TOKYO -- Germany's Metro AG will soon join a long list of foreign retail groups that have been forced to exit Japan.

It would be a mistake, however, to blame the failures on a clash of business cultures. Icons like McDonald's and Starbucks are able to thrive here. So the nagging question remains: what makes Japan's retail market so impenetrable?

Metro arrived in Japan roughly two decades ago to great fanfare. As an operator of wholesale stores, Metro is Germany's largest retail distributor and ranks among the top five globally.

The group boasts a lineup spanning more than 10,000 products, including fresh produce and kitchen equipment purchased by restaurants and other retailers. Metro believed it was well positioned for success and growth in Japan, which had entered its lengthy deflationary period.

Those hopes turned out to be unfounded. Metro announced last month that it will shut all Japanese operations by October.

"We engaged in various attempts to expand business, such as expedited rollouts of small urban locations and delivery operations, upgrades of private brands and direct food imports, and exploring potential acquisitions, but because the Japanese wholesale market is extremely segmented and highly competitive, we were unable to attain our desired results," Metro Cash & Carry Japan, the local arm, said in a release.

Metro understood the complexities of Japan's retail distribution structure. But Japan's wholesale sector has been on the ropes for years. Metro thought it could establish a major footprint in the market by providing convenient, one-stop shops for necessities sought by food professionals.

Yet Metro was unable to open up the labyrinth that is Japan's retail distributor landscape.

"Japan has a multitude of mom-and-pop establishments," said a major Japanese wholesaler. "Deliveries to individual locations have taken root, and nobody uses wholesalers that make you take time to come to their stores."

Wholesale companies face a harsh business environment marked especially by price reductions. But to manufacturers, wholesalers to date possess enormous power due to their credit management and their ability to deliver products all over the country.

For example, if a major beer producer wants to beef up its online sales operation, it must proceed at a scale that does not incur the wrath of wholesalers. In each sector such as restaurants and retail, the field for leading wholesalers is crowded. In an outlying city, a wholesaler is a big fish in a small pond.

Against that backdrop, it is nearly impossible to compete against established rivals through prices and services alone.

Carrefour had sought to make inroads into the Japanese market by bringing thrifty consumers to its side. (Photo by Naoki Matsuda)

It is a story that repeats itself for non-Japanese retailers. The British pharmacy operator Boots called it quits, as did French cosmetic seller Sephora. In the supermarket sector, British player Tesco pulled out along with its French peer Carrefour.

Aeon, the domestic retail leader that took over Carrefour's Japanese business, describes the French company this way in its corporate history: "Carrefour... sought to sell products matching the Japanese market at the lowest price anywhere, and it attempted to deal directly with manufacturers, which was not part of Japanese business practices at the time. Most of these producers distanced themselves from Carrefour, and only a few wholesalers accepted Carrefour's purchasing terms without changes."

Carrefour's strategy was to take Japan by storm by bringing thrifty consumers to its side. This idea was shared by Walmart, which wields its buying power to drive down purchasing costs from suppliers.

Walmart attempted to replicate that business model in Japan with its purchase of the Seiyu supermarket group, but the U.S. giant ended up selling a controlling stake to American private equity firm KKR and Japanese e-tailer Rakuten last year.

A major factor driving these withdrawals is that Western markets have larger retail oligopolies than Japan. With a more entrenched oligopoly, prices are easier to control.

Even the biggest retailers in Japan, Aeon and Seven & i Holdings, do not command market shares that grant them authority to set prices. On top of that, Japanese consumer tastes are highly diverse. In short, no retailer retains enough influence to seek direct transactions with manufacturers.

Furthermore, transaction terms are often determined by market shares at the regional level. Under these conditions, foreign-owned supermarkets, wholesalers and drugstores struggled to field product lineups favored by Japanese customers.

And without their low prices, non-Japanese retailers are unable to differentiate themselves from local competitors. Failure was all but inevitable.

McDonald's success in Japan is root in providing completely different lifestyle offerings and concepts.

On the other hand, foreign arrivals such as McDonald's and Starbucks are dominating Japan's restaurant industry. The reason is simple: these players came with completely different lifestyle offerings and concepts.

McDonald's concept can be exemplified by the words "fast, easy and cheap." Starbucks delivers a trendy, nonsmoking environment that is welcoming to women. Both chains also offer original products that cannot be made at home.

Foreign retailers and wholesalers do not furnish private brands or directly imported products that are a match for counterparts sold in Japan. But while Japanese retailers have successfully repelled the newcomers, the industry is still vulnerable.

Japanese retailers derive strength in their deep-rooted familiarity with the subtle demands of consumers and regional characteristics. That does not change the fact that the shrinking population has eroded the margin for growth.

Moreover, these retailers have focused heavily on adapting business practices for domestic consumers at the expense of improving competitiveness in the global market.

The growth of online retailers is also a threat. If e-commerce providers capture a broader share of consumers, brick-and-mortar retail distributors will face dismal growth potential. The industry may have weathered the first wave led by the likes of Metro and Walmart. But the battle remains ongoing against the second wave driven by Amazon.

Traditional retailers will be tested on whether they can boost their price competitiveness and tap their creative juices in service of product appeal. Another option is to offer an attractive lifestyle. In either case, retail managers would be wise not to rest easy in the dark labyrinth.