Japan Country Profile

Market Overview:

Euromonitor reports that the Japanese recovery and progress with reflation appears to have stalled. A strengthening Yen and weaknesses in the domestic economy cloud the outlook. Real Gross Domestic Product (real GDP) grew by 1% in 2016, the same as the 2017 forecast. Public spending and housing investment are to be the only forces driving the economy. An improving labor market and a fiscal stimulus launched in August could provide additional support. A stronger Yen and China’s faltering economy are severe constraints on exporters.  

Many of Japan’s businesses lack the ability to finance innovation, at a time when South Korea, Taiwan and China are establishing themselves as rivals in the high tech industries. Net flows of Foreign Direct Investment (FDI) have turned sharply negative in recent years. The emergence of China as a favored destination for FDI was a particularly important reason for the declining amount of capital going to Japan.

Population ageing poses other problems. The rate of household savings is low because retirees are spending more out of the wealth they accumulated in the past. That trend should boost domestic consumption (long thought to be too low) but it will also make it difficult to sustain aggregate investment without larger inflows of FDI. Japan’s workforce is presently contracting by almost 1% per year. In response, Tokyo plans to increase support for families with children to boost the fertility rate. Officials also appear to be moving gradually toward allowing a more permanent form of immigration but are hesitant to openly acknowledge it.

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 total Japanese food and drink market is valued at over US$575 billion. In 2016, the United States exported US$12.5 billion of agricultural and fishery products to 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. 

In 2016, the U.S. exported US$11 billion worth of agricultural products to Japan, which was only a slight decline of 1% from 2015 and it still ranked it 4th in the world. 2016 U.S. exports of consumer ready foods totaled US$5.7 billion, an increase of 2% over 2015. Japan is the 3rd largest market for U.S. consumer food products after Canada and Mexico. That amount also accounted for over half of the agricultural total. Japan is also the 3rd largest U.S. export market for processed foods, totaling US$2.5 billion in 2015, down 9% but 23% of the agricultural total. Top processed foods exported to Japan in 2016 included processed vegetables and pulses, prepared/preserved seafood, food preparations, non-alcoholic beverages, prepared/preserved meats, processed fruit, processed/prepared dairy products, and distilled spirits and other alcoholic beverages, dog and cat food and beer and wine.

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. 

Japanese consumers tend to be willing to accept higher prices in exchange for quality and convenience. At the same time, consumers also seek value and have many options to satisfy their food needs including restaurants, fast food, convenience stores and a variety of retailers. Major supermarket chains are coping with this demand for value by introducing their own private store brands, while many restaurant chains are reducing their prices or differentiating themselves with new menu offerings in order to stay competitive in the industry.

As the Japanese population is expected to decline due to a low birth rate, the Japanese food market may weaken in the future. Food retailers and food service operators are competing for consumers on a number of fronts, including price, convenience, variety, quality and safety. Some companies are seeking a way to survive in the industry through mergers and acquisitions or tie-ups with partners beyond their traditional business channels. However, as the market continues to change and as the population gets older and wealthier, the opportunities for high quality, high value foods that meet specific demands of the market are expected to increase.  

Specific challenges for U.S. food exporters include their increasing food safety concerns and demands for food production information among Japanese consumers. Logistically Japan is a long distance away for both travel and shipping. There is well documented consumer antipathy toward biotech foods and additives and the Japanese preoccupation with quality, as well as a consumers’ preference of domestically produced products.  There are high costs of marketing in Japan, as well as complicated labeling laws and high duties on many products. There is also increasing competition with Brazil, China, Australia and other food exporting countries. 

Post reports that China is the number one exporter of goods to Japan, and the United States is number two. U.S. products have the advantage of being viewed as safer than Chinese, but prices of U.S. products tend to be higher than some Asian neighbors due to both logistics and cost of production. Therefore, U.S. producers are better positioned to compete with other foreign suppliers by emphasizing their high quality. Australia is also a serious competitor and can compete on both quality and price, especially after they implemented an economic partnership agreement with Japan in January 2015 and stared receiving preferential tariffs on many agricultural products.

Retail Sector:

According to Euromonitor, retail sales in the packaged food market in Japan had been estimated at US$175.4 billion in 2016. That represents growth of 4.9% and just over US$8.2 billion since 2012. 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 2021, the retail sales in the packaged food market in Japan is expected to reach US$197.4 billion, growth of 9.3% or US$16.7 billion. High growth categories in the forecast include breakfast cereals, confectionery, sweet biscuits snack bars and fruit snacks, ready meals, ice cream and frozen desserts processed fruit and vegetables soup, savory snacks and baby food.   

Post reports that Japan’s food retail market generated about US$369.61 billion (¥45.31 trillion) in 2015, down 0.6% from the previous year. Although it is a huge market, it is highly fragmented. Unlike in North America and the European Union (EU), Japan’s retail food sector is characterized by a relatively high percentage of specialty/semi-specialty stores, including “mom-and-pop” stores and local grocery stores. Such small retailers, however, are gradually losing ground to large general merchandise stores (GMS), supermarkets (SM), and convenience stores (CVS). These three categories offer the best opportunities to U.S. food exporters, although they should face strong competition from both domestic manufacturers and third country suppliers.

Japan’s general merchandise stores (GMS), like supercenters in the United States, offer shoppers the convenience of one-stop shopping for groceries, perishables, clothing, household goods, furniture, and electrical goods. Food sales, which used to make up one third of the total sales at GMS’s, now make up half of the total sales or even more at some chains.  

GMS’s are operated by major national chains that have nationwide networks with hundreds of outlets and typically rely on centralized purchasing. GMS’s are generally receptive to foreign products, although they often demand product modification to suit market tastes and preferences. They often purchase foreign products via trading companies. Inventory risks, long lead times, and communication problems make GMS buyers hesitant to import products directly. However, as Japan’s retail market becomes more competitive, some GMS’s are opting for direct purchase and offer excellent opportunities to U.S. food exporters.

Supermarkets (SM) stores are smaller in size than GMS’s and are more specialized in food and household goods. On average, food items account for 70% or more of the total sales of these stores. Supermarkets are facing higher purchasing costs than GMSs. They are seeking ways to stay competitive through product/service differentiation, private brand development, and global sourcing. To gain economies of scale, regional supermarkets are forming alliances through joint merchandising companies with non-competing retailers. Thus, although individual retailers are not large enough to engage in direct offshore sourcing, through joint merchandising companies, they offer good opportunities to U.S. food exporters. These retailers carry imported products particularly as a means to differentiate themselves from other competing stores in their region.

Department store sales have been slowly declining in recent years due to increasing competition with other retailers. Food sales at department stores account for less than 5% of the total retail food sales. Nevertheless, department stores offer excellent opportunities for imported high-end food products and they are an under-exploited channel for U.S. exporters. Most department stores have extensive basement concessions (i.e., small, independently operated retail stands), otherwise known as ‘depachikas’. Some of these stands or outlets are operated by department stores themselves, offering an opportunity for U.S. exporters to launch pilot stores or to conduct marketing trials. Department stores provide a showcase for imported, novelty, and high-end products and thus can offer U.S. exporters of high-quality foods an excellent promotional opportunity.

Convenience stores (CVS) are an extremely important sales channel in Japan. They have limited floor space, about 100 m² on average, and typically stock about 3,000 products. Convenience stores derive their competitive advantage from high turnover and efficient supply chains. Thus, short lead-times and nationwide distribution are essential in dealing with major CVS operators. While this presents a significant challenge to many overseas companies, indirect business with CVS offers great potential. Global sourcing of ingredients and raw materials, especially for use in their ready-to-eat products (which is increasingly competing with the fast food sector), has become more popular. CVS operators not only work with consumer product manufacturers but also with trading firms and ingredient manufacturers. In order to differentiate themselves from their competitors, major CVS operators are constantly searching for novelty items and new concepts, which offer good opportunities to U.S. food exporters.

Euromonitor reports that convenience stores saw major upheavals in 2016, with the merger of third-ranked FamilyMart with fourth-ranked Circle K Sunkus' owner Uny.  This created the strong second-ranked player FamilyMart Uny, while also increasing competition within convenience stores. Convenience stores remain a dynamic channel within grocery retailers, due to strong demand from busy workers and elderly consumers with limited mobility. Players within convenience stores are meanwhile keen to capitalize on this growth and are thus investing heavily in the channel, with the level of competition intensifying.  

Convenience stores are notably competing strongly by offering attractive consumer foodservice options, particularly as fast food offers high potential profits. Many are thus expanding menus to include options such as fried chicken and steamed buns. With many outlets operated by franchisees, this however created an additional burden for these operators. Companies are thus focusing on ensuring operators are not overwhelmed by these changes. To reduce the burden on staff and operators, Lawson notably introduced digital devices at 20 stores on a trial basis in 2016, enabling staff to better manage a wide range of tasks and even optimize fast food preparation based on forecast demand.

The largest retail outlet is Aeon Co. Ltd.  In 2015, consumer activity toward daily necessities remained weak in response to the consumption tax hike and rising prices for goods, but AEON Co., Ltd. experienced a moderate recovery. The company took initiatives to establish a price advantage by holding low-price sales promotions for food as well as offering approximately 5,000 lower-priced items through Aeon’s private brand, TopValu.                                   

Euromonitor reports that AEON is the leading player in supermarkets, where it accounted for a steady 9% value share in 2016, and ranked fourth in overall grocery retailers with 4% value share. The company gained share marginally in overall grocery retailers in the year, benefiting from ongoing outlet volume expansion and a focus on smaller supermarkets in convenient locations. The company also benefited from increasing its focus on fresh and healthy food towards the end of the review period, thus responding to a strong health and wellness trend among Japan's ageing population. The company notably benefits from operating its own farms, enabling it to offer fruit and vegetables picked the same day in some stores.

The second largest retailer in terms of overall sales value is Ito-Yokado. Ito Yokado is part of the Seven & I group that is also successful with its convenience store business. The well-known U.S. brand retailers Costco and Walmart are also successful in Japan. Costco opened its first membership warehouse club in Japan in 1999. Today Costco operates 25 warehouses. Walmart purchased the Seiyu supermarket chain in 2005, and now Walmart Japan operates 341 retail stores in Japan, using the more familiar Seiyu name.

Due to Japan's shrinking population, grocery retailers are expected to see only marginal growth over the next five years, with less than 2% value growth at constant 2016 prices. This will however be marginally stronger in comparison to the growth seen during the last five years. A shift from consumer food service to home dining will continue to be a key driver of growth, as consumers’ lifestyles become more urbanized and busy and consumers view eating at home as a more convenient and affordable option.

Euromonitor adds that there will be a strong focus on unified branding in the forecast period, as players seek to build brand strength and awareness. FamilyMart Uny thus plans to switch its convenience stores brands Circle K and Sunkus to the Family Mart brand by the end of February 2019. FamilyMart would thus gain over 6,000 additional outlets and notably gain dominance in Chubu in central area of Japan. Following the strong success of 7-Eleven in the last couple of years, its main competitors are meanwhile likely to emulate this company's focus on exclusive suppliers. Lawson's suppliers' production facilities were 70% exclusively focused on supplying Lawson stores as of 2016. However, this company aims to further increase its work with suppliers in developing exclusive products, in order to gain a competitive advantage, and will push to increase this percentage in the forecast period.

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 and spirits and hard cider.  

Food Service Sector:

Euromonitor reports that consumer food service in Japan might experience the most dynamic years over the next couple of years with two large events affecting the economic outlook: the Trans-Pacific Partnership (TPP) and another VAT increase. Japanese consumers’ expectation for the TPP impact is quite big.  Consumers expect the TPP will bring the fast food prices down, especially in Asian fast food and burger fast food, as for Japan one of the highlights of the TPP is beef, which is planned to take a gradual tariff decrease.

However, as of yet not all countries have ratified the TPP, the U.S. has pulled out, and it is still unknown when exactly the agreement comes into effect. Moreover, even with the decreased tariff, the recent price increase of ingredients on the background of the yen depreciation encourages foodservice operators to be careful about menu price decreases. Euromonitor International does not take the TPP impact into account for the forecast period performance due to the uncertainty of when it will come into effect.There has been some discussion of the U.S. and Japan forming a bilateral trade agreement rather than participate in the multilateral agreements such as with TPP. 

After the last Value Added Tax (VAT) increase in 2014, the government has decided another VAT increase will be executed in April 2017, this time from 8% to 10%. Not only will consumers experience a five-percentage-point increase in four years, but the complexity of the new VAT objectives has also caused wider ripples in the consumer food service industry. For the next tax increase, the government announced it would keep the current VAT rate of 8% for daily essentials including fresh foods, packaged foods and takeaway from food service, and apply the new VAT rate of 10% for all other food service. Thus, when a consumer visits a fast food establishment, they will pay 10% tax if they eat in the store and 8% tax if they use takeaway.  Japanese consumers are expected to become even more selective about their spending on food.

Post reports that the Hotel, Restaurant and Institutional (HRI) sector was valued at ¥31.79 trillion (US$261 billion) in 2015, up 2.9 %, from 2014. HRI sales volumes showed strong growth due to increasing personal and business spending for dining out and a significant increase in the number of inbound tourists visiting Japan. Japan’s food service industry is closely tied Japan’s GDP and has reflected general economic conditions. Japan’s 2015 GDP grew due to the overall strength of major corporations. An uptick in salaries and the minimum wage generated increased disposable income.  

The food service sector has re-organized in the last 2 decades as many traditional “mom and pop” restaurants have gone out of business and have been replaced by new chain- style restaurants. According to the preliminary Census report for 2014, from 1991 to 2014, the total number of restaurant outlets decreased from 846 thousand to 619 thousand, down 26.7 %. At the same time, sales increased from ¥29.84 trillion to ¥31.78 trillion, up 6.5 %, indicating a streamlining in the industry. The need for streamlining was driven by the consumption tax increase; a rise in wages, which triggered price increases in the general economy; and increasing costs of imported food associated with the weakening yen. In addition, the decades-long deflationary mindset of consumers has maintained a continuous pressure to reduce menu prices.

According to a most recent industry report, total sales volumes in the sector registered record high growth even after the increase in food costs. Starting in September 2015, the sector saw an upturn in sales volumes (and in the average menu price per customer, up 4.2%) due to the increase of consumer spending for eating-out and the number of foreign tourists, although some adverse weather in November 2015 negatively impacted sales. The Japan HRI industry expects sales growth to continue until at least the Tokyo Olympic Games in 2020.

The Japanese food service industry, broadly defined, has six major segments. In 2015, the largest sector was Restaurants (42.5 % of the market and valued at US$110.6 billion), followed by Drinking Establishments (16.2 % valued at US$42.3 billion), Institutional Food Service (10.7% valued at US$27.8 billion), Hotels (9% and valued at US$23.5 billion), and Transportation related Food Service (0.8 % valued at US$2.2 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 2015 was US$54.1 billion, accounting for 20.8% of the total Japanese food service industry. Sales in this market segment jumped 5.7% from the previous year.

The growth in HMR was driven by two demographic sectors: young single professionals and the elderly. Japan’s population is aging faster than any in the world, and elderly do not always have the ability to drive or travel far to shop for groceries. As a result, many get their daily meals from the local “conbini,” or convenience stores, such as 7-11, or the newly merged Lawson and Family Mart. Also, young professionals living alone or with roommates often don’t cook and eat primarily outside the home. Every segment reached record high sales in 2015, driven by both the increase of per capita dining out expenditure due to favorable corporate earnings and the previously-mentioned record increase in the number of international travelers to Japan.

From 2014 to 2015, the overall sales volume of the restaurant sector increased by 2.1% and the sales volume of the hotel sector, both western style and Japanese style, increased their overall sales volume by 4.6%. These statistics reflect strong sales in business among fine dining restaurants. The sales of restaurants in the transportation sector showed an increase of 2.4%. The sales of the drinking establishment sector also increased 1.9% over 2014. Sales in the institutional sector slightly increased from 1.2% in 2014 to 1.3% in 2015.

Euromonitor reports that Harajuku and Shibuya, the heart of Tokyo’s fashion culture, has also become an area for trendy gourmet. A number of large foreign manufacturers opened their first branches in Japan in Harajuku over the review period, including Taco Bell, Sulbing, Franze & Evans London and Lola’s Cupcakes. It is expected that these new outlets will draw significant attention from consumers through the media and social networking sites, and could influence menus in other outlets.

While the Harajuku and Shibuya area in Tokyo is expected to remain a center of creating foodservice trends over the forecast period, other areas of Tokyo, including Shinjuku, Roppongi and Tranomon, are also expected to be popular destinations for trendy food service outlets to open. Over the review period Shinjuku invited a number of new food service outlets to Japan, including The Pie Hole Los Angeles and 800 Degrees Neapolitan Pizzeria. The Roppongi and Tranomon areas are expected to see a number of new outlets as large commercial buildings are planned to open over the next few years.

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:

Post reports that the value of the Japanese food processing industry was estimated at ¥23.2 trillion in 2015, down 0.3% from 2014. However, the market is relatively stable and provides many opportunities and rewards for U.S. food and agricultural product exporters. In 2015, sales of alcoholic beverages, wheat flour, confectionery products, dairy product, fats, oils, tea, coffee, cocoa, processed meats, frozen foods and retort products increased. The most significant increase was in health foods, which reflects the Japanese interest in healthy lifestyles and the demands of the aging society. On the other hand, the categories of soft drinks, juices, and water; other marine products; sugars; fish paste and canned and bottled foods were slightly down in 2015. There was no major change in the overall sales value, thus showing the stability of the food processing industry.

The Japanese food processing industry is dominated by 15 major companies that accounted for 61% of sales in 2015. Kirin Holdings Co., Ltd continued to be the largest company in the food processing industry. Key market drivers for the food processing sector in Japan frequently change, however, some recent ones include: A deflationary economic environment, causing processors to seek out lower-cost food inputs and international processing options to maintain competitive prices; a weaker Japanese yen had been causing a slowdown in imports; continued diversification of the Japanese diet; personalization and individualization of food and food marketing; increasing emphasis on convenience, ready-to-eat foods due to changes in the Japanese family structure; heightened consumer and retailer food safety concerns; decreasing consumer demand for some products due to the aging population and lower fertility rate; and increasing interest in health and functional foods with an emphasis on the needs of the growing senior population.

The U.S. is one of the largest exporters and suppliers of agricultural products to the Japanese market, representing 10.3% of Japanese agricultural imports in 2015. In addition to the U.S. being a large food exporter to Japan, Japanese consumers are familiar with common U.S. ingredients such as meats, dried fruits, nuts, etc. Products from the U.S. are also recognized for their high quality, trendiness, and health benefits. The U.S. supplies many important components of Japanese food. For example, about 70% of soybeans are imported into Japan from the United States. Soybeans are a staple of Japanese food culture and are used for tofu, miso, natto, soy milk, soy sauce, and many other common items. However China enjoys a geographical advantage, which affects prices and its ability to ship fresh products.

Best Product Prospects:

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, and health and functional foods.


View Calendar

Natural & Organic Products Europe
April 22-23, 2018
London, United Kingdom

June 12-14, 2018
Nuremberg, Germany

EXPHORE - Expo Hoteles y Restaurantes
June 23-14, 2018
Belen, Costa Rica

June 27-30, 2018
Taipei, Taiwan

View Calendar

Export Intelligence Video Series - Japan

See more videos