With more than a hundred million adult consumers, an increasing demand for imported products and westernizing dietary habits, Japan’s food and beverage market is attractive to foreign operators looking for new and exciting business opportunities.
But for as promising as it may seem, Japanese society is often perceived as playing by its own set of rules and the food and beverage market is no exception. From the unique business relationship mindset to the multi-layered distribution system, it can be difficult to apprehend from an external perspective. The good news is: it doesn’t have to be.
In this article, we will break down the main dynamics and actors making one of the world’s most exciting food and beverage markets. We will explore the main drivers shaping the distribution system, its organization and defining characteristics. Finally, we’ll offer useful analysis on some of the most notable players.
Japan’s food and beverage market supply highly relies on import
Two main features define Japan’s food and beverage market, fueling both its attractiveness and its complexity. Firstly, it is strongly dependent on food import and secondly, it is highly fragmented.
Vast, empty lands and fields are certainly not what comes to mind when picturing Japan's natural landscapes. Except for the less populated island of Hokkaido, scarcely available farmland has resulted in a limited agricultural sector and high input costs. This leads the country to resort to import in order to ensure its food supply security. In 2018, food import volumes represented 12% of total Japanese imports (compared to 7% for the United States) and a significant trade balance deficit for agricultural products of 54.4M USD.
In more recent years, imported foods in Japan have also benefited from an increasing local demand. Interest for western or “exotic” products has been continuously fueled by changing diet habits, growing appetite for healthyish ingredients not traditionally available in Japanese cuisine, as well as need for convenience and ready-to-eat foods in a busy, ageing society.
These trends have led to the rise of opportunities for foreign operators. But they might be hard to seize as another defining characteristic of the Japanese food and beverage market is its extreme fragmentation. Beyond cultural specificities and preferences, the exceptionally large number of on-trade and off-trade outlets in Japan, with only a few leading companies, creates an additional layer of complexity for newcomers and experienced players alike.
An extremely fragmented landscape of restaurants, bars and retail outlets
Nationwide, the number of on-trade outlets is estimated around 500,000 on-premise establishments (including restaurants, bars, karaoke). That’s about one for each 250 Japanese residents, the highest rate worldwide. Despite the existence of some major chains usually specializing in one type of specialized venue, such as Torikizoku for casual dining or Big Echo for karaoke, the vast majority of on-trade businesses remain independent.
Similarly, Japan’s food and beverage retail network is still overwhelmingly fragmented with an estimated 136,000 off-premise outlets, divided in several different types of channels, the most emblematic one being the konbini, Japan’s unique take on convenient stores. The konbini network is the main exception to the fragmentation rule. It strongly consolidated over the past few years, resulting in the dominance of three operators over a total of 57,000 stores nationwide: Seven-Eleven, Family Mart and Lawson.
Otherwise, retail channels remain dominated by smaller, non-consolidated chains, making estimating their exact number difficult. Supermarkets are dominants in the suburbs and smaller cities. But their number remains uncertain (estimates range from 8,000 to 20,000 outlets) and leading brands are still limited. The top 30 supermarkets chains only account for 30% of total sales nationwide, while regional, usually non-consolidated supermarkets, account for 65%.
Although talks of consolidation have been going on since the early 2000s, only a few attempts took place, most notably with leader AEON buying supermarket Daiei and drugstore chain Welcia. There has been no clear sign that the market was heading towards more acquisitions since.
Japan’s distribution channels tend to be multi-layered
Rather than dealing primarily with one or two leading companies making most of their business, market players have to interact with a complex ecosystem of manufacturers, importers, wholesalers, retailers, while relying on a strong network of contacts and personal relationships.
This entails that traditional equilibrium between manufacturers, importers and retailers, with leading buyers hoarding a considerable amount of negotiation power, does not apply in Japan the same way it does in other countries. For this reason, losing one of your buyers does not necessarily have the same devastating business impact it might have somewhere else on the globe.
The pivotal role of wholesalers
Fragmentation also consolidates the pivotal role of wholesalers, as working directly with manufacturers and retailers is made highly challenging. Wholesalers have historically been highly active in Japan. They were one of the most efficient ways to address markets in spread-out territories. Although some major players might undertake both verticals, they tend to be focusing on either F&B or on foodservice. If they can reach significant operational revenue (around 20B USD for players such as Mitsubishi Shokuhin, Nihon Access or Kokubu), their operating profit rarely exceeds 1% of net sales, due to high labor and logistic costs.
Smaller wholesalers complement the bigger ones by undertaking storing, delivering and invoicing on the local level, creating an additional intermediary level. Japan being a major market for alcoholic beverages, some wholesalers also specialize in alcohol, such as Kakuyasu or Minori, sometimes doubling as bar suppliers, providing bars and restaurants in alcohol.
Over recent years, wholesalers have tended to consolidate, with some unexpected alliances between food-focused wholesalers and bar suppliers, creating synergies between non-competing players. Despite their influence, wholesalers remain fairly conservative in the way they operate. Due to limited data exploitation and low digitalization rate, they are not leading the transformation of the distribution ecosystem. Expect traditional processes when it comes to operating systems, except when dealing with specific actors, among which AEON.
Japan’s food and beverage market major types of retailers
Here are some of the most notable players on the off-trade and on-trade sides to keep in mind for your Japan market entry.
Japanese supermarkets are resembling their western counterparts. They offer fairly similar product groups, although they tend to be relatively hard to find in larger cities but more frequent in suburbs and smaller urban areas. It cannot be stressed enough, Japan is a fragmented market when it comes to supermarkets and even Japanese distributors won’t always be able to name all existing players.
If one stands out it is AEON, Asia’s leading retailer, both far ahead in terms of revenue (7,757B JPY, about 71B USD, in 2019) and know-how, being the first major Japanese chain to invest in its private brand (Top Value). With more than 600 GMS nationwide, it is definitely a central partner to take into account when considering entering the Japanese market. Other major supermarket chains include Ito Yokado and Familymart UNY Holdings.
A subcategory of supermarkets are the high-end ones (koukyu supa), such as Seijo Ishii, Kaldi, Kinokuniya, which specialize in imported products, usually sold at a higher price point.
Although it might be possible to sell directly to the largest supermarkets, they will usually require large volumes and may have their own criteria for import and sales, which might vary depending on the supermarket.
On a more urban, upscale side, department stores (depato) are found in large cities and offer upper-market to luxurious goods and brands, in a curated setting.
They are the ideal for gift-shopping, due to the high quality counseling and packaging services, or for dining as department stores generally host a variety of restaurant options in their top levels. Major chains include Isetan, Seibu Sogo and Takashimaya.
Central to the Japanese urban landscape is the konbini, Japan’s convenience stores. Frequently visited by customers throughout the day (and night, as most are open 24h), they offer a range of everyday-life products, ready to eat meals and services such as ATM, usually in very cramped shops.
Konbini have consistently been among the most innovative players in the Japanese food and beverage market, leading in product development know-how, precisely instructing manufacturers on their needs (especially for ready to eat meals), developing data use to forecast demand and becoming experts in franchise management all across the country. As stated earlier, three main operators, Seven-Eleven, Family Mart and Lawson, dominate this 57,000 stores network.
Other physical retail outlets
Other physical retailers include liquor stores, drugstores (usually affiliated to bigger chains, such as Welcia acquired by AEON), home centers (mostly in rural areas), discounters such as the head-spinning Don Quijote and cash and carry operations such as Metro or Costco.
Besides traditional retailing outlets, e-commerce has been continuously growing in Japan and was estimated to account for 2.8% of the total GDP in 2016, with almost 80 million people making purchases online. Major platforms Rakuten, Amazon Japan, and Yahoo! Japan Shopping represents 50% of the country’s online sales and some retailers such as Ito-Yokado, Maruetsu and Daiei have opened online shops.
When it comes to F&B online sales, high quality items tend to lead demand but the trend might be evolving towards everyday grocery shopping soon, especially as AEON announced in late 2019 having partnered with leading U.K. online supermarket Ocado. The partnership aims at developing AEON’s online supermarket business with a goal of reaching 600B JPY (5.5B USD) in annual sales from online groceries by 2030, six times the current number.
Japan’s on-trade universe
In recent years, Japanese on-trade landscape has been benefiting from the boom of tourism and the rise of dining out, with Japanese consumers visiting restaurants, bars, karaoke several times a week, on both social and business occasions. As chains have been developing fast in most segments, traditional “mom and pop” restaurants are becoming less frequent.
Casual dining and izakaya (Japanese typical establishments offering drinks and food available in a relaxed, often smoky atmosphere) restaurants, have been restructuring. They shifted their focus on more specialized concept, especially French and Italian bistros, Asian food and good value for money yakitoris, such as Torikizoku or Torijiro. Offering an alternative to Japanese food, western dining and trendy cafes have been a long-lasting winning concept, especially those targeting families such as Barnibari or Diamond Dining. They can represent natural partners for foreign operators looking for outlets for their products.
Drink-led venues are also major components of the dining out Japanese experience, with chains leading the overall growth. The karaoke industry is dominated by Big Echo and Karaoke-kan, and the bar scene is seeing the development of cash-on pubs such as Hub with more than a hundred bars.
As these outlets’ sourcing methods largely depend on their size, ownership structure and business preferences, importers that manage to navigate this intricate network may be able to establish exclusive agreements and ensure a deep reach within Japan’s on-trade opportunities.
Now that you have taken a peek into Japan’s exciting food and beverage market, ready to take the leap?
Get in touch! GourmetPro is a company based in Japan dedicated to help the food and beverage industry grow internationally by offering end-to-end customizable market-entry solutions. Our experts combine more than 20 years of Japanese expertise and will be happy to discuss your approach to the Japanese market.