financial industry so as to keep pace with the changing times. The financial world actually has a strong affinity with digital technologies, and we made smooth progress in utilizing digitalization to boost internal efficiency, which gradually led us to focus on supporting customers in their use of digital technologies.

The SMBC Group established the post of Chief Digital Innovation Officer (CDIO) in 2017. Our first CDIO was the current Group CEO Jun Ohta, and I’m the third. With technological advance gradually blurring the boundary between finance and non-finance, the SMBC Group too came to launch new businesses and services in non-financial areas.

These days, numerous non-financial digital subsidiaries are emerging within the SMBC Group, enabling us to support customers’ business in a whole range of areas. Examples include SMBC CLOUDSIGN, which offers electronic contract services enabling the whole contract process to be completed online, and PlariTown, which provides various digital services supporting the digitalization efforts of mid-tier companies and small and medium enterprises.

Digitalization and data utilization aren’t something you can just jump straight into. Asahi Shuzo too has taken a phased approach.

Dassai has a great reputation not only in Japan but also in the West and in Asia. It has tremendous brand value, with the kind of name recognition among Japanese sake brands that Rolex and Hermes enjoy. Where to next for Dassai?

We’re planning a new process in which a couple of our manufacturing staff make up a team and put their heads together on a premier Dassai. We will build a new brewery so as to create an environment in which our employees can have pride in their work as sake artisans. We will set up 10 to 13 teams and use their different creative outputs to increase Dassai’s added value still further.

Our company has grown as a brewery specializing in junmai daiginjo sake, but wine remains king both in Japan and overseas. For example, top Japanese restaurants and sushi restaurants in Tokyo and Kyoto are leaning increasingly toward wine. The problem is that Japanese sake is cheaper than wine and make them less money. The complete absence of a Japanese sake in the top price bracket is fatal in terms of competing with wine on the international stage. So what we need is not so much brewing technologies but rather added value arising not only from Japanese tradition and culture but also from the brewer’s pride, philosophy, and ingenuity.

I think Asahi Shuzo’s initiatives offer a lot of clues for Japanese companies looking to succeed overseas in an era when Japan’s declining population is causing the domestic market to shrink.

What’s the SMBC Group’s current digital strategy?

We aim to create economic value and social value. In particular, the key message in our new Medium-Term Management Plan which begins in 2023 is “Fulfilled Growth,” with the idea being to bolster our efforts to resolve the social issues of “Environment,” “DE&I/Human Rights,” “Poverty & Inequality,” “Declining Birthrate & Aging Population,” and “Japan’s Regrowth.”

While digital technologies are only one means, they have huge potential. The SMBC Group aspires to the concept of “Beyond & Connect,” using digital technologies’ power to transcend and connect beyond boundaries to work with a variety of partner companies and users to provide solutions that resolve social issues.

So you see corporate growth as coming from solving society’s problems. I do think it’s a critical task in terms of achieving sustained growth and overseas expansion.

On a side note, nine years ago, SMBC introduced a green otter called Midosuke as a mascot character. At the time, some people said that an otter was an inappropriate choice for a bank mascot because the uso part of kawauso, the Japanese word for otter, means “lie.” We managed to get the idea across the line by arguing that the famous Japanese sake Dassai too was named after the otter.

Now Midosuke has grown into a very popular character which features heavily in our commercials and in stickers used on the Japanese social media app Line. Given that background, it’s a real honor to be able to have this chat with you today and I have a Midosuke otter to present to you.

I’m delighted that we were able to help, and thank you for the gift. “Dassai” means scattering books and reference materials around when composing a poem, deriving from the way that otters lay out the fish they catch on the shore almost as if they are holding a festival to make offerings to the gods—possibly reminiscent of the way your customers look when they’re poring over a row of the SMBC Group’s product brochures!