Foodservice Profile
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MARKET ACCESS SECRETARIAT Global Analysis Report Foodservice Profile Japan May 2014 EXECUTIVE SUMMARY CONTENTS • Japan has a population of 127.3 million people and had a gross Executive Summary ........................ 1 domestic product (GDP) of US$4.9 trillion in 2012. It is one of the largest consumer markets in the world, providing Country Overview ........................... 2 opportunities for Canadian agri-businesses, especially those interested in a major consumer foodservice market. Consumer Profile ............................ 2 Foodservice Industry • The Japanese economy continues to recover from the March by Segment .................... ……….3 2011 earthquake which set off a tsunami in the Tohoku region, and disrupted many regional supply chains. Foodservice Industry by Value…………………………. 4 • Despite a decreasing population, the Japanese consumer foodservice industry remains important, reaching estimated Distribution Structure ...................... 5 sales of US$256 billion in 2013. Changes to the foodservice industry have created opportunities, even if the market is not Top Five Foodservice Companies . 6 poised for growth. Market Opportunities....................... 8 • The Japanese consumer foodservice industry is undergoing restructuring. Major chained restaurants are playing an Market Challenges ......................... 8 increasingly important role. Independent players and wholesalers are being cut out of the market, as major Resources ....................................... 9 companies create vertical supply chains and purchase directly from producers, reducing the costs of dealing with middlemen, and creating opportunities for higher profits. • Opportunities are available as Japan continues to be at the forefront of innovation in food products and is one of the largest net importers of agri-food and seafood products in the world. COUNTRY OVERVIEW Japan consists of four major islands (Hokkaido, Honshu, Shikoku, and Kyushu), numerous minor islands, and is home to one of the largest cities in the world, Tokyo (Central Intelligence Agency, 2013). In 2012, it had a national population of 127.3 million (Euromonitor, 2012). The Japanese agriculture sector is small, but highly efficient. It employs 3.9% of the labour force, and produces 1.1% of the gross domestic product (GDP). Products grown in Japan include rice, sugar beets, vegetables, fruit, pork poultry, dairy products, eggs and fish (Central Intelligence Agency 2013). Agriculture still receives significant state support; however, Japanese agricultural production is shrinking, as is the number of farmers. National self-sufficiency in agriculture has fallen consistently since the 1960s, and will continue to decrease as the population ages. Japan is the third-largest economy in the world, but has experienced anemic economic growth since the end of the 1980s. This is primarily due to poor investment choices and significant debt loads, which have stifled the ability of the government to stimulate the economy. The March 2011 earthquake and tsunami also deeply affected the entire economy in Japan (USDA Foodservice, 2013). While economic growth has been minimal for over two decades, Japan remains at the forefront of innovation in food products, and is one of the largest net importers of agri-food and seafood products in the world. It is also the world’s largest producer of fish and seafood. The economic outlook for Japan is positive, albeit slow in growth. The economic recovery from the March 2011 earthquake and tsunami will also be slowed down by an increase in the Value Added Tax (VAT) rate. The VAT is expected to rise from 5% to 8% in April 2014, and then to 10% in October 2015 (Doing Business, 2014). Japan - Economic Overview Categories 2008 2009 2010 2011 2012 2013E Total GDP US$ bn 5,135.5 4,827.4 4,942.6 4,829.1 4,854.4 4,900.5 Real GDP Growth % -1.0 -5.5 4.7 -0.5 1.4 1.7 Inflation % 1.4 -1.3 -0.7 -0.3 0.0 0.3 Exports US$ mn 782,048.6 580,946.1 769,875.4 822,572.6 798,633.3 718,005.0 Imports US$ mn 762,590.2 552,188.2 694,151.4 855,007.0 886,051.0 835,065.9 Source: Euromonitor, 2014. E: estimate CONSUMER PROFILE Japan has one of the most demanding consumer bases in the world with regards to product quality and innovation. Japan also has a large, aging population, as well as low birth rates. The population aged 65 and over surpassed 30 million in 2013, and is expected to continue to grow at a compound annual growth rate (CAGR) of 1.9% until 2018. Population growth for the 0 to 14 years category is expected to continue to decrease at a CAGR of 1.6% until 2018 (Euromonitor, 2014). These demographic changes will weigh heavily on prospects for growth in the foodservice sector. As Japan’s population increases in age and decreases in number, a higher share of consumer income will be directed toward meeting debt and social security obligations, leaving less available for the purchase of luxury items, or dining out. There are, however, some positive influences that will affect the future of the foodservice industry. Planet Retail notes that household sizes are shrinking, and the single-person household is becoming more common. This may act as a positive shock to the industry, as single-person households are more likely to dine out than families (Planet Retail, 2010). Page | 2 The aging population also brings demand for certain products, specifically in the realm of health and wellness. Products aimed at enhancing the nutritional and health value of foods, while still offering quality, taste and innovation, will appeal to Japanese consumers who want to increase their longevity and improve their health. These products will come with higher prices, likely for lower volume, but will most likely not offset the overall decline in value that is expected to occur in the Japanese food market. FOODSERVICE INDUSTRY BY SECTOR The foodservice sector in Japan is highly fragmented, diverse, and has suffered significant business changes over the past five years. The industry can be divided into six segments: home delivery/takeaway, cafés/bars, full service restaurants, fast food, self-service restaurants and street stalls/kiosks. Food chains are growing in importance, but the sector is currently dominated by independent foodservice outlets. It is also dominated by Japanese domestic companies, driven by consumer preferences for domestic products. Japanese, Western, and Chinese food are all popular, and new international operators see Japan as a great potential new market. Companies such as Ben & Jerry’s and Cinnabon established themselves in 2012 and have attracted interest from the younger demographic who are eager to eat more international food (Euromonitor, 2014). Full-Service Restaurants This remains the largest segment of the foodservice industry, accounting for 46% of the total market value, and almost one quarter of the transaction volume in 2012. This segment is mostly dominated by independent outlets and conventional family restaurant operators. The expansion of restaurant chain operators and the growth of mid- to large-sized corporate caterers have greatly affected the foodservice market. This, combined with the fact that many restaurant owners are aging and retiring, is reflected in the closure of full-service restaurants (Planet Retail, 2011). Cafés/Bars The cafés/bars segment is the second-largest in the Japanese foodservice sector. Similar to the full-service restaurant sector, this segment is shrinking in both value and volume terms, as well as in numbers of outlets. Furthermore, the segment is experiencing a shift away from independent outlets to chained, American-style outlets (such as Starbucks). A large number of convenience stores are also offering brewed coffee. This has created great competition between cafés and convenience stores, as both seek to attract consumers. Cafés/bars are expected to continue to decline over the 2013-2017 forecasted period in value, volume and outlets. It is important to note however, that there has been an increase in interest from companies to cater to an older generation of Japanese consumers. As more and more Japanese consumers are entering retirement, there has been an increase in demand for coffee shops in residential areas (Euromonitor, 2013), where consumers can get together, socialize, and enjoy their coffee for an extended period of time. Fast Food The fast food sector is highly competitive and relies primarily on franchised restaurants. However, despite the competitive nature of the segment, fast food restaurants are increasing sales in a shrinking market. Furthermore, the number of transactions is increasing. This indicates that more Japanese are turning to the fast food segment for a convenient meal. Finally, the fast food sector is increasing the number of outlets, meaning the demand for fast food product supplies will be increasing as more retailers enter the market. Products such as french fries and other similar international fast food products will continue to increase in demand as new outlets are created. Overall, in a market of shrinking value, volume and outlets, the fast food sector offers opportunities to suppliers of agriculture and agri-food products. Page | 3 Street Stalls and Kiosks The street stalls and kiosks segment is a small part of the Japanese restaurant sector. This segment has been declining in value and volume terms, similar to other segments in the foodservice industry. This sector is dominated by independent outlets and excludes the Nakashoku (ready-made meal) segment. Over the forecasted period of 2013 to 2017, the segment is expected, like the rest of the restaurant sector, to decline in value, volume and outlets. Self-Service Cafeterias Self-service cafeterias are suffering disproportionately in the new age of austerity in Japan. Japanese consumers view self-service cafeterias as a low-end, value segment of the market, and it is not associated with high quality. This sector is expected to perform poorly outside of the institutions sector. Within the institutions sector, self-service cafeterias are expected to thrive due to the lack of alternative options.