Market Information
Asia Pacific

The Retail Food Market in the
Kansai Region of Japan

1) ISSUE

Chain store operators in Japan are currently facing huge changes in their business environment. Foreign supermarket giants such as Carrefour, Costco, Wal-Mart, and Tesco have entered the Japanese market, and food distribution channels are changing rapidly. Some regional chain stores are going to extraordinary lengths to differentiate themselves from the competition. In particular, they are looking to directly source imported processed foods.

2) DESCRIPTION

Today, Canada is the fourth largest exporter of food products to the Kansai region with an import market share of 5.9 percent. Canada's share in total Japanese food imports was 4.52% in 2003.

Canadian food exports to Japan have met with varying degrees of success. For example, Canada's processed wheat products hold the third position in Japan's processed wheat products market; its alcoholic beverages hold eighth position overall; and coffee and tea products hold a distant 48th position.

In the late 1980s, there was a boom of direct food importation by Japanese supermarket chain operators. One reason was the high value of the Japanese yen (at the time the yen hit a record of less than 70 yen against the US dollar). Behind this boom was a need by supermarkets to source food products at a lower cost. However, supermarkets faced problems such as inventory control when importing food directly, and, consequently, many of them withdrew from direct import operations.

Recently, many retail chain stores in Japan have either begun practicing, or are considering practicing, direct importing from foreign food producers due to a number of contributing factors. These include: the market entry of foreign chain store operators, changes to distribution channels, an increase in consumer knowledge of imported foods, a desire to raise the profile of their specialty chains in comparison with the competition, and the substantial buying power of Japanese consumers.

Market entry by foreign operators

Recent market infiltration by foreign companies has facilitated common customer access to imported processed foods. Costco opened its first store in Fukuoka in 1999. Prior to that, there were almost no foreign supermarket chains in Japan.

In 2000, the French supermarket Carrefour opened its first Japan store in a suburb city of Metropolitan Tokyo. Costco Wholesale Club opened its second Japan store that same year, right next door to this Carrefour. Carrefour currently has seven stores in Japan, four of which are in the Kansai region, and Costco has four stores, one of which is also located in the Kansai region.

In July 2003, it was reported that the United Kingdom supermarket giant Tesco PLC had launched a tender offer to purchase shares of C Two-Network Co. In April 2004, Tesco decided to purchase FLEC supermarket chain in Chiba. Tesco will combine the business of C Two-Network Co and FLEC. Furthermore, the world's largest retail store chain, U.S. based Wal-Mart, has entered the Japanese market by becoming a major share holder of Seiyu Co., Ltd (Japan's third largest supermarket chain with 32 Seiyu stores in the Kansai) and by introducing Wal-Mart's world famous supply system to Japan. Some of the existing Seiyu Stores have already shifted to Wal-Mart's operating procedures, with the rest to follow.

Because of this recent entry by foreign competitors, Japanese retailers need to become more competitive and attractive to general consumers.

Large Japanese chain operators such as AEON (Jusco) and Ito Yokado compete directly with these foreign giants. AEON, Asia's second largest retailing group, is aggressively acquiring regional supermarkets to form a larger supermarket group. It bailed out Mycal for example, which went into receivership in September 2001 with an outstanding debt of $ 20.9 billion. Mycal's failure was the largest ever corporate bond default in Japan. On October 1, 2003, Mycal became a full-fledged subsidiary of AEON. As a result, AEON became the largest retail chain operator in Japan, with 77 stores in the Kansai region alone.

Regional chain store operators want to, and must, differentiate themselves from these giant retailers. Some are focusing on fresh food sales such as meat, seafood, and vegetables to establish close ties with the local community. Others are trying to increase the stature of their store brand by carrying a wide variety of imported processed food B in many cases through direct import operations. It is these companies that provide an excellent opportunity for Canadian suppliers.

Changes in the distribution system:

Although not widely reported by the general media, the most active restructuring in the Japanese food industry is now happening in the food wholesale sector.

Food wholesalers still play an important role in the Japanese food distribution channel. Although a few big Japanese supermarket chains such as AEON (Jusco) are trying to introduce direct buying operations with domestic food manufacturers, most Japanese retail food chain store operators still rely on the information and logistical network of wholesalers for product sourcing. This might be the most significant difference in the food distribution channel between Japan and North America, including Canada.

Historically speaking, the Japanese food wholesale sector is divided by product category. Most of the large nation-wide food wholesalers in Japan started as processed food wholesalers. However, to serve their customers more efficiently, wholesalers are in the process of expanding through mergers, acquisitions, and strategic alliances to include items other than the usual processed foods, such as liquor, and frozen and chilled foods. On the other hand, smaller wholesalers are not able to survive alone due to changes in the business environment such as the deregulation of liquor sales.

In 2000, the seventh largest wholesaler Sanyu Co., Ltd and the ninth largest wholesaler Koami Co., Ltd merged into Sanyu-Koami Co., Ltd to become the fifth largest food wholesaler in Japan. As of April 1, 2004, Sanyu-Koami Co. Ltd changed their company name to Mitsui Foods Co., Ltd. as Mitsui Co., Ltd, the second largest general trader in Japan, is the largest share holder of this company. In March 2003, Kokubu Corporation, Japan's largest food wholesaler, gained 43.1 percent of Tokyo's Hiroya Co., Ltd shares. Hiroya is a well established liquor wholesaler dating back more than 287 years. A few months later, in September 2003, Saihara Co., Ltd, one of the leading food wholesalers in Osaka for the last 80 years, was taken over by Japan's second largest wholesaler, Ryoshoku Co., Ltd. As a result, Saihara became a complete subsidiary of Ryoshoku.

Following these trends in the Japanese wholesaling industry, large wholesalers are growing in size, and the total number of wholesalers is shrinking rapidly. According to the most radical forecasts from industry insiders, only seven nation-wide wholesalers in Japan will survive the decade.

As the number of wholesalers shrinks, there will be fewer sources of product purchasing for Japanese retailers. In a situation in which more than 1,000 retail chain operators rely on less than 10 wholesalers for product sourcing, it will be extremely difficult for stores to differentiate themselves by their products alone. Thus, importing directly from foreign food manufacturers and suppliers is looking more and more attractive to regional chains.

An increase in consumer knowledge

In today's Internet age, general consumers, particularly Ainnovative@ consumers, have an excellent tool with which to look for nutritional, diet, and food information. In addition, Japanese consumers have a deep knowledge of imported food products. They not only gain information through the Internet, but also are frequent overseas travelers. These types of consumers often ask for their favourite imported products at regional retail stores.

Raise the profile of stores

Generally speaking, there is a wide variety of imported processed foods on store shelves in high-end Japanese supermarkets or department stores. Some famous food brands, such as Walkers Shortbread, enjoy high brand recognition even among general consumers. For store operators that decide to compete with national chain stores, carrying a wide variety of quality imported processed foods is a must. It is possible to source these products from existing importers or wholesalers in Japan, but direct importing from foreign suppliers helps chains to carry and market their own uniquely chosen products.

Buying power of Japanese consumers

Japanese consumers equate price with quality, and are often sceptical of cheap, large-volume products. At the same time, people are cutting back on spending and are becoming increasingly price-sensitive. Discount stores and one-coin shops (100 Yen Shops) are gaining in popularity. Japanese consumers are price-sensitive when buying daily commodities, yet tend to spend more freely on premium or brand-name products. Quality, not quantity, (as many foreign firms such as Wal-Mart quickly discovered) is one extremely critical aspect of Japanese consumerism and marketing. Quality applies equally and strictly to food and beverage products. If a product has excellent quality, is nicely packaged, and of course tastes good, people are not reluctant to pay a premium.

In FY2002, the average Japanese household spent nearly $10,000 on food products. Almost half of this amount, $4,907, was spent on processed food products alone. Interestingly, $790 was spent on sweets such as cakes and candies. The average household also spent around $2,183 eating out in 2002, or approximately $182/month. Non-alcoholic beverage products and alcoholic drink expenditures accounted for around $500/year respectively. Clearly, Japanese consumers are willing to commit a large portion of their income towards quality food and beverage products.

3) IMPACT ON CANADIAN COMPANIES

Despite some recent moves towards simplification, the Japanese food distribution system remains complex and multi-layered. Canadian food exporters who have good products for the Japanese retail market will find market entry easier through retail chain stores that are importing directly.

All chain stores that import directly, without exception, have concerns regarding the volume of purchasing lots. When placing an order with foreign exporters for example, sometimes the order volume does not meet the minimum order of the exporters. Chain store operators have indicated that this is particularly the case when dealing with exporters in the United States, rather than Europe or Asia. The minimum order set by U.S. exporters is usually too large for medium-sized retail store chains, which prefer small lot orders repeated on a regular basis in order to reduce the concern of dead stock. Competitive Canadian exporters who are flexible in this respect will find great opportunity in Japan's processed food retail market.

4) CONTACTS

Canadian Consulate General in Osaka
2-2-3 Nishi Shinsaibashi
Chuo-ku, Osaka 542-0086 Japan
Toshihisa Seki,Trade Commissioner
Tel.: 81-6-6212-4910
Fax: 81-6-6212-4914
E-mail: toshihisa.seki@dfait-maeci.gc.ca 

Agriculture and Agri-Food Canada
International Markets Bureau
930 Carling Ave., 10th Floor
Ottawa, ON K1A 0C5
Contact: Amit Dutt, International Market Development Officer
Tel.: (613) 759-7523
Fax: (613) 759-7506
E-mail: dutta@agr.gc.ca
Internet: http://ats.agr.ca

International Trade Canada (ITCan)
125 Sussex Dr.
Ottawa, ON K1A 0G2
Internet: http://www.dfait-maeci.gc.ca

Market Research Centre (TMR)
Contact: Sean McLean, Senior International Market Analyst
Tel.: (613) 996-0688
Fax: (613) 943-1103
E-mail: sean.mclean@dfait-maeci.gc.ca

Market Support Division (TMM)
Contact: Clément Côte, Trade Commissioner
Tel.: (613) 995-1773
Fax: (613) 943-1103
E-mail: clement.cote@dfait-maeci.gc.ca

5) FOR FURTHER MARKET INFORMATION

The Virtiual Trade Commissioner (VTC) is an on-line service offered by Canada's Trade Commissioner Service of the International Trade Canada. Through a personalized and password-protected web page, VTC registered Canadian exporters will receive timely and relevant information on contacts and business opportunities in targeted foreign markets. The VTC offers registered users direct on-line access to market information, including market reports, business news, events and business leads related to the companies' industry sectors and markets of interest. Users can request services on line from a trade commissioner responsible for the industry sector in their target markets. They will also automatically receive new information as it becomes available. Canadian exporters can register for a Virtual Trade Commissioner at www.infoexport.gc.ca

6) BIBLIOGRAPHY

Department of Foreign Affairs and International Trade. "Agri-Food Sector Profile - The Kansai Region of Japan," April 2004. Downloaded from http://infoexport.gc.ca/ie-en/DisplayDocument.jsp?did'42403 on May 14, 2004.

Far Eastern Economic Review. "Store Wars: Wal-Mart Takes on Japan," September 25, 2003.

Japan Chain Store Association. "Tsujo Kaiin Meibo," March 19, 2004. Downloaded from http://www.jcsa.gr.jp/index_1.htm on July 11, 2003.

The Japan External Trade Organization (JETRO). "Agro Trade Handbook 2002," November 30, 2003.

Japanese Supermarket Operators. "Supermarkets Links," July 2003. Downloaded from http://www.jp-super.com/ on July 12, 2003.

Nihon Shokuryo Shimbunsha. "Shokuhin Kaisha Soran 2003," November 2, 2002.

7. APPENDIX

This appendix includes brief company information on retailers in the Kansai region who are directly importing processed foods or are actively promoting imported processed foods despite the fact that they may not yet be involved in direct import operations.

Ikari Supermarket Co., Ltd.

(Direct Importer)

Ikaki Supermarket Co., Ltd. is the most popular high-end supermarket chain operator in the Kansai region. It markets itself as a AShowcase of processed import foods in the Kansai@ and carries a wide variety of imported processed foods on their store shelves, imported both directly and indirectly. Ikari Supermarket, and their 100 percent-owned trading companies Inabco Trading, has been involved in the direct importation of processed foods for more than 20 years. Although they also carry imported processed foods sourced from existing Japanese importers, their corporate strategy is to expand their array of imported items as much as possible.

As of 2003, Ikari imports the following products directly:

• Frozen grapefruit juice (US)
• Fresh grapes, grapefruit, and oranges (US)
• Snack foods (US)
• Blended black tea leaves (UK)
• Frozen bread dough (France)
• Candies (France)
• Cheese (France)
• Foi gras (France)
• Wine (France, Italy, Argentine, Uruguay, Spain, Australia)
• Pasta and pasta sauce (Italy)
• Olive oil (Italy)
• Processed tomatoes (Italy)
• Vinegar (Italy)
• Jam and honey (Austria)
• Nuts (Thailand)

Tokuoka Co., Ltd.

(Direct Importer)

Strictly speaking, Tokuoka Co., Ltd is not categorized as a supermarket operator because they carry only processed foods and beverages, with no fresh produce. The business began as a liquor wholesaler in the 19th century and expanded to the retail sector, after their incorporation in 1971, with the establishment of a discount liquor shop chain. As of 2003, they have 20 stores in the Kansai region. Around 40% of Tokuoka's sales come from wholesaling and 60% from retailing.

Due to their history as a liquor wholesaler, the majority of Tokuoka's retail sales come from alcohol products: 30% from beer and 25% from wine. However, their current business plan focuses on raising their sales of imported processed foods.

As of 2003, Tokuoka imports the following products directly:

• Bottled mineral water (France, Italy)
• Fruit juice (Germany)
• Pasta (Italy)
• Sparkling soft drinks (US)
• Canned tomatoes (Italy)
• Frozen vegetables (China)
• Olive oil (Spain)
• Cookies (Italy)

KOHYO Co., Ltd.

(Direct importer)

KOHYO Co., Ltd. is another medium-sized regional supermarket chain in the Kansai region, with 21 outlets as of 2003. They started as a fresh seafood retail shop chain, and sales of fresh foods such as fish, meat, and vegetables continue to occupy some 50 percent of their total sales. Despite this history, their stores are mainly located in downtown areas where there is fierce competition with other supermarkets. To differentiate themselves, they began to carry imported processed foods, mainly from Europe. Initially, they sourced Japanese importers, but they recently began to import directly, starting with wine from France. KOHYO plans to expand its directly imported items, in particular processed foods rather than fresh products.

Ace Co., Ltd.

(Not Yet Importing Directly)

Ace Co., Ltd is a regional supermarket chain operator in the Kansai region that promotes imported processed foods and has 19 high-end processed food stores in, and around, downtown Osaka. Their downtown Osaka stores have become quite famous among consumers for their wide variety of imported processed foods. At this moment, Ace is sourcing products from Japanese importers and/or wholesalers but intends to begin importing food directly in the near future.

Daikin Co., Ltd.

(Not Yet Importing Directly)

Daikin Co., Ltd. is another regional supermarket chain operator in the Kansai region. Some of Daikin's stores are high-end supermarkets with a wide variety of imported processed food products supplied by Japanese importers and/or wholesalers. The most unique aspect of Daikin is that they also manufacture food products themselves, such as tofu, noodles, ham, and sausages. Although they do not intend to start importing finished processed foods directly at this moment, they may purchase raw materials for use in food production at their own factory.

Report prepared by:

Canadian Consulate General in Osaka
2-2-3 Nishi Shinsaibashi
Chuo-ku, Osaka, Japan
Tel: +81 6 6212 4910
E-mail: osaka-td@dfait-maeci.gc.ca

The Government of Canada has prepared this report based on primary and secondary sources of information. Readers should take note that the Government of Canada does not guarantee the accuracy of any of the information contained in this report, nor does it necessarily endorse the organizations listed herein. Readers should independently verify the accuracy and reliability of the information.