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EA-TOKYO SEMINAR SUMMARIES

"Tohato Revitalization "
Mr. Yoshihiro Joe Hemmi

December 2004

Tohato

Tohato Inc., a well-known Japanese confectionary manufacturer with brands including Caramel Corn, Harvest, All Raison, and Habanero, was the first "pre-packaged Chapter 11" restructuring company in Japan. Now, under the guidance of CEO & President Mr. Yoshihiro Hemmi, the company is in its second year of post-bankruptcy operation, earning 20 billion yen in sales, employs 500 staff and is looking at a much brighter future.

So how did the former investment write-off pull itself out of its financial quagmire and wrench itself back on track to be able to look at an IPO in 2006.

EA-Tokyo members were privileged to listen to Mr. Hemmi, a Harvard Business School MBA Graduate and former Vice President of adidas Japan, speak at the December 6 th , 2004 seminar as he detailed the implement of the Tohato revitalization plan.

Founded in 1950 by a former mayor of Otsuki City in Yamanashi Prefecture, the company's strong family ownership, a number of unwise investments and market collapse led to the businesses' eventual bankruptcy in March 2003.

Key issue is Deciding how to Restructure Ownership while Maintaining Business Continuity
The initial intent for Tohato's restructuring plan was to cut manufacturing costs while keeping revenue stable. In terms of products, Hemmi stated that approximately 60-70% of the company's revenues come from four confectionary brands which were introduced into the market in the 1970's.

Today, the company is striving to put their revitalization plan into three phases and are looking at three key functions ∁Ecorporate sales and marketing, manufacturing, and people.

“These programs were not all written at the start, EHemmi says. “They were added, revised, and manipulated as we went forward. Of course, when a company goes bankrupt, the key issue is deciding how to restructure the ownership while maintaining business continuity. These were the challenges we faced in May/June of 2003. Ebr>
On the sales and marketing side, ensuring continuity was easier than that for the manufacturing side and it involved communicating with customers and assuring them they would continue to be supplied with product. “Of course with the bankruptcy and the ensuing months of family feuding, it was not very easy for retailers to keep our products on their shelves, EHemmi admits. “So except for the four big brands, a lot of the smaller products were removed from retailers' shelves. Ebr>
The manufacturing side was a much more difficult beast to deal with since Tohato was dealing with creditors who had just been robbed of their accounts receivable by the former company and had to be convinced to continue supplying raw material and other goods to make sure the confectioner's factory kept operating.

Thanks to a special accounting arrangement with Marubeni trading company, Tohato was able to keep its factory running. But manufacturing faced other challenges. “One of the obstacles was that the confectionary business had been cash-starved and had received very little investment in the last five years, EHemi says. “So the first step we took was to strengthen the very basic structure including buildings and infrastructure and we basically tried to put money around that. Subsequently, the initial capex doesn't really tie directly to revenue generation but it was critically necessary to make sure the employees were motivated and loyal enough to stick with us and keep going forward. Ebr>
The final issue was people.

Restructuring new management occurred hand-in-hand with the task of encouraging those who remained to stay and persevere in their efforts to build a new Tohato. “Changing CEO and other people in the family was a critical element, EHemmi says. “but going down the managerial hierarchy, we needed to distinguish who could change and who couldn't change, and we are still undergoing that process now. Part of the problem revolves around the fact that you can't just tell someone who has worked for a family-owned business as a loyal employee for 20 years, to change A to B tomorrow. Ebr>
So where is Tohato now? The company is now entering the second phase of the revitalization plan and it's fortunes were given a substantial boost thanks to the Habanero snack introduced in November 2003. The spicy snack has provided the company with 2-3 billion yen revenue, significantly boosting staff motivation, morale and market credibility.

“What we tried to establish here was an improvement in market credibility, product marketing and innovation, and staff motivation, EHemmi explains. “That all happened when we had one hit product. Ebr>
The third phase, Hemmi says, is deciding how to make Tohato's future success a company capability rather than a one-time wonder. The most important factor, he says, is people. At 47, he is the oldest executive. “All the other executives are in their 30's and 40's and we are probably about 15-20 years younger on average that executives in the competition which should provide a very strong foundation for the company going forward, Ehe says. This success story, learning story and a lot of challenges is beginning to create a new culture for the company.

Football star Nakata snacking for Tohato's success
But besides working to rebuild the company's business and credibility, Tohato has a secret weapon, and an explosive one at that. Hidetoshi Nakata, the most well-known Japanese footballer, is Hemmi's subordinate. “Nakata is the Chief Branding Officer of Tohato, EHemmi explains. “He comes to meetings three times a year. He likes snacks, biscuits and cookies so we sent him samples to Italy and he often sends back comments, some of which we ignore and others which we take on board. It is interesting because we are possibly the only company who was willing to hire someone like Nakata as an officer, who is not simply a symbol and subsequently, he doesn't appear in television commercials for the company. Ebr>
Hiring Nakata provided significant benefits internally. “When we were trying to encourage people who had just gone through bankruptcy, it takes constant communication and hand-holding and understanding what they are thinking to make it happen, EHemmi says. “Hiring Nakata was a very simple mechanism which had a significant impact. A lot of our staff have never seen Nakata live and he would come and eat our snacks in our cafeteria and talk about our products which I think made them very proud of Tohato and the company. So this was very helpful, EHemmi says.

Tohato has been also implementing changes in manufacturing. “We have recently purchased a company called OJT Solutions, a joint venture between Toyota and Recruit, EHemmi explains. “They take the former Line Manager at the factory floor in Toyota and make them consultants. They would come to our factory and basically try to do a hands-on Toyota manufacturing innovation. We needed to use a lot of helping hands to improve our operations so we used OJT Solutions as a mechanism to first try to change the factory culture into more of a mutually beneficial environment. Before, the company would never invest money into factories, but now what we are saying is that while we are going to invest, we are also going to make staff accountable for making proper proposals about how to improve the company's operations. I think this is a very good way to enhance communication with staff. By having them learn expertise on how to improve the line, it helps to improve their morale and motivation. Ebr>
Product innovation has also been a key success factor. “Another change was that in the past, the CEO decided what was to be manufactured or developed, EHemmi says, “but now we have been giving staff freedom to come up with ideas which led to the creation of some of our new products. We encourage our people to think outside the box. E 

How does the company make an impact in the market? “Since we don't have so much money to run television commercials, we make an impact at retail and through PR, EHemmi says. “So a lot of our product designs would stand out in the stores. We also ran a PR campaign highlighting the advantages of Habanero as a product. Ebr>
Possibly the most critical point is people, EHemmi says. In any company he thinks the most critical element is understanding employees ∁Ewhat their needs and shortcomings are, and then thinking about how to support them to make them successful. “The toughest thing when dealing with Japanese is to get them to speak to you, to get them to tell you what they think is wrong with the company and what they think the company should do. My ultimate methodology is to speak with each employee one on one for 30 minutes. Ebr>
With around 500 staff, that was no easy task. Meeting with approximately 12 people a day, it took Hemmi about three months to meet everyone, from managers to floor cleaners.

“Many things came out from issues about the cafeteria menus, to missing bolts in production lines, Ehe says. “I responded to as many as possible as long as they were reasonable requests. EThis also led to a significant change in company culture. “We encourage staff to highlight whatever problems they think are occurring in the production line and we promise we will respond in two weeks. Sometimes our response rate is not quite that but the communication is happening. Ebr>
Now, Tohato is on track and aiming to go public in 2006.

Highlighting three important factors in leadership, Hemmi says goal-setting is crucial. “Managing returns for the three major shareholders to make sure that they are more or less in balance with what they want to do is very important. Ebr>
The next point of leadership is project design and management ∁Eand the key word is flexibility. “We regularly review whether the projects we are undertaking are still either viable or a priority, Ehe says.

Lastly, people. “First you need to be a communicator to get people to do things. EHemmi believes one of the challenges leaders face when communicating with staff is to understand whether they are ready, willing and able. At Tohato, he thinks people are ready and willing but not necessarily able ∁Eeither through lack of experience or capability, although he aims to change that soon.
www.tohato.jp/

Text: Jonathon Walsh

Jonathon Walsh is a professional Editor and Writer based in Tokyo, Japan, originally from New Zealand and currently working for Hiragana Times, J Select and Eye-Ai magazines, and a growing number of international groups in Tokyo. He has written & self-published four books and had over 170 articles published in nine different media in Japan.

Jonathon is Director of Business Grow , an innovative company specializing in providing a wide range of top quality Editorial and Advertising services to Japanese and foreign organizations.

For information about Corporate & Publicity Writing, Corporate Newsletters, Seminar Summaries, Translation and other valuable services, please contact: businessgrow@hotmail.com


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