By Burritt Sabin
Japan has the world’s highest vending machine density, with one machine for every 23 people, according to the Vending Machine Manufacturers Association. If ever there was an example of a saturated market, surely this is it.
Yet Brian Tannura, a Yankee entrepreneur in Japan, has carved out a niche. Growing by three to five vending machines a day, he has succeeded thanks to gumption, drive and a large dollop of Emersonian self-reliance. He would be the first to admit, serendipity has also played a part in his success of breaking into the vending machine nation.
His remarkable story begins in the 1990s at Gettysburg College, Pennsylvania, where the man from New Jersey wavered in choice of which major to take. He was attracted to Philosophy, but wondered how such a subject could serve him in business. A faculty adviser provided the rationale explaining that Philosophy would teach him to think critically and argue persuasively—skills he would need to succeed that a degree in business would not give him. Indeed the advice served him well.
Gettysburg had an extensive overseas exchange program. A majority of fellow undergrads was bound for Spain, and having studied Spanish extensively, this seemed the logical choice. Tannura, however, always had a penchant for the road less traveled. He chose Japan, because it was exotic and the program did not require knowledge of Japanese.
In 1994 he spent a first semester at Kansai Gaidai University in Osaka. After graduation from Gettysburg, he thought of returning to Japan. He had fond memories, and knew he could make a living by teaching English.
He returned to Osaka with ‘Nova’, the mammoth language company. He did not want to be a teacher, but he was confident he would always make his way in the world. The short work week gave him time to moonlight in entrepreneurial jobs. Then one day he stumbled upon a unique talking gumball machine in a US magazine. He did the arithmetic. In the States a gumball fetched 25 cents. In Japan most machines sold products for 100 yen or more. So, should the machine be only half as successful, it would still turn a profit.
The figures matched up. Still the purchase and shipment of the machine entailed a big risk, equivalent to two months’ salary, which, had to be paid by credit card. Yet he went ahead and bought the machine because he had more fun owning something that no one else did. He realized the novelty of it forestalled competition.
He investigated the voltage in the Osaka region and was assured it was 50 hertz. He successfully negotiated to have the machine placed in Festival Gate, an Osaka amusement park. He plugged it in. It didn’t work. Voltage in Osaka was 60 hertz! So the machine went into storage. In February 2000 he ran up more credit card debt and this time bought three 60-hertz machines, placing one in Festival Gate and two in Hankyu, one of Osaka’s largest department stores.
He organized standard agreements with stores in Japan, which entailed the gift of the machine in exchange for 20 to 30% of the sales revenue. His end of the bargain also included counting the money, paying for the product, and servicing the machine.
This illustrated his gumption. He was not particularly fond of fixing things, but he was fond of creating income. He was self-taught on how to fix the machines. The manual would say do A, B, and C, but if the machine didn’t work, he would think of and try D, E, and F. If it’s not working, there’s no money coming in.
Eventually he had gumball machines from Okinawa to Sendai. When a machine stopped working, he saved the expense and time of travel by giving instructions on maintenance over the phone. He was the eyes and they were the hands. His remote maintenance gave him knowledge of the machine and fluency in Japanese.
Serendipity: Meeting with flat vending
He still had one challenge—finding a home for the original gumball machine, the one that would hum at 50 hertz.
He used his winter break from ‘Nova’—he still needed to continue teaching to make his credit card payments—to search for a home in the 50-hertz land of Tokyo. He visited one store in Tokyo and was told that they didn’t deal directly with vendors but only through a company. He left the store but returned to leave a brochure along with a request they pass it to the company’s rep and to mention that he was looking to place a machine.
The next day Tannura got a phone call from Kazuhiko Yamabe, the President of the machine distributor. Not only had the store owner not thrown out the brochure, but, luckily, the very next day while Tannura was still in Tokyo, Yamabe had made one of his rare visits there.
They met for coffee. Yamabe was starting a new company called the ‘For Corporation’. He was exhibiting at a gift show at Tokyo Big Site. Yamabe thought the big American English-speaking gumball machine would attract visitors to his booth. Tannura agreed to let him display the machine for free in turn for sharing any customers it might attract. The 50-hertz machine had found a home and Tannura, a business partner and friend.
A few years into the relationship Yamabe told Tannura that he had five or six sticker machines collecting dust in storage. Ever the opportunist, Tannura wondered if he could put them to good use.
He researched on the Internet and discovered that the problem was merchandise. The stickers were generic, being skulls and crossbones or cool hip-hoppy girls, whereas (and which is still true now) the Japanese like recognizable brands, characters that are famous or cute. So he took this low-cost business chance to test the machine in a safe, limited way with quality content. Sales picked up. He realized that sticker vending, or flat vending, which had never been done in Japan in a big way, could work.
To make the machines more viable, he researched online different machine makers and product suppliers. He found a Canadian machine with six pockets (dispensing slots) as opposed to the two or four pockets of Yamabe’s machine. The additional pockets were crucial in Japan where space is limited.
He began importing the Canadian sticker machine, establishing his own route into Osaka. He used commi-ssioned sales people, whom he paid generous incentives to. He managed to get 40 or 50 machines placed this way. One of these sales people led to an introduction to Photo-Me Japan operated by Nippon Auto-Photo, a subsidiary of the UK-based company, with 5,000 I.D. photo booths nationwide, who were looking for machines to fit into its network. A meeting was set up. Photo-Me did a test run with 10 sticker machines. It snowballed.
With the rate of current growth he will have a network increasing by over 1,000 machines a year for the next four years.
He had been wholesaling to several companies, but in March 2006 entered into an agreement with Photo-Me whereby all the machines and products he imported he sold exclusively to them for the rest of the year. One term of this agreement being that they purchased 1,000 machines and their product for this period. He directed all of his old customers to buy from them. Behind his decision to reach an exclusive agreement was the manageability factor—he could not otherwise handle one thousand machines as a one-man operation. New machines are now going into operation at the rate of three to five a day.
The big transition
Tannura wants to move fast and establish a network of thousands of machines. He expects Photo-Me to purchase another 1,000 machines and he is also actively seeking new customers for 2007 and beyond. He is open to creative ideas from fresh partners to help him achieve his goal of making the machines ubiquitous throughout Japan. With the rate of current growth he will have a network increasing by over 1,000 machines a year for the next four years. So he is in full-swing acquiring licenses for new trendier merchandise.
He is now in a big transition creating and negotiating his own licenses for Japan. To this end he is establishing a new company named, appropriately, ‘Market Pioneer Japan’. A successful transition will ensure the longevity of the business. There are two reasons why this transition is important.
1. The flat vending sticker business has a history of about 30 years in the US. All the major characters have been produced for sticker vending machines. Tannura has been able to take ones of recent origin, and has even gone back and found remaining stocks of series that haven’t sold out. Basically, what he has done is to condense 20 or 30 years of history into a year or two.
2. What is popular in Japan changes with such a speed that he has nearly depleted historical merchandise. So now he is at the point where he successfully negotiates new merchandise, new licenses and new rights, to satisfy the Japanese market. The business will be very successful in the long term.
The challenge is to tap into the past 30 years of Japanese characters—a treasure trove encompassing manga, anime, TV, movies, games, icons, and so on. Flat vending of this nature hasn’t existed in Japan until now, so he can troll back through history and retrieve what has got a big hold on the mind space of Japanese young adults and young parents today. “Something like Dragon Ball, a favorite of parents and now a favorite of their kids, is the perfect storm for our business,” he says. “The parents want to buy the sticker, the kids want to buy it, and the parents want the kids to buy it.” His goal is to start creating merchandise according to a cycle that puts new content in machines every three to six months.
Licensing is also essential for keeping at bay copycat entrants to the market. As long as Tannura controls the rights to the stickers for flat vending, market entrants will have to buy content from him. For example, he is approaching Shueisha and TV Tokyo, holders of copyright to Naruto, the popular ninja delinquent, and is in the early stages of negotiating a license payment so that he has the exclusive rights to use Naruto content for flat vending stickers. This process will be repeated for all characters with potential as merchandise for the machines.
One challenge is to convince companies to view the flat-vending sticker as a distinct category. Companies have licensing programs including categories for figures and stationery and maybe sometimes sticker licenses, but not for flat-vending stickers—before Tannura the industry didn’t exist in Japan. He must help them see the flat-vending sticker in a different category because the pricing model and the business model are so very different. If he was forced to buy his stickers from wholesalers the pricing wouldn’t match. Wholesalers tend to sell their stickers for a higher price point than he does in the machines.
Global aggregator of content
Tannura sees his customer base, those people on the ground slotting coins into his machines, as a direct network to consumers that allows him to reach them in a much more direct manner compared to that, which is the case for people outside of Japan, who must go through layers of trading companies, distributors and consultants. He sees the network as a point of direct contact, whether it be as a billboard or a retail, one with a network effect that can be built onto as well for selling, advertising, marketing, and testing. This can be exploited for introducing new machines and new products into existing relationships. He is presently seeking to partner with companies for promotional campaigns using the blank side of the sticker.
Tannura is already looking beyond Japan. He envisions the aggregation of merchandise for flat vending for the entire world as a stepping stone to a substantial business, noting that many markets remain unexploited. Mean-while he is focusing on the greater location of machines and products with mass appeal in Asia.
Tannura began by purchasing merchandise off the shelf, going to an online store or getting on the phone and seeing what was available. He would then weigh what would sell in Japan, do a test run, and then make a bulk order to supply the machines.
He came to a crossroads and elected to become a merchandise provider for flat vending. The decision was never in doubt—he has always taken the road less traveled by, and indeed that has made all the difference. JI
Market Pioneer Japan
Minami-Aoyama First Bldg., 10F 7-8-1 Minami-Aoyama, Minato-ku