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Japan remains stuck in the throes of a deflationary slump

Japan remains an attractive market due to the high existing spending levels and consumer susceptibility to innovation

The poor economic outlook, paired with a very high level of market maturity, has made it clear that for the food and drink industry to achieve strong long-term growth, investments must be made abroad. Nevertheless, Japan remains an attractive market due to the high existing spending levels and consumer susceptibility to innovation. Therefore, as discussed in BMI's recently published Japan Food & Drink Report for Q310, while many major operators are indeed looking to invest abroad, they continue to balance these expansions with investments at home.

In April, Japanese convenience retailers FamilyMart announced that 80% of its 9,000 planned store openings over the next five years will be in international markets, as Japan simply no longer offers strong growth prospects. 2009 was a terrible year for the Japanese economy and the retailer faired very poorly with both revenues and net profit slumping for its FY10. The firm now feels an urgent need to go international in order to secure long-term growth, which is reflected in its five-year store opening plan. Nine thousand stores will be opened by February 2015. Of these, 7,000 will be in international markets, primarily China, Thailand, Taiwan and South Korea.

However, the strategy is not without risks. Less developed regional emerging markets cannot offer FamilyMart the same distribution infrastructure it enjoys in Japan, making supply chain efficiency - a vital part of an effective convenience retailer's arsenal - harder to achieve. Furthermore, emerging market investments typically carry greater risks, in terms of challenging business environments and less stable political climates. Therefore, despite the fact that Japanese firms need to internationalise quickly to secure long-term growth, FamilyMart has also decided to open a further 2,000 stores domestically over the next five years. This decision highlights the dilemma that Japanese consumer goods firms face. Long-term growth lies elsewhere, but shortterm high-spending resides at home.

An ageing population, a weak economic outlook and stagnant wage growth mean Japanese consumer goods manufacturers and retailers have been among the most active in terms of international industry expansion in recent years. BMI views this strategy as essential to securing strong long-term growth opportunities. However, we have also repeatedly stressed a conflict of long- and short-term interests - Japan might not offer long-term growth but it is hugely attractive in terms of high existing spending levels and consumer susceptibility to innovation, US coffee giant Starbucks' recent investment in the country being a case in point. In April, Starbuck's announced plans to open 60 new coffee shops in Japan in 2010 to add to its 870-strong network. Yet with off-trade sales representing a stronger growth channel, Starbucks will also continue to develop new products for retail distribution. This expansion into Japan is a part of the company's dual-pronged approach, as it balances its emerging market forays against sustained investments into mature markets that provide immediate returns. Clearly, retailers such as FamilyMart are pursuing a similar approach to growth.

by R. T.
05 july 2010, World News > Asia