Rehabilitating Daiei - A Japanese Retailer in Trouble

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Case Details:

Case Code : BSTR161
Case Length : 15 Pages
Period : 1996 - 2005
Organization : Daiei Inc.
Pub Date : 2005
Teaching Note : Not Available
Countries : Japan
Industry : Retailing

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Heading For Rehabilitation Contd...

In this context, IRCJ expected the Marubeni-led consortium to be the most suitable, to promote its basic objectives as Marubeni had been the second-largest shareholder in Maruetsu Inc., a food supermarket chain in the Daiei group. As per IRCJ's revival plan, the consortium was also given one-third of the voting-rights shares of Daiei, out of which Advantage Partners had a 23.4 percent stake and Marubeni's stake was 10.9 percent. Another one-third of the voting rights were left for the ordinary shareholders in Daiei.

Marubeni's draft rehabilitation plan for Daiei included an investment of 60 billion yen; with 43.4 billion yen worth of shares to be bought by Advantage Partners and another 18.6 billion yen of shares to be bought by Marubeni.

Further, IRCJ and Marubeni planned to appoint a new president from outside the company and also other new executives for the rehabilitation work. Marubeni wanted to make the most of Daiei's existing workforce and their retailing expertise to turn the company around. Though IRCJ and Marubeni were optimistic that their revival plan would work, industry experts did not share their optimism.

Yuuki Sakurai, an analyst at Fukoku Mutual Life Insurance in Tokyo, said, "Marubeni will probably want to focus on Daiei's food operations, but food is not an area where you can easily raise prices. Marubeni is looking for a way to differentiate from other trading companies. I'm just worried that this may not be the best way."⁹

Background Note

On April 10, 1957, Isao Nakauchi started a discount drugstore in Osaka, Japan. Nakauchi was a Japanese soldier who had survived heavy fire while serving in the Philippines during World War II.

The first store was highly successful and this prompted Nakauchi to open more such stores in the Osaka area. Nakauchi later named the retail chain 'Daiei'. The company's motto was to provide "good products, cheaper and cheaper." By the late 1960s, Daiei had established itself as a leader in the retailing industry in Japan. It stayed focused on its philosophy of "for the customers" offering them products at low prices.

In 1964, Daiei expanded its operations in Tokyo and opened its first suburban store near Osaka in 1968. The company gradually expanded into other parts of Japan by acquiring established companies and starting new stores...

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9] "Advantage Partners' Daiei Win Would Be its Biggest Investment," www.bloomberg.com, March 04, 2005.