Japan's Retail Food Industry: Navigating Trends and Opportunities

The retail food industry in Japan has demonstrated resilience and adaptability, maintaining stability despite economic challenges, such as the strong United States (US) dollar against the weakening Japanese yen. In 2023, the sector achieved sales totaling USD 198 billion, a slight 1.29% YoY decrease compared to previous year. However, supermarkets, convenience stores, and drug stores experienced sales expansions through an increased number of stores, according to the United States Department of Agriculture (USDA) Retail Foods Annual report. This growth is achieved by strategically targeting younger consumers who favor easy-to-prepare, frozen, and ready-to-eat foods.

Market Dynamics and Consumer Preferences

Japan's retail food market is characterized by its diversity and innovation. Supermarkets account for 45% of retail food sales, while convenience stores contribute approximately 29% of market share. Known for its wide selection of ready-made meals and frozen foods, the convenience store sector has seen a 0.4% year-on-year (YoY) increase in sales in 2023, reaching its highest level since 2020.

Figure 1. Japan’s Food Retail Sales Channels for 2022-2023

Source: Ministry of Economy, Trade and Industry, Statistics Bureau of Japan

Representing nearly 10% of total sales, drug stores have expanded their food offerings, including vegetables, fruits, and ready-made meals. This trend caters to Japan's aging population, providing a one-stop shopping experience for daily necessities and food items. Although accounting for 11% of total sales, Internet sales have faced challenges due to rising prices and shipping costs, prompting a shift back to in-store purchases for cost savings.

According to Tridge Retail research, Aeon is the leader in the retail landscape in Japan. It owns several retail companies, including Aeon hypermarkets, Daiei, Maruetsu, My Basket, and Ministop convenience stores. Aeon was established in 1969 after one of the founders took a trip to the US and was inspired by the large-sized retail stores and set out to create Japan’s largest retail store chain.

Economic Influences and Consumer Behavior

The Japanese yen (JYP) has depreciated over the past year, rising by about 9.96% YoY from 140.5 JYP/USD in 2023 to 154.5 JYP/USD as of Nov-24. This situation has led to rising food prices in the domestic market since Japan heavily relies on the importation of food products. Amid inflationary pressures, consumers are increasingly opting for cost-effective food options. They favor products with shorter expiration dates or generic brands that offer comparable quality at lower prices. This trend underscores a growing emphasis on affordability without compromising on taste and quality. As a result, the demand for ready-made and single-serve meals, both fresh and frozen, continues to rise. In particular, frozen food sales have reached unprecedented levels, with supermarkets and convenience stores expanding their offerings to meet consumer demand.

Popular products in this category include bento boxes, onigiri (rice balls), and a variety of frozen meals that offer quick and easy meal solutions. The trend towards healthier options is also gaining traction, with more consumers seeking nutritious, convenient food choices. This presents significant opportunities for retailers and suppliers to innovate and expand their product lines to include healthier ready-to-eat options.

Figure 2: All-in-One Bento Box Container

Source: Amazon

Strategic Market Entry and Competition

For traders, entering the Japanese market requires strategic planning and relationship-building with local partners. In the case of US traders, the US-Japan Trade Agreement (USJTA) provides preferential tariff access for nearly 90% of US agricultural products, offering a competitive edge. However, exporters must navigate strict regulations on ingredients and additives, ensuring compliance with Japanese standards. Besides taking advantage of tariff preferences, participating in trade shows such as the Supermarket Trade Show and FoodEx Japan is highly recommended for gaining market insights and establishing connections with potential business partners. These events provide a platform for showcasing new products and understanding consumer preferences.

The demand for convenience and ready-to-eat meals will continue to rise in the coming years. Ongoing lifestyle changes and the increasing number of single-person households fuel this trend. Retailers and suppliers who can adapt to these changes and offer innovative, high-quality products will likely see continued success in this market. Overall, Japan's retail food industry presents a dynamic landscape with significant opportunities for growth and innovation. By understanding market trends and consumer behavior, international traders can effectively navigate this market and capitalize on the demand for high-quality, convenient food products.