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Japan Food and Drink Report Q3 2009
Business Monitor International, July 2009, Pages: 84
Japan Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Japan's food and drink industry.
Looking at recent events in Japan’s mass grocery retail (MGR) sector, it is clear just how much of an impact the country’s economic downturn is having on the industry. As discussed in the recently published Japan Food and Drink Report for Q309, Japan will experience its worst recession since World War II in 2009, with real GDP shrinking by 6.1%, according to our downwardly revised forecast. This will make Japan one of the worst-performing major economies in the world, and is having a major negative impact on consumer confidence, as consumers look for ways to cut back on daily expenditure. The deteriorating economic outlook for major trading partners, coupled with a downturn in China and exacerbated by yen strength, have dealt a severe blow to Japanese exports. Weak domestic demand, as consumer confidence slumps to its lowest level since records began in 1982, has meant no domestic respite for the economy and retailers have had to drastically rethink their operating strategies in an effort to retain even moderate growth levels.
The main beneficiary of these developments has been the country’s discount sector. While we are forecasting an overall contraction in the MGR sector, sales through discount stores are forecast to grow by 21.2% between 2008 and 2013. Even though Japanese consumers have long been price conscious, they have also long disregarded the discount model, perceiving it as cheap, rather than as good value. However, this attitude appears to be changing, and recognizing this, many leading retailers have shifted their focus over to the discount store model.
In March leading MGR operator Seven & I Holdings confirmed the early success of its The Price discount banner, indicating that it will be committing more resources to this format in the short term. As consumer confidence has plummeted and demand for low price groceries soared, Seven & I has been forced to suspend organic growth plans, instead converting existing Ito-Yokado supermarkets into discount stores, with plans to convert 20 Ito-Yokado stores to its The Price banner. However, with sales at the first two converted stores climbing 50% in February on the back of the lower priced offerings (goods are on average priced 10-30% cheaper), it may yet ramp up its efforts in this area. Convenience rival Lawson Inc has also detailed its own plans for achieving success in this currently popular format. Lawson has taken pre-emptive steps to appeal to lower income groups, via single-priced subsidiaries Value Lawson and Ninety-nine Plus.
This trend represents a sharp reversal from the days when high price, cutting edge innovation was used as a tool for enticing customers. An ageing population and stagnant wage growth have long contributed to the woes of Japan’s supermarket sector. Having taken so long to be swayed by the merits of discounting, consumers are unlikely to completely turn their back on it as soon as confidence improves and as such retailer margins will remain under as much pressure as ever.
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