Wine & Spirits have been at the wrong end of a boom & bust economic cycle. Elliot Lane reports on the battle for shelf space in an erratic market.

Typically a Japanese woman's working day can span 13 to 14 hours and over 100 miles. Rising at 6.30am, she will prepare lunch for her husband and children, then leap onto a bullet train for a two hour journey to Tokyo for a 9 till 7 job.

Convenience and accessibility are naturally the buzzwords in her life. On the way home, she will stop at the local corner shop for her groceries, which will include a meal and, more often than not, a bottle of beer or sake.

This social dynamic is common among the metropolitan cities of Europe and the US, but supermarkets and large wholesalers still take the lion's share of the retail market. In Japan, however, the retail market is dominated by the small local stores.

According to Japanscan Food Industry Bulletin, the national supermarket chains perform a necessary service but the bulk of retailing is handled by the convenience chains and small family stores.

One of the main reasons is the excellent service provided, which includes home delivery. Also supermarkets in the West are popular because people bulk buy for freezer storage. But in Japan, homes are very small with little space to store food and drink, and the humid weather means fresh foods have a very short shelf-life. Consequently, people shop every day.

Foreign drinks companies, however, face a dilemma of tapping into such a lucrative and highly mobile sector. The lack of shelf space means it is extremely difficult for imported products to be distributed en masse and brand promotions are limited. The wine industry suffers the most from these problems. Tales of New World Wine producers offering 10 free cases for every one case displayed by a Japanese retailer are not exaggerations.

Some imports are sold via specialist stores (part of the important gift market in Japan) but only a few will be readily available in local stores. Even top brands of Japanese goods find themselves excluded from many local stores shelves.

Wine on the wane?

Japan uncorked the fortunes of the world's wine producers but has now begun to dry up. In 10 years, total consumption (imports plus home-produced wines) increased from 136m litres in 1990 to a peak of over 401m litres in 1998, 62% of which was imported wine.

The Asian flu sent the market spinning. The boom went bust in 1999 with a fall to 283 million litres. Japanscan's publisher Carole Burke said: "This is typical of the total food and beverage market in Japan. A product will suddenly become very fashionable and demand will soar rapidly, then just as rapidly decline."

She also said the decline was brought on when the market became flooded with poor quality wine as importers rushed to take advantage of the boom. Good quality wine was priced too high for most people in this time of recession, so the taste for wine was not nurtured and now the fashion for wine is ailing. The top Japanese wine companies Mercian and Suntory have successfully marketed low priced Japanese wine, but even these successes saw a fall in demand in 1999.

The sharp increase in demand for wine began in 1994 with a 25% rise in demand, reaching a peak in 1998 with an 82% increase. This was due to publicity on what was dubbed the "French paradox" - red wine became the latest health drink.

Heart-related ailments are the greatest fear to the vast majority of the populace and red wine is still regarded as an elixir to safeguard against heart disease and stress. Organic wine is now popular, and some wines are fortified with added polyphenols and promoted for their supposed anti-aging qualities.

In 1999, red wine was the most popular type of wine produced in Japan with over 50% market share, white wine has approximately 40% market share and rosé by roughly 10%. Production of wine in Japan has increased from 68 million litres in 1990 to a peak of 152 million litres in 1998, falling back to 125 million litres in 1999, (all the figures quoted here are shipments on which alcohol tax has been paid).

In this period the proportion of the total market that is Japanese wine has fallen from 50% to 44%.

Imports of wine to Japan 1999 (bottles below two litres)
France 54m litres
Italy 23m
Germany 15m
USA 13m
Source: Japanscan

Other countries exporting wine to Japan in 1999 include Chile, Spain, Australia, South Africa and Argentina.

There is a very small export trade in wine from Japan, totalling 0.4 million litres in 1999 (wine in bottles below two litres) mainly to Taiwan and Thailand.

Brandy snaps back?

Many of the major players such as LVMH, Remy-Cointreau and Allied Domecq have reported in the last six months a healthy surge in Cognac and brandy sales.

Overall, however, demand for imported cognac and brandy in Japan has declined steadily in recent years, falling to 6m litres in 1999, half the quantity in 1993. This figure though is for Cognac and brandy imported in bottles and does not include a further 5m litres of crude brandy and figures for fruit brandy and crude fruit brandy.

This decline is mirrored by production of brandy in Japan which has fallen to 18m litres of shipments in 1999 compared with shipments of 29m litres in 1993. This decline is part of an overall steady decline in demand for western liquors in Japan. The recession is one reason, another reason, possibly more compelling, is the development of the market for single shot canned low-alcohol cocktails.

The first products, called Chu-Hi, were a blend of shochu [traditional Japanese liquor similar to vodka] and club soda, fruit juice, and other mixers with an alcohol content of 7%-8%.

These have had a roaring response and have been followed by a series of similar products based on western liquor. The birth of these products was supported by the Japanese government which changed the alcohol tax laws to favour low-alcohol cocktails containing whisky in an effort to prop up the struggling Japanese whisky market.

Since then this market has continued to expand and has compensated for the fall in demand for liquors.

Elliot Lane

For further information on new products in Japan or more details on the market in general, please click here.