Snow Brand Milk Products Company, Ltd. Business Information, Profile, and History

Company Perspectives:

Snow Brand has refocused on its original corporate mission of contributing to consumer health by providing superior milk and dairy products. For delicious, worry-free products, we are carrying out integrated quality assurance activities from raw materials procurement and production to distribution and sales. Our strategy includes establishing a product safety inspection department; thorough implementation of Hazard Analysis and Critical Control Point (HACCP) Management; enhancing plant inspection systems; reinforcing the quality assurance system for the Snow Brand group; and establishing a new food hygiene research facility and contribute research results to society.

History of Snow Brand Milk Products Company, Ltd.

Snow Brand Milk Products Company, Ltd. once operated as the largest--and most respected--dairy concern in Japan. During 2000, however, several of the company's milk related products were responsible for widespread instances of food poisoning among Japanese consumers. Just as the firm began to restructure and slowly recover from the incident, subsidiary Snow Brand Foods Co. was named in a beef labeling scandal. As a result, the company announced in 2002 that it would spin off all of its businesses and transfer its milk and dairy drink business to the National Federation of Agricultural Cooperatives Associations and trading firm Itochu Corp.

Early History: 1920s-50s

Vegetables, rice, and fish had been the traditional Japanese diet for centuries before the late 19th-century move to colonize Hokkaido, the northernmost of Japan's four main islands. Like the others, Hokkaido is bisected by a mountain range, with little flat, arable land. Unlike the rest of Japan, however, Hokkaido's climate is too cold to grow most vegetable crops or rice profitably. But its verdant slopes did offer ample pasture land. Hokkaido's pioneers brought dairy cattle with them and succeeded in producing a fine grade of milk. However, for decades the market was too limited for these farmers to do much more than supply their own needs from their herds and small gardens.

The winter of 1920 was particularly severe; storms damaged fodder and frigid weather diminished herds. To add to these troubles, the post-World War I recession reached Japan in the early 1920s. Hardships multiplied until the spring of 1925, when a group of Hokkaido's hard-hit dairy farmers formed a cooperative association and began to formulate a survival plan. On May 17, 1925, the Hokkaido Dairy Cooperative was formed with 629 members.

Torizo Kurosawa, the cooperative's managing director, had noticed the difference milk had made in the nutrition of the local farmers. He spearheaded what was then a daring plan: to produce two heretofore exclusively Western products--butter and cheese--and market them throughout the country. By July, butter was in production, and by October the butter-marketing program was in full swing. Due in part to the fact that the entire economy had improved and continued to flourish for most of the decade, the plan succeeded.

By the following September, sales were so brisk that a new factory was built in Sapporo, which later became the site of the company's registered office. The Snow Brand trademark was first used in December 1926.

Two years into butter production, the cooperative dared to introduce another Western product: ice cream. It, too, quickly achieved popularity. The cooperative finally got around to the production of cheese in 1933, and several varieties of the product were successfully introduced to the Japanese.

Representatives of the group studied dairy-farming methods in several countries and decided to use Danish dairy farming as a guide. They realized that to keep the cooperative's growing variety of milk products uniform in quality, basic milk production methods also had to be kept uniform. To ensure that all members used the same methods to produce top-quality milk, the cooperative established a training program for young farmers, the Hokkaido Dairy Farming School, in 1934.

By 1935, the cooperative's products had achieved popularity throughout Japan, and a new marketing effort was launched to export them. It began with a butter shipment to London in November and eventually proved successful for all products.

Japan's government, too, was pursuing expansionist policies. Having created a puppet state in Manchuria in 1931, Japan invaded China in 1937, alienating the Western democracies recently opened as markets by organizations such as the dairy cooperative. With foreign markets limited, the group turned its attention to expanding the variety of its products and established the Dairy Science Research Institute in 1937.

The Hokkaido Dairy Cooperative had started several new businesses in the next few years: meat processing, margarine production, leather goods, and the manufacture of special farming equipment. The group also went into the land improvement business. Even with the privations and losses of World War II, the group, which was reorganized in June 1941 as Hokkaido Rakuno Kosha Company, continued to expand.

In the wake of Japan's defeat in World War II, the size of the conglomerate was considered detrimental to the recovery of other Japanese businesses, and in 1948 legal steps were taken to prevent the formation of an economically overpowering cartel. A major reorganization took place, and Snow Brand Milk Products Company, Ltd. was established to succeed the cooperative in June 1950. Each of the entities that had formerly made up the conglomerate became an independent subsidiary.

Expansion: 1950s-80s

During the 1950s, Snow Brand established additional subsidiaries in Tokyo and Osaka to handle the fluid-milk business and took over the milk and milk-products business of local dairy cooperatives in several other locations. Another reorganization in 1958 rejoined Snow Brand with Clover Milk Products Company (formerly the Hokkaido Butter Company), from which it had separated in 1950. In 1966, Snow Brand's headquarters moved to a new building in Tokyo.

Snow Brand continued to expand, adding new products in the 1970s and 1980s--including frozen foods, seasonings, powdered milk for aquatic animals, and oat products--and establishing new subsidiaries to handle them. The company also began to enter into productive business relationships with other companies both in Japan and abroad. Snow Brand established a joint venture in 1972 with Murray Goulburn Snow in Australia and began to sell wine in 1974 under contract with companies in five European countries. In 1981, Snow Brand bought Chateau Grower Winery Company and started its own wine production. An additional facility, Snow Brand Belle Foret Winery, has been in operation since 1985. Through a tie-up with Stokely-Van Kamp, the company has been selling Gatorade, a popular sports drink, since 1980. A joint venture with the Pillsbury Company in 1981 resulted in the establishment of Snow Brand Pillsbury, Inc. in Japan. Snow Brand also has agreements with the Quaker Oats Company (U.S.), Melkunie-Holland (Netherlands), Molkerie-Zentrak Sud GmbH. (Germany), Valio-Finnish Co-operative Dairies' Association (Finland), and Industria Gelati Sammontana (Italy).

In 1983, Snow Brand established the Embryo Transplantation Laboratory, with facilities for cryogenic storage where bisected high-grade cattle embryos were transplanted and sex was determined through prenatal tests. Further steps to improve herds were made by veterinarians on the dairy farms, and advice on cattle breeding and milk production spread from Hokkaido to the northern portion of the neighboring island of Honshu. In addition, processing plants had become highly mechanized for quality control.

Biotechnology research concerned with gene control, cell fusion, and tissue culture was carried on in Snow Brand's Research Institute of Life Sciences, also established in 1983. Research helped to develop new foods, such as varieties of yogurt, as well as pharmaceutical products. A medicine for senile dementia was also under development during the 1980s in cooperation with an Israeli biochemical institute, and Snow Brand was also working on an anti-cancer drug. The pharmaceutical products planning department, started in 1981, examined technical studies in connection with analyses of market needs.

Snow Brand's health-food line expanded throughout the 1980s, responding to growing public concern with fitness and nutrition. The company's infant formulas and follow-up formulas, basic to the line, were popular not only throughout Japan but also in southeast Asia and the Middle East. In 1985, the company opened its Health and Nutrition Institute, which published dietary advice in a periodical called Health Digest.

The company's ongoing concern with nutrition and fitness was reflected in its encouragement and sponsorship of sports activities. In 1960, the first Snow Brand Cup All-Japan Ski-Jumping Competition was held, and this soon turned into an annual event. The Snow Brand ice hockey team was formed in 1979. A year later, the company opened an ice skating center. In 1983, the Snow Brand Field Athletic Cup was established. The company also began supporting the Snow Brand Cup National Invitational Little League Competition.

The 50th anniversary of the founding of the cooperative dairy group was celebrated with the opening of the Snow Brand Historical Museum in Sapporo. The innovative and expansionary policies of the company's early developers were adhered to just as consistently during the late 1980s. Biotechnology and computerization provided new directions for product development and quality control. Snow Brand's General Institute for Dairy Farming, founded in 1976, and its Cheese Research Laboratory, opened in 1979, were just two groups working to provide improvements to future cuisine options.

Challenges Lead to Disaster: 1990s and Beyond

Snow Brand continued as the largest dairy concern in Japan throughout the 1990s. However, because Japan had begun to allow imports into the country at this time, pressure was brought to bear on domestic firms. A 1992 Nikkei Weekly article commented on the changing policy, claiming that "Japanese firms are greatly concerned that their home market, long a well-protected environment, will be swamped with low-priced imports from agricultural producers. New Zealand, for example, could supply fresh milk at a cost only 20 percent that of domestic milk."

Given the changing business climate for the Japanese dairy industry, Snow Brand began to form partnerships and expand internationally to remain competitive. In 1990, the company teamed up with United States-based Hershey Foods Corp. in a deal that allowed Snow Brand to produce Hershey-branded chocolate milk and ice cream products. Snow Brand also formed a licensing partnership with Kataoka and Co., an importer of Twinings Imported Teas.

As part of its global expansion strategy, the company began to export powdered milk to the Soviet Union. Shipments were halted in 1991, however, due to lack of payment. Snow Brand then moved into the Australian market with the acquisition of cheese manufacturer Piam Pty. Ltd. and planned to set up a research laboratory in the Netherlands. The firm also expanded into Thailand. As the Asian economy began to falter into the late 1990s, Snow Brand responded by streamlining operations. High costs related to the weakening yen against the dollar forced the firm to post a slight drop in profits during 1997. Profits continued to fall into 1999 as the company experienced its fourth consecutive year of after-tax profit declines.

The 1990s proved to be a challenging period for Snow Brand, and the company faced even greater obstacles in the early years of the next century. Disaster struck in June 2000 when nearly 15,000 people became ill and one person died after consuming low fat milk or a yogurt drink produced by Snow Brand. The outbreak was one of the worst cases of food poisoning in Japan's history. Furthermore, it soon became apparent that company officials tried to cover up the firm's negligence.

Negative publicity besieged the company as news broke that the firm was slow to recall all of the products that were manufactured at the infected Osaka plant. It was then discovered that the firm did not shut down its plants for inspection until almost two weeks after the poisoning was reported. Before police could begin their investigation into the contamination, Snow Brand began a company-sponsored investigation, an action that went against industry guidelines. The company almost immediately fell victim to foul-play rumors, and Snow Brand workers came under suspicion for destroying evidence, specifically a mechanical part connecting to the contaminated production line valve. This valve, which had not been cleaned regularly, allowed bacteria to grow.

As a result of the food poisoning incident, Snow Brand's president resigned and several executives faced criminal charges. During 2000, Snow Brand posted losses for the first time since its public inception in 1950. With its brand image severely battered, Snow Brand announced a corporate restructuring effort designed to reorganize the company's culture, strengthen quality assurance, and return the business to profitability.

Huge losses continued in 2001, and the firm cut jobs and closed factories. Just as the company was beginning to regain some of its lost market share, it became involved in yet another scandal. In early 2002, subsidiary Snow Brand Foods Co. Ltd. intentionally mislabeled Australian beef as Japanese in order to receive government subsidies. The subsidiary was dissolved in April 2002, and the following month five company executives were arrested on fraud charges.

With consumer confidence at an all-time low, the company launched a restructuring scheme in which all of its business units would be spun off. Its main dairy business would in effect become a subsidiary of the National Federation of Agricultural Associations and trading firm Itochu Corp. By 2003, it was expected that the company would be operating at one-third its size during the 1990s. Despite the firm's restructuring efforts, many industry analysts believed that Snow Brand's image was damaged beyond repair. Indeed, the future of this once well-respected dairy concern appeared uncertain.

Principal Competitors: Meiji Dairies Corporation; Morinaga & Co. Ltd.; Nippon Meat Packers Inc.

Chronology

• Key Dates:
• 1925: The Hokkaido Dairy Cooperative is formed.
• 1926: The Snow Brand trademark is launched.
• 1933: Cheese is added to the coop's product line.
• 1941: The group is reorganized as Hokkaido Rakuno Company.
• 1950: Snow Brand Milk Products Company Limited is established.
• 1971: The firm expands into frozen foods.
• 1974: Snow Brand begins to sell wine.
• 1981: Chateau Grower Winery Company is acquired; the company begins its own wine production.
• 1985: Snow Brand opens the Health and Nutritional Institute.
• 1990: The firm partners with Hershey Foods Corp.
• 2000: Snow Brand products cause food poisoning in over 14,000 people in Japan.
• 2002: The company is involved in a beef labeling scandal; the subsidiary Snow Brand Foods Co. is dissolved as the firm undergoes a major restructuring.