Required Report - public distribution

**Date:** 11/15/2006

**GAIN Report Number:** JA6527

JA6525

**Japan**

**Retail Food Sector**

**Japanese Retail Food Sector Report**

**2006**

**Approved by:**

![](media/image1.wmf)Michael Conlon, Director

Agricultural Trade Office

**Prepared by:**

Data Resource International Inc.

**Report Highlights:** With the exception of an uptick in 2003, total
retail food sales have been falling over the past five years. The
supermarket and convenience store segments have enjoyed continuous
growth over the period, but the overall market has been driven down by
falling sales at department stores and smaller operations such as
mom-and-pop stores. Thus, two parallel trend lines have been emerging:
food and beverage consumer purchases are migrating toward larger
supermarkets featuring a wider assortment of merchandise at lower
prices, and also toward convenience store locations, with their easy --
if somewhat more expensive -- round-the-clock product availability.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Tokyo ATO \[JA2\]

\[JA\]

Table of Contents

[I. MARKET SUMMARY 3](#__RefHeading___Toc150160587)

[**(1) Trends in the Japan Retail Food and Beverage Sector**
3](#trends-in-the-japan-retail-food-and-beverage-sector)

[**(2) Sales Trends in the Retail Food Sector's Component Businesses
(2001-2005)**
3](#sales-trends-in-the-retail-food-sectors-component-businesses-2001-2005)

[**(3) Number of Establishments in Each Retail Business**
5](#number-of-establishments-in-each-retail-business)

[**(4) Prospects for the Retail Food and Beverage Sector**
6](#prospects-for-the-retail-food-and-beverage-sector)

[**(5) New Distribution Channels in the Retail Food Sector**
6](#new-distribution-channels-in-the-retail-food-sector)

[**(6) Japan's Food Self-Sufficiency** 7](#japans-food-self-sufficiency)

[**(7) Advantages and Challenges** 8](#advantages-and-challenges)

[II. ROAD MAP FOR MARKET ENTRY 10](#__RefHeading___Toc150160595)

[A. Cross Section Entry Strategy 10](#a.-cross-section-entry-strategy)

[**(1) Strengthen Partnerships with the Trading Companies**
10](#strengthen-partnerships-with-the-trading-companies)

[**(2) Providing Meal Solutions to Take On the Take-Out Market**
11](#providing-meal-solutions-to-take-on-the-take-out-market)

[B. Supermarkets and Department Stores
13](#b.-supermarkets-and-department-stores)

[**Entry Strategy** 13](#entry-strategy)

[**Market Structure** 14](#market-structure)

[**Company Profile** 16](#company-profile)

[C. CONVENIENCE STORES 18](#c.-convenience-stores)

[**Entry Strategy** 18](#entry-strategy-1)

[**Market Structure** 19](#market-structure-1)

[**Company Profile** 20](#company-profile-1)

[D. Traditional and Specialty Markets
20](#d.-traditional-and-specialty-markets)

[**Entry Strategy** 20](#entry-strategy-2)

[**Market Structure** 20](#market-structure-2)

[III. COMPETITION 21](#iii.-competition)

[**Japan Food Imports** 21](#japan-food-imports)

[**Summary of Competitive Situation (2005)**
22](#summary-of-competitive-situation-2005)

[IV. BEST PRODUCT PROSPECTS
25](#category-aproducts-present-in-the-market-that-have-good-sales-potential)

[**Category A:Products present in the market that have good sales
potential**
25](#category-aproducts-present-in-the-market-that-have-good-sales-potential)

[**Category B: Products not present in significant quantities but that
have good sales potential**
26](#category-b-products-not-present-in-significant-quantities-but-that-have-good-sales-potential)

[**Category C: Not present because they face significant barriers**
26](#category-c-not-present-because-they-face-significant-barriers)

[IV. POST CONTACT AND FURTHER INFORMATION
27](#iv.-post-contact-and-further-information)

**Note: Prices presented in U.S. dollars in this report are based on the
TTS rate prevailing on October 24, 2006. The dollar-yen conversion rate
in all cases is \$1 = ¥120.**

[]{#__RefHeading___Toc150160587 .anchor}**I. MARKET SUMMARY**

## (1) Trends in the Japan Retail Food and Beverage Sector

![](media/image2.wmf){width="5.335416666666666in"
height="1.7194444444444446in"}

Total retail sales in Japan (including dry goods, apparel and
appliances) amounted to ¥129.5 trillion (\$1,079.3 billion) in 2005,
with total food and beverage retail sales accounting for 30.9% (\$333.5
billion) of that figure. Although Japan's overall retail trade grew by
\$12 billion in 2005 -- the first year-on-year gain in nine years -- the
retail food and beverage sector declined by \$2.7 billion during the
period. This is attributable to factors including poor weather, such as
unseasonably cool temperatures from April through June that negatively
impacted beverage sales, and declining prices for rice, perishable foods
and produce from the second half of 2005.

## (2) Sales Trends in the Retail Food Sector's Component Businesses (2001-2005)

![](media/image3.wmf){width="5.4944444444444445in"
height="1.7194444444444446in"}

With the exception of an uptick in 2003, total retail food sales have
been falling over the past five years. The supermarket and convenience
store (CVS) segments have enjoyed continuous growth over the period, but
the overall market has been driven down by falling sales at department
stores and smaller operations such as mom-and-pop stores. Thus, two
parallel trend lines have been emerging: food and beverage consumer
purchases are migrating toward larger supermarkets featuring a wider
assortment of merchandise at lower prices, and also toward convenience
store locations, with their easy -- if somewhat more expensive --
round-the-clock product availability.

In 2005, department store food and beverage sales fell 2.2% from the
previous year, to \$18.4 billion. Sales floor renovations and in-store
events had a positive impact on sales, and department stores enjoyed an
increase in sales of gift products during the mid-year gift-giving
season (chugen). However, these developments were not enough to offset
negative factors including sluggish corporate chugen gift demand and
slumping sales of perishable foods.

Total supermarket food sales were virtually flat at \$61.9 billion in
2005. Sales of perishable food fell, pressured by declining market
prices for vegetables and other agricultural produce. On the other hand,
meat sales firmed after BSE and bird flu scares ran their course, while
increased volume from new stores and robust sales of beer in the spring
and early summer positively impacted overall sales in the segment.

At convenience stores, total food and beverage sales edged 0.2% higher
in 2005, to \$42.1 billion. In the daily-delivered foods segment, sales
were brisk for seasonal products including oden (Japanese-style stew),
chuka manju (filled steamed buns) and hiyashi chuka (chilled ramen), as
well as mainstay cooked rice products such as onigiri. However, this did
not translate to strong gains in dollar terms, as the unit price of all
these items has been trending downward. Meanwhile, processed food
product sales fell, as demand for soft drinks returned to normal levels
after the previous year's unusually warm winter and extremely hot
summer.

In terms of the 2005 retail sales profile by store type, the
supermarket, CVS and department store segments combined only comprise a
minority of total sales. Supermarkets, with \$61.9 billion, account for
19% of the total. Convenience stores represent 15% of the market, with
\$50.5 billion in sales, while department stores, at \$18.4 billion, do
6% of Japan's total food and beverage retail business. More than half of
all food and beverage retail sales are still generated by smaller food
markets with fewer than 50 employees. However, it should be noted that
these small businesses are losing more sales and market share every year
to supermarkets and other large-scale retailers.

![](media/image4.wmf){width="4.666666666666667in"
height="2.563888888888889in"}

![](media/image5.wmf){width="4.90625in" height="0.6979166666666666in"}

**Ministry of Economy, Trade and Industry definitions of industries
within the retail food sector:**

Department store: A retail business classified as a department store
under the Standard Industrial Classification for Japan, with 50 or more
employees, and sales space of at least 1,500 square meters (or 3,000
square meters, depending on its geographic location).

Supermarket: A retail business with 50 or more employees which adopts
self-service for at least 50% of its sales space. In addition, the
establishment has at least 1,500 square meters of sales space.

Convenience store: For METI statistical purposes, the definition of a
convenience store is limited to the headquarters branch of a convenience
store chain with at least 500 franchises in its store network.

## (3) Number of Establishments in Each Retail Business

![](media/image6.wmf){width="5.868055555555555in"
height="6.4222222222222225in"}

According to the METI Survey of Commerce, there are 1,238,049
establishments doing business in the retail trade in Japan, a decrease
of 4.8% from the figure for 2002. Two trends stand out in the retail
food and beverage sector: the number of specialty and semi-specialty
food stores, mainly medium and small businesses characterized by
face-to-face counter sales fell by 6.2%, while there was a 13.5% drop in
"other" supermarkets -- stores smaller than a medium-scale general
supermarket. Statistically, there was a still greater decline in the
number of department stores (14.9%), although this is attributable to
large-scale restructuring at the lowest-performing outlets in the
department store chains. The number of outlets in the remaining
sub-sectors grew over the period: convenience store locations increased
by 2.3%, general supermarkets by 0.4%, and food specialty supermarkets
by 4.5 percent.

## (4) Prospects for the Retail Food and Beverage Sector

Increased tax and social security obligations, rising interest rates and
intensifying competition once again threaten the food retailing business
environment. In addition, department store sales, which had enjoyed an
upturn from the fall of 2005, were hit by unseasonably cold weather in
the early spring among other factors, to again fall below the level of
the previous year. Urban department stores, benefiting from strong sales
of luxury items, are embarking on major remodeling projects and
establishing new locations, but observers and analysts are concerned
that increased costs and heightened competition may worsen the
department store profit picture moving forward.

In the supermarket sub-sector, monthly growth rates for same-store sales
turned negative again in January 2006. Performance has remained lower
than the previous year in every month since, with no turnaround in
sight. Meanwhile, new revisions to three laws governing urban
development (adopted in May 2006) will regulate the opening of "big box"
store branches in suburban locations, making it difficult to establish
large-scale venues outside major metropolitan areas. With leeway to
expand into the suburbs greatly decreased by the legislation,
competition is expected to heat up between retail food operations in the
central business districts of Japan's cities.

Convenience stores, too, are experiencing a continued decline in
same-store sales. Approaches that major CVS players and medium-sized
enterprises are considering to return to growth include developing new
locations and formats, such "fresh convenience stores" (featuring a wide
variety of produce and other fresh foods), and combined or co-located
stores.

## (5) New Distribution Channels in the Retail Food Sector

**Explosive growth of TV and online shopping**

Television, online, and mobile shopping (with wireless devices) are all
growing at an extremely rapid pace. Increasingly health-conscious
consumers with a variety of purchasing channels available are driving up
sales of health foods, as well as organic food delivered direct from the
farm. Total food sales through direct marketing channels reached \$1,579
million (¥189.544 billion) last year.

**Steady growth seen in the take-out market**

Although there are still no precise sales statistics for the take-out
market, there is a reliable estimate based on a study by the Japan Meal
Replacement Association (JMRA), the source closest to Japan's market for
pre-prepared and ready-to-eat foods. According to the 2003 JMRA survey,
combined sales for prepared dishes at delicatessen specialty shops,
department stores, general supermarkets, food supermarkets and
convenience stores totaled \$58 billion (¥6.97 trillion).

As the number of working wives and senior households increases, the
take-out market seems poised for continued robust sales moving forward.

**Proliferation of fresh food convenience stores**

The newest and hottest segment of the CVS industry is the so-called
fresh convenience store. A series of chains have followed pioneer Shop
99 into the "one-price fresh foods" field in 2005 alone, including
Lawson Store 100, AM/PM Food Style 98 and Three F Company's Qs Mart. By
carrying fresh food along with their other food products and everyday
necessities and selling most or all items for 100 yen or less, the fresh
convenience store combines the best features of the traditional CVS,
supermarket and 100-yen shop. Consumers are attracted by the 24/7 access
that characterizes convenience stores, but also benefit from a
supermarket-like product lineup featuring fresh food products.

**Foreign Retailers in Japan**

Since 1999, a huge amount of circulating capital has been invested by a
series of the world's biggest retailers moving into the Japanese market.
By 2006, Wal-Mart (USA), Costco (USA), Carrefour (France), Metro
(Germany), and Tesco (UK) were all doing business in Japan. However,
they have not found the going easy in a market of the world's most
value-conscious, quality-obsessed consumers. Indeed, some overseas
enterprises, most notably Carrefour, have run into financial
difficulties. Carrefour sold all eight of the stores it owned to Japan's
largest supermarket chain -- Aeon -- in March 2005 and withdrew from the
market altogether.

Wal-Mart gained its foothold in Japan by acquiring a 6.1% share of
Seiyu, another of the nation's major supermarket chain operators, in
2002. The giant U.S. retailer increased its ownership in 2005, taking a
controlling share and making Seiyu a Wal-Mart subsidiary. Wal-Mart then
moved aggressively to restructure the seriously underperforming
supermarket, by, among other things, promoting one of its own executives
to the Seiyu CEO post. Nevertheless, Seiyu has continued running in the
red every year from 2003 through 2005, and it now seems that success for
Wal-Mart in Japan will take quite some time.

## 

## (6) Japan's Food Self-Sufficiency

Japan has steadily grown less self-reliant for its food supply. On a
calorie basis, the nation's rate of self-sufficiency has plummeted, from
73% in 1965 to 43% in 1995, and remains on a downward trajectory: in the
five years from 2000 to 2004, the rate fell to 40 percent. Grains are
likewise mostly imported today, with the rate of self-sufficiency
falling from 73% forty years ago to 28 percent. Self-sufficiency has
even slipped significantly for Japan's staple, rice, down from 80% to
60% over the same period. From an international perspective, the
nation's food self-sufficiency is also very low compared to other
industrialized nations. Japan's 40% rate compares unfavorably to
Australia (230%), France (130%), the United States (119%), and England
(74%). Barring special government measures to markedly increase
self-sufficiency, it seems reasonable to believe that Japan will
continue to depend on foreign sources for about 60% of its food.

![](media/image7.wmf){width="5.85625in" height="3.7305555555555556in"}

## (7) Advantages and Challenges

This section of the report distills the major trends in the Japanese
market into five key phrases: food safety, health consciousness, stable
supply, price and quality, and cultural influences. It examines the
advantages -- the strengths and market opportunities -- and the
challenges -- weak points and threats -- that each of these topics
presents to food imports from the United States.

## Advantages VS. Challenges Facing American Agriculture in Japan

![](media/image8.wmf){width="5.916666666666667in"
height="3.201388888888889in"}

![](media/image9.wmf){width="5.904861111111111in"
height="3.665277777777778in"}

Foods for Specified Health Use: Functional foods, approved by the
Ministry of Health, Labor and Welfare, considered to have benefits in
maintaining or improving health, by, for example, reducing cholesterol.
In an aging society of strongly health-conscious consumers, these FOSHU
foods have become very popular.

[]{#__RefHeading___Toc150160595 .anchor}**II.** **ROAD MAP FOR MARKET
ENTRY**

# A. Cross Section Entry Strategy

Over the past three years, food products from the United States have
accounted for 25% of the total food import market in Japan on a value
basis, making the U.S. Japan's largest food import partner. In the wake
of the BSE issue, the U.S. share dipped to 22.6% for a time in 2005, but
U.S. imports stand to recover from the damage over time. However, other
challenges may be more daunting. Absent a radical change in Japanese
food preferences, it seems unlikely that the kind of groceries that
routinely find their way to Western tables -- frozen and processed foods
-- will penetrate the market in Japan significantly further than they
already have. Moreover, Japan's declining birthrate and graying society
are already having profound demographic effects: from 2005, the
population in Japan has started contracting. Exporting nations can no
longer count on automatic growth in Japanese food imports.

What can the U.S. food industry do to increase its exports to Japan in
this environment? Finding the answer means focusing on two major
currents in the Japanese market -- changes in the distribution
structure, and the rapid growth of the Home Meal Replacement (HMR)
pre-prepared food segment.

Food from overseas traditionally enters Japan through trading
conglomerates and other importers, then passes to food processors and
wholesalers before reaching major retail chains -- mostly supermarkets
and convenience stores -- and the final consumer. However, the trading
companies are currently engineering a tectonic shift in this
distribution paradigm.

The distribution channel shakeout reflects an evolution in Japanese
eating habits. Retail food sales have been languishing across the board
-- at supermarkets, convenience stores, department stores and other
venues -- with the exception of a single market sector which is
expanding at a brisk rate: the business for HMR products. As the term
"home meal replacement" implies, these are ready-to-eat items targeting
the rapidly growing number of singles households, working women and
others in Japan's changing social structure who have fewer opportunities
to cook and eat at home, and seek to substitute prepared dishes or
obento-style boxed meals available at their nearby supermarket or
convenience store for a home-prepared meal.

## (1) Strengthen Partnerships with the Trading Companies

Japan's five biggest trading companies are aggressively investing in
capital alliances with the wholesale and retail industries to build an
integrated distribution system linking upstream (import), mid-stream
(wholesale) and downstream (retail) operations. Historically, the
trading companies have primarily been involved in the import and sale of
basic food such as wheat, but they are now working to extend their
influence to wholesalers in the middle of the supply chain and the
closest link to the consumer, retail businesses such as convenience
stores and supermarkets. The move is driven by the trading companies'
realization that there is no more growth to be squeezed out of what has
been their bread and butter, the raw material import segment of the
distribution chain, without linking to the other segments.

The general trading companies are accelerating the formation of a
keiretsu-style vertically integrated structure in the wholesale
industry. In 2004 Mitsubishi Corporation brought the wholesale
operations of Meidi-ya Co. and leading confectionery and snack
wholesaler San-Esu Inc. under its corporate umbrella, while Itochu Corp.
increased its stake in another key food wholesaler, Nippon Access. Not
to be left behind, Mitsui & Co. quickly formed a series of capital
tie-ups with regional wholesalers. After all this consolidation, of the
top 10 food wholesale operations, Ryoshoku and Meidi-ya are now tied in
with Mitsubishi Corp.; Nippon Access, Itochu-Shokuhin and Nishino Co.
are all in the Itochu Group, while Mitsui Foods is part of the Mitsui &
Co. keiretsu. Only a few major independent wholesalers remain: Kokubu,
Nihon Shurui Hanbai and Asahi Shokuhin. The industry has essentially
split into a bipolar structure -- Mitsubishi Corp. vs. Itochu Corp. --
with Mitsui & Co. and its growing collection of regional players gunning
for the leaders from behind.

Likewise, the trading conglomerates are vying for control in the retail
food sector, through a series of aggressive investments. Without any
major wholesale operations in its portfolio, Marubeni in particular
positioned food retail distribution as a priority investment field,
acquiring a 10.8% stake in Daiei, a 36% interest in Daiei-affiliated
supermarket chain Maruetsu, and 12.5% of the shares of Tobu Store. In
addition, Marubeni has a 20% interest in Metro Cash & Carry, the Japan
subsidiary of German wholesale giant Metro Group. Meanwhile, Sumitomo
Corp. owns 100% of the Tokyo area Summit food supermarket chain, and
played an intermediary role in the deal that made Seiyu a Wal-Mart
subsidiary. Mitsubishi Corp. acquired a 20% interest in Lawson in March
2003. In September 2005, the company also increased its investment to
20% in Life Corporation, a major supermarket chain based in Osaka. Early
on, in 1998, Itochu Corp. acquired Family Mart from Seiyu. Mitsui & Co.
formed an alliance with Ito-Yokado in 2001, and has since bolstered the
relationship with Ito-Yokado holding company Seven & I Holdings.

All of this suggests that Japan's general company firms are intent on
controlling the entire imported food distribution process, from the
docks to the dinner table. Clearly, the key to increasing American food
imports lies in finding ways to strengthen strategic partnerships with
these powerhouses.

![](media/image10.wmf){width="5.583333333333333in"
height="2.8868055555555556in"}

## (2) Providing Meal Solutions to Take On the Take-Out Market

METI statistics indicate that the overall retail food market has been
shrinking on a dollar basis, from \$345.3 billion in 2001 to \$333.5
billion in 2005, a 3.4% decrease in five years. Yet the pre-prepared
foods segment has grown at a robust 4.9% rate in the last three years,
to a total value of \$59.9 billion.

As large-scale general supermarkets evolve into still larger footprints,
they seek to differentiate themselves by concentrating on ready-to-eat
prepared food. Dishes with regional flair and flavor and food courts
with an upscale feel are some of the hypermarkets' more popular
offerings. However, most of today's general supermarket food sales space
is nondescript. While the venues are invariably spacious, their grocery
lineups mostly consist of the same national brand products, making it
seem that except for low price, the chains are not particularly
interested in competing with one another on a product basis. It is
against this background that the stores have begun emphasizing take-out
items as the ticket to separate themselves from the competition.
Conditions are similar at food supermarkets, where national brands tend
to dominate the stores' lineup of dry grocery products -- canned goods,
packaged foods and other long shelf-life items. For these retailers,
fresh food and prepared food items can have an important role in the
differentiation strategy. The same is true of convenience stores. As the
chart below indicates, CVS annual take-out sales of \$16,230 billion
ranks ahead of both general supermarkets and food markets, placing
convenience stores at the center of the HMR segment.

What practical steps can be taken to sell imported American food into
this key market? First, find out who is actually developing the meal
replacement products and menus the stores use -- a number of food
manufacturers, prepared dish providers and food wholesalers are deeply
involved in these operations. For all of them, take-out recipe research
and development is a path to the market. They offer meal solutions to
supermarkets and convenience stores, each company emphasizing its own
products as the key ingredients for attractive, great-tasting side
dishes.

Food wholesalers would like to develop these menus because they know
that if they can get the retail stores to use them, they can sell all
the menu ingredients together. By the same token, it is also a
convenient arrangement for the supermarket or food manufacturer who
adopts the recipes, since these firms can then leave all the ingredient
procurement to the wholesaler who created the menu. Thus, from the
standpoint of expanding U.S. food sales, it behooves American companies
to form alliances with the major wholesalers and manufacturers involved
in developing the recipes. They can begin creating recipes together --
using American ingredients, seasonings and so on -- and sell everything
in the menu to food retailers.

![](media/image11.wmf){width="6.5in" height="2.1875in"}

# B. Supermarkets and Department Stores

## Entry Strategy

**(1)Supermarkets**

Since retail food sales comprise more than 50% of total sales at Aeon,
Ito-Yokado and Japan's other key general supermarket chains, the Foods
Division is positioned as a crucial profit center for all these
enterprises. In particular, the big players are working to strengthen
their prepared meals operations, a segment enjoying robust growth. There
are many examples of aggressive investment in this area, one being the
move by Aeon Co. -- the largest of Japan's general supermarket chains --
to acquire Origin, itself Japan's dominant chain in the (bento)
boxed-meal market. This, in turn, was part of Aeon's larger effort to
assemble a full lineup of prepared meal category killers under its
corporate umbrella.

Meanwhile, food supermarkets are under increasingly intense price
pressure from the so-called fresh convenience stores that handle a
competitive array of fresh food products. At the same time, they are
being squeezed by the growth of the HMR segment, because this is pushing
traditional food and ingredient sales down. In response to these market
trends, Daimaru Peacock opened a natural market inside a high-rise
complex, offering a full line of healthy take-away foods, including
macrobiotics, targeting working women, middle-aged and older
health-oriented consumers. Another food supermarket, Red Cabbage KK, is
enjoying strong performance at its upscale Yamaguchi venue with a line
of delicacies such as shark fin and caviar.

As the discussion to this point suggests, analysis of the Japanese
supermarket sector shows that the two keys to expanding sales are
health-conscious ingredients and ready-to-eat meal solutions. It follows
that bolstering U.S. imports will entail providing these meal
replacement solutions -- with American ingredients -- to Japan's
supermarkets. This, in turn, means strengthening partnerships with the
trading companies and wholesalers who hold sway over the supermarkets'
product selections. By being proactive in developing menus, recipes and
healthy diet propositions for these supermarkets, American companies
stand to get more of their food product consumed in the Japanese market.

**(2)Department Stores**

Normal food sales and food gift sales are the crucial components of any
plan to enhance total sales to department stores. The strategy for
regular food sales involves strengthening partnerships with the
All-Nippon Department Stores Development Organization (OAD), a joint
purchasing alliance for the nation's department stores (25% of which are
members), and using OAD as a springboard to push the merits of U.S. food
products. In addition, since department store take-away meal purveyors
are tenant operations, it will be helpful to provide these enterprises
with HMR menus developed jointly with their wholesale suppliers,
featuring the U.S. food products.

Department stores are critical venues for food gift sales. Some 38.4% of
department stores' total food sales are gift products, compared with
just 6.3% at supermarkets and 1.2% at department stores. The department
store food gift market was worth \$7,250 million in 2004. Although this
segment has shrunk by 20% in the last 10 years due to reduced corporate
demand in the wake of Japan's prolonged economic downturn and the
decline of traditional formalized gift-giving by individuals, it remains
an important sales channel for upscale and gourmet American foods.
Best-selling gifts include ham and sausage, fruits and vegetables, fish,
cheese, butter and alcoholic beverages. To sell imported American items
in this mix, suppliers need to provide unique products that would
normally be difficult to obtain in Japan, and that offer a degree of
connoisseur/snob appeal.

## Market Structure

**(1) Supermarket**

Supermarkets purchase foreign food products from importers -- including
Japan's major trading groups, specialized food trading companies, and
manufacturers -- either directly or through wholesalers. Typically,
supermarkets deal with conglomerates such as Marubeni and Mitsui & Co.,
food traders like Toyo Suisan and Tosoku Ltd., and food manufacturing
firms such as Ajinomoto and Kirin Beer.

Giant nationwide supermarket chains including Aeon and Ito-Yokado
purchase their food through three channels: (1) direct from the
importers; (2) direct from the manufacturers and processors; and (3)
from these foodmakers via wholesale distributors. Regional food
supermarkets employer similar distribution channels, although they
mainly purchase from wholesalers, whereas the major national chains rely
more on direct routes.

![](media/image12.wmf){width="5.9006944444444445in"
height="2.176388888888889in"}

**(2)Department Store**

Department store food floors display numerous fresh and processed items,
side dishes, beer, wine and a wide array of other food and related
products. Although the vast majority is purchased from wholesalers, 25%
of the members in the Japan Department Stores Association also belong to
the industry's development organization, the AOD, which is focused on
joint purchasing. The AOD is comprised of 32 leading department stores,
including Isetan, Matsuya and Tobu Department Store Co., and a total
network of 67 stores, and functions as a purchasing cooperative for both
domestic and imported products. Import purchases center on high-end
European food and beverages such as offerings from the Hediard gourmet
shop in Paris, and French wine from Lucien Lurton & Fils, one of the
region's most prestigious wine merchants.

In addition to the expansive floor displays, department store food
floors generally host tenants including delis, bakeries and pastry
shops, all of whom purchase their ingredients from a variety of
wholesale channels.

![](media/image13.wmf){width="5.904861111111111in"
height="2.1479166666666667in"}

## Company Profile

**Top 10 Supermarkets (2005)**

![](media/image14.wmf){width="5.9006944444444445in" height="4.1875in"}

**Top Supermarkets by Prefecture (2005)**

**Source: Food Supermarket (Ryutsu Kikaku)**

![](media/image15.wmf){width="4.180555555555555in"
height="1.9840277777777777in"}

![](media/image16.wmf){width="4.1715277777777775in"
height="1.7993055555555555in"}

![](media/image17.wmf){width="4.1715277777777775in" height="2.875in"}

![](media/image18.wmf){width="4.1715277777777775in"
height="1.6229166666666666in"}

![](media/image19.wmf){width="4.1715277777777775in"
height="1.4465277777777779in"}

![](media/image20.wmf){width="4.1715277777777775in"
height="1.270138888888889in"}

![](media/image21.wmf){width="4.1715277777777775in"
height="2.160416666666667in"}

**Top 10 Department Stores (2005)**

![](media/image22.wmf){width="5.904861111111111in"
height="2.265277777777778in"}

# 

# C. CONVENIENCE STORES

## Entry Strategy

With an annual product turnover near 70%, convenience stores are the
market's laboratory for new products and new ideas. Japan's various CVS
chains are focused on developing original products for their mainstay
fast food business. Seven-Eleven is typical: the chain works together
with manufacturers of everything from bento box lunches, side dishes and
tsukemono (pickled vegetables) to bread and noodles in order to create
signature take-away offerings. Seven-Eleven is also establishing a
process center system for storing and processing its bulk purchases of
meat, vegetables, seasonings and the other ingredients incorporated in
its original fast food items.

In a key recent development, the chains are establishing a new
generation of convenience stores that provide a wide-ranging lineup of
organic-ingredient health foods, prepared in kitchens on site. For
example, Lawson Inc. bakes and sells its own breads on site at its
Natural Lawson outlets, while at Three F Co.'s "Gooz" stores, all the
store-branded bento boxes and take-away dishes are prepared on the
premises. This specialized CVS format registered 0.2% year-on-year
growth, a first step in testing the proposition that with innovative
responses to a changing demand environment, convenience chains can
continue to squeeze profit out of a saturated market.

Whether or not U.S. producers and foodmakers can leverage these trends
to increase American exports depends on how successful they are in
forming stronger alliances with their Japanese wholesale and
manufacturing partners so they can get the convenience store chains to
use American ingredients in their store-prepared take-away meal
solutions.

## Market Structure

Food wholesale distributors and manufacturing firms are the main supply
sources for convenience stores. The venues are designed to handle nearly
3,000 products, including a variety of sundries, from newspapers and
magazines to cosmetics in addition to food -- all in a tiny 100 square
meter footprint. Mainstay products are fast food items, such as bento
boxes and sandwiches; temperature-controlled, daily delivered food,
including juice in aseptic ("Tetra-Pak") cartons, milk and dairy
products; and seasonings, canned goods, and processed food in retort
pouches. Together, they account for 70% of all convenience store
products.

![](media/image23.wmf){width="5.899305555555555in"
height="2.0229166666666667in"}

Special note: Because Japan's train station kiosks have been evolving
away from their traditional newsstand look, developing into a
convenience store format, these venues are included in the statistics
for convenience stores. In Japan "Gas Marts" (gasoline station
convenience stores) do not comprise a large enough market to track
statistically. It does merit mention that the combined gas station and
convenience store is emerging as a distinct new format: Seven-Eleven has
teamed with Exxon Mobil, while Mini Stop has formed an alliance with
Cosmo Oil to develop these outlets. However, only 12 new gas marts
opened in Japan last year.

## Company Profile

![](media/image24.wmf){width="5.904861111111111in"
height="3.3291666666666666in"}

# D. Traditional and Specialty Markets

## Entry Strategy

Growth is sluggish at specialty food stores and more traditional small
retail outlets, which have suffered a relative decline in
competitiveness at the hands of beefed up food divisions at
supermarkets, convenience stores and department stores. According to the
METI Index of Sales Statistics, this market category has been losing
value every year in the new century, dipping from \$230 billion in 2001
to \$211 billion in 2005.

The best hope for increasing American imports into this sub-sector is to
narrow the focus to specialty food stores, with their large base of
customers who would be happy to purchase imported products. Indeed, they
are already doing so, as strong sales of imported natural cheese and
organic foods to these sophisticated consumers suggests. The natural
cheese example is a good one. Now that shoppers, especially women, have
become more knowledgeable about cheese, they are not only purchasing the
mild, mellow varieties, but also the more robust blue mold types with
stronger odor and flavor. American companies should strengthen their
relationship with their Japanese import partners and bolster their sales
promotion efforts to establish a larger presence in these specialty food
stores.

## Market Structure

There are two distribution channels in this market:

> \(1\) Manufacturer wholesaler retailer
>
> \(2\) Manufacturer primary wholesaler secondary wholesaler retailer

However, the smaller retail outlets and specialty stores have been
moving aggressively toward dealing directly with primary wholesale
distributors in recent years, in an attempt to mirror supermarket
purchasing as closely as possible and lower acquisition costs. For their
part, the primary wholesalers are also trending toward contracting
directly with the small and specialty food retailers, as second-layer
wholesalers have been running into financial trouble in the rapidly
changing distribution environment, resulting in a series of
bankruptcies.

![](media/image25.wmf){width="5.903472222222222in"
height="1.7055555555555555in"}

# III. COMPETITION

## Japan Food Imports 

![](media/image26.wmf){width="5.2652777777777775in"
height="3.0340277777777778in"}

![](media/image27.wmf){width="5.079861111111111in"
height="2.6444444444444444in"}

The United States is Japan's largest food import partner. That said, its
market dominance has diminished somewhat. While the positions of the top
five food export nations is unchanged over the last three years, the
United States has lost 4.2% of its former market share, due primarily to
the effect of Japan's ban on U.S. meat imports, while China has gained
2% and Australia 1.8% in that time. Of the nations rounding out the top
10, Brazil and Chile have moved up in the rankings on market share
increases of 1.1% and 0.6%, respectively.

In the wake of the BSE outbreak in North America and the ban on U.S.
beef imports imposed December 24, 2003, meat from Australia filled the
void, eventually accounting for 90% of all beef imports in Japan on a
volume basis at 411,359 tons, a 4.4% year-on-year increase. New Zealand
provided another 8% of the total -- 37,953 tons -- up 13.1% from the
figure for the year before. The two nations of Oceania now represent
America's top export competitors for beef and dairy products in Japan.
Denmark and Canada share that distinction for pork.

American products that have enjoyed an increase in Japanese import on a
value basis in recent years include cranberries, raspberries, almonds,
potatoes, pork, mineral water and seafood products.

## Summary of Competitive Situation (2005)

![](media/image28.wmf){width="5.904861111111111in"
height="4.375694444444444in"}

Note: Categories on which this statistical analysis are based are narrow
and specific. For example, fruits and vegetables are divided into extra
tropical fruit, fresh vegetables, frozen vegetables and so on. The same
is true of beverages, seafood and the other food categories. Therefore,
the discussion for this analysis considers the overall features of the
item groups considered, and focuses on items for which the imported
volume is high for U.S. products. Note that the rankings of leading
suppliers reflect market share on an import value basis, unless import
volume is specified.

![](media/image29.wmf){width="5.904861111111111in"
height="4.1194444444444445in"}

![](media/image30.wmf){width="5.904861111111111in"
height="4.6618055555555555in"}

# IV. BEST PRODUCT PROSPECTS

## Category A:Products present in the market that have good sales potential

![](media/image31.wmf){width="5.901388888888889in"
height="4.9319444444444445in"}

## Category B: Products not present in significant quantities but that have good sales potential

![](media/image32.wmf){width="5.901388888888889in"
height="4.795138888888889in"}

## Category C: Not present because they face significant barriers

![](media/image33.wmf){width="5.901388888888889in" height="3.43125in"}

# IV. POST CONTACT AND FURTHER INFORMATION

If you have any questions or comments regarding this reports or need
assistance exporting to Japan, please contact the U.S. Agricultural
Trade Offices in Tokyo or Osaka at the following addresses:

![](media/image34.wmf){width="6.114583333333333in"
height="1.8229166666666667in"}

For further information, please access the U.S. Agricultural Trade
Office, Japan web site at:

[http://www.usdajapan.org/]{.underline}