Japan Country Profile

Market Overview:

According to Euromonitor the Japanese economy will strengthen marginally in 2018. Both exports and tourist receipts benefit from a weaker currency. Higher corporate profits support business investment. But the effects of fiscal support are fading and the sluggish growth of private consumption is also a disappointment. A continued economic slowdown in China, one of Japan's major trading partners, is a drag on the economy. Real Gross Domestic Product (real GDP) will increase by less than 1% per year in the medium term.

  • The Japanese economy is improving at a modest pace - real GDP will grow by
  • 1.1% in 2018 after gains of 1.5% in 2017
  • At real prices, private final consumption rose by 0.9% in 2017 and it will increase by 1% in 2018 - Minimal growth in real wages curbs growth of household income
  • The minimum wage is so low that it affects only about 2 million workers and has little impact on consumption
  • Unemployment was 2.9% in 2017 and it will edge up to 3% in 2018 - Labor

    shortages are worsening but firms are frequently responding by improving working conditions rather than increasing pay

  • Non-regular employees make up 37% of the total while earning significantly lower wages

  • Labor and capacity shortages as well as a rise in corporate profits will still support employment and business investment.

Population ageing poses other problems. The rate of household savings is falling because retirees spend more of the wealth accumulated in the past. That trend will boost domestic consumption (long thought to be too low) but also make it difficult to sustain aggregate investment. Japan's workforce is presently contracting by almost 1% per year. In response, structural reforms are needed to bring more people (especially women) into employment.

The USDA Agricultural Trade Office or ATO in Osaka hereinafter referred to as “Post” reports that Japan is one of the most exciting markets in the world for U.S. exporters of food and agricultural products. The Japanese food market is valued at US$770 billion in 2016 with retail food and beverage sales of US$474.9 billion and food service sector of US$295.2 billion. The retail sector amounted to over 60% of the total food market in Japan. There are tremendous opportunities and rewards for U.S. exporters willing to follow the strict Japanese regulations and keep up with the latest trends in this market. For quality products that meet the demands of Japanese consumers, which can be produced and delivered competitively, from companies willing to thoroughly research both the differences in consumer tastes and government regulations, it is possible to build an attractive market position in Japan.

2017 U.S. exports of consumer ready foods totaled US$6.3 billion, an increase of 11% over 2016. Japan is the 3rd largest market for U.S. consumer food products after Canada and Mexico. Japan is also the 3rd largest U.S. export market for processed foods, totaling US$2.8 billion in 2017, up 12%. Top processed foods exported to Japan in 2017 included:

  • Processed vegetables and pulses
  • Prepared/preserved seafood
  • Food preparations
  • Non-alcoholic beverages
  • Processed/prepared dairy products
  • Prepared/preserved meats
  • Processed fruit
  • Distilled spirits and other alcoholic beverages
  • Beer and wine
  • Dog and cat food
  • Snack foods

Post reports that Japan’s market for high-value food and beverages continues to focus on functional, healthy and nutritious foods. While traditional menus and tastes still generally guide the average Japanese consumer’s consumption habits, Western and other Asian ethnic cuisines are increasingly influencing the market. Although there is a strong tendency to prefer domestically produced products over imported products, Japanese consumers also enjoy flavors and tastes from other countries. Anything perceived as providing benefits for health and beauty has a greater chance of becoming popular, particularly among women.

The Japanese market offers a number of benefits to U.S. exporters, but it is not without difficulties. U.S. Advantages include:

  • U.S. food cost/quality competitiveness
  • The wide variety of U.S. food products
  • Reliable supply of U.S. food products
  • Advanced U.S. food processing technology
  • Relatively low U.S. shipping costs
  • Science-based U.S. food safety procedures
  • Growing Japanese emulation of U.S. food trends
  • Japanese food processing industry seeking new ingredients
  • Changes in the Japanese distribution system - becoming more similar to that of the U.S.
  • Japan’s dependence on foreign food supply

Specific challenges for U.S. food exporters include:

  • Increasing safety concerns on food products among Japanese consumers, and frequent distrust of imports
  • Logistically Japan is a long distance away for both travel and shipping
  • Well documented consumer antipathy toward biotech foods and additives
  • Japanese preoccupation with quality and appearance
  • Consumers’ preference of domestically produced products
  • High costs of marketing in Japan
  • Complicated labeling laws
  • High duties on many products
  • Competition with other exporting countries - some with lower duties due to free trade agreements with Japan
  • Importers expectation of long-term involvement and commitment

Japan and Australia have a trade deal which lowers tariffs on imports of key products. Japan is also negotiating a pact with India and has on-going free-trade talks with Canada. Tokyo and the European Union (EU) have concluded a free trade agreement which is expected to take effect in 2019. The EU has agreed to a gradual phase out of all tariffs on cars imported from Japan. In turn, Europe's farmers will face far lower tariffs when exporting to Japan. Japan is also interested in joining the China-backed Regional Comprehensive Economic Partnership (RCEP) and is willing to relaunch the Trans-Pacific Partnership minus the US. The decision could be a huge boon to non- US food exporters.


Retail Sector:

According to Euromonitor, retail sales in the packaged food market in Japan had been estimated at US$174.4 billion in 2017. That represents growth of 5.1% and just over US$8.4 billion since 2013. Japan is now the 3rd largest package food market in the world after the U.S. and China, which passed Japan in 2012. By the year 2022, the retail sales in the packaged food market in Japan is expected to reach US$192.8 billion, growth of 8.7% or US$15.3 billion. High growth categories in the forecast include:

  • Breakfast cereals
  • Spreads
  • Ready meals
  • Soups
  • Edible oils
  • Confectionery
  • Ice cream and frozen desserts
  • Baby food
  • Dairy products
  • Sweet biscuits, snack bars and fruit snacks

Post reported that the total value of all retail food and beverage sales was US$474.9 billion dollars in 2016. In the Japanese retail industry, supermarkets (with floor space less than 1500 m2), which include specialty shops and local stores, still represent the bulk of the retail food market. Although most attention tends to be focused on the large retail brands such as AEON supermarkets, Ito Yokado supermarkets, Seven Eleven convenience stores, Lawson convenience stores, etc. Traditional, smaller supermarkets still play an important role in distribution.

Drug Stores are also increasing their food & beverage sales and are generally expanding their food & beverage product line. In suburbs and outside of the big cities drugstores have increased their presence; often in towns too small to have supermarkets or convenience stores. One interesting trend for the drug store category is their present strategy is to carry a larger product line of foods and beverages. The sector’s goal is to develop food and beverage sales to generate 50% of their entire revenue.

Ready to eat meals (REM) or take home food items represent a growth area that has helped supermarkets, convenience stores and all retail outlets to increase revenue. REM today includes sushi, pasta, sandwich, and Chinese. According to the Japan Ready-made Meal Association, total sales in 2016 were US$92 billion. That is nearly 19% of retail sales. One other segment to highlight is internet sales of food & beverage, which have become a significant avenue of distribution. Internet sales volumes are approaching F&B sales of Department Stores and Drug Stores. Food & beverage sales via internet were US$11.1 billion in 2014, US$10.8 billion in 2015 and grew again in 2016 to reach US$13.2 billion. In terms of the E-commerce market size in 2016, the category for foods, beverages, and alcohol had the highest sales.

Best Prospects:

Post reports there are recent trends of burgeoning growth for Private Brands, Healthy Foods, Ecofriendly or Energy saving foods (typically as frozen foods), market consolidation for greater efficiency, and new retail ideas to meet new demands. Energy efficient foods (frozen foods - bento dashi), ready meals and desserts have all seen a strong market growth. Healthy or Functional foods continue to be important.

The following list of products are considered to hold the “best” import prospects for 2016-2017, based on a number of criteria, including high sales volume, demonstrated growth, and U.S. competitiveness in the Japanese market:

  • Fresh fruits
  • Chilled/frozen beef cuts
  • Beef offal
  • Craft beer
  • Spirits
  • Hard cider

Food Service Sector:

Post reported that Japan’s hotel, restaurant and institutional food service industry (HRI) achieved record high sales of US$295.2 billion in 2016. Japan’s HRI market has experienced 5 consecutive years of growth. Growth in corporate earnings and increasing inbound tourism has contributed to the industry’s success in both 2016 and 2017. However, competition is intense and both Japanese consumers and foreign travelers demand high-quality food and beverages and unique eating experiences.

  • Due to growth in corporate earnings, company spending for dining-out continued to increase
  • On the other hand, personal spending for dining-out decreased from 2015
  • Meanwhile, a significant increase in the number of inbound tourists visiting Japan contributed to total sales growth of the HRI sector
  • Japan’s food service industry performance is closely tied to Gross Domestic Product (GDP) and reflects general economic conditions
  • Japan’s 2016 GDP grew due to the overall strength of major corporations and the Japanese government’s public investment program

The Japanese food service industry, broadly defined, has six major segments. In 2016, the largest sector was Restaurants (42.8 % of the market and valued at US$126.3 billion), followed by Drinking Establishments (15.6 % valued at US$46.1 billion), Institutional Food Service (10.5 % valued at US$30.9 billion), Hotels (8.7 % and valued at US$25.7 billion), and Transportation-related Food Service (0.8 % valued at US$2.4 billion).

A sixth category that has been growing in Japan is “Prepared Meals Sold at Retail Stores”. These foods are ready-to eat, Home Meal Replacement (HMR) type products (lunch boxes for consumption at the office are one example) such as food sold at lunch box (Obento) shops, convenience stores, supermarkets and department stores. They are considered by the Japan Food Service Association to fall within the Food Service Sector. The value of the “Prepared Meals sold at Retail Stores” sector in 2016 was US$63.8 billion, accounting for 21.6 % of the total Japanese food service industry. Sales in this market segment jumped 6 % from the previous year.

Additional factors affecting the food service industry in 2016 and 2017 were:

  • A relatively weaker yen, making imported food more expensive, but also boosting the number of inbound foreign tourists
  • Tourism was also bolstered by relaxation of tax-free shopping rules for tourists and an extension of the visa waiver program to several Southeast Asian countries
  • The weaker yen, combined with the consumption tax increase, resulted in higher prices for food, employment and utilities - As a result, food service operators had to raise prices on their menus in order to maintain profitability
  • Rising investments in preparation for the 2020 Tokyo Olympics
  • Redevelopment projects in the Tokyo metropolitan area to replace older buildings with newer ones are leading to newer, more sophisticated restaurants being introduced
  • These new restaurants are more likely to be part of a restaurant group or chain rather than an independent owner and also tend to target affluent young people, who are willing to pay for higher quality menu items
  • Streamlining by chain restaurants, hotels and food suppliers through mergers and acquisitions to reduce operating costs, and investments in human resource development in order to offer better and new types of services
  • A rise in the number of new restaurant and hotel outlets, which tend to offer both good value and high quality
  • The trend of the media and television programs showcasing individual restaurants, including everything from five-star restaurants to casual restaurants, in both metropolitan areas and rural regions
  • “Premium Friday” is a campaign to recommend ending work at 3:00 p.m. on every last Friday of each month, when salaries have normally just been paid
  • Japanese business organizations and the Japanese government support the campaign to encourage consumer spending
  • Some of the food service operators have responded by opening restaurants earlier on these Fridays according to campaign organizers

The Japanese food service sector has traditionally been very receptive to the use of imported food products. This is primarily because;

  • Imported food products are often less expensive than their domestic counterparts
  • The food service industry does not require unique packaging or labeling for food, unlike the retail industry
  • The food service sector often incorporates new food concepts from abroad in order to stand out, which makes it more receptive to importing new or unfamiliar items

The HRI industry is increasingly offering international cuisines, creating growing demand for imported agricultural products. The sophisticated Japanese consumer generally demands high quality food products, and U.S. suppliers are well positioned to compete in many product categories provided they are willing to adjust to market demands.

Food-Processing Sector:

The Japanese food processing industry produces a diverse array of foods from traditional Japanese foods such as tofu and natto to health foods for infants and the elderly. Japanese food producers have to maintain market share with traditional product lines and, at the same time, strive to develop creative products to keep their customer base from switching to other brands. As a result, Japanese food manufacturing is characterized by quite a bit of product turnover and new trends.

Japanese manufacture are always ready to change taste, texture or naming to catch the attention of the very fidgety and demanding customer base in order to keep their brand name in the eyes of their customers. According to trade statistics, the Japanese food processing industry produced US$216.1 billion in food and beverage products in 2016. Output is estimated to increase to US$217.9 billion in 2017. The leading companies are the traditional breweries who have expanded their portfolio to include foods, spirits, health foods, etc. Those companies have also become competitive throughout Asia, Europe and the United States.

Major food processors include Kirin Holdings, Asahi Group Holdings, Suntory Ltd., and Sapporo Holdings. Other major food processors arose from Japan’s dairy industry, such as Meiji Holdings, Morinaga Industry Co, Ltd. and Megmilk Snow Brand Co., Ltd. Companies such as Nippon Ham Foods. Ltd. (meats), Ajinomoto Co., Ltd. (food and amino acids), Yamazaki Baking Co., Ltd. (breads), Ito Ham Yonekyu Holdings (meats) are also in the top 15. Processed food products that are increasingly popular include yogurt, meat products, soup, and ramen. Popular beverage items include tea, vegetable juice, spirit, and energy drink. Frozen foods consumption has grown as well due to convenience and recent quality improvements. As more people seek one portion sizes or don’t have time to cook every meal, convenience is a keyword for product developers.

Post Advice:

  • Market entry takes time in Japan, especially for ingredients
  • Manufactures are usually searching for specific ingredients and aren’t going to disclose that information willingly
  • The difficulty for U.S. ingredients suppliers is building relations with potential manufactures so that when they need your products they will remember to seek you out
  • That is extremely difficult if you don’t have product and a representative in-country
  • Of course it is also essential to build relationships with importers so that you don’t have to scramble to find an importer when you need one

Best Product Prospects:

Post reports that Japanese food manufacturers seek quality ingredients and conveniently prepared semi-processed foods that can reduce costs. Specifically, indications are that there is good potential in the market for:

  • Pork
  • Surimi, Roe And Urchin
  • Processed Fruits And Vegetables
  • Soybean
  • Fruit
  • Tree Nuts
  • Wheat
  • Health and Functional Foods.

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