As part of our Asia's Top 1000 Brands report's deep dive into Japan's top brands, Nielsen has provided this look at the market's economic and consumer backdrop.
With household consumer expenditure at more than $2.8 billion, Japanese consumers spend more than any other Asian market, with the exception of China, making it a market that seems ripe with opportunity. However, Japan’s domestic challenges create a reality that is quite different.
Japan is the only country in the region where the population will decline in the next ten years. A declining population makes it challenging to attain economic growth with a smaller participating workforce. Coupled with this is Japan’s aging population, famously the oldest in the world, with 27% over 65. To achieve growth in this market, it will be critical for the government and companies to look at innovative ways to boost economic performance.
Despite these challenges ahead, Japan’s domestic economy continued to show recovery throughout 2017 with GDP remaining stable. While major companies’ profits and internal reserves have improved, consumers have seen only marginal gross salary increases which have done little to combat the rising prices consumers see in their everyday spend across commodities, fresh vegetables, and key FMCG categories. While consumers remain more optimistic in 2017 than they were in 2016, savings remains the top priority after living expenses have been covered.
Major retail chains have lowered the prices of some key products in an attempt to stimulate demand, but consumption in FMCG remains sluggish. Across the retail landscape, the convenience store footprint continues to expand with growth ahead of supermarket formats. Convenience however is more than just a channel; it is also a way of life. The growth in ecommerce is testament to that as consumers look for more convenient solutions in their busy lives. Amazon Japan has expanded the number of 'Dash buttons' available, with product options from major beverages to disposable diapers, bringing the 'Dash Button' offering to more than 130 brands. Seven & i Holdings, which is the second largest supermarket chain in Japan, has started its 'IY Fresh' service offering online ordering for perishable goods.
As inflation starts to rise and income growth is low, real wages have fallen for the first time in two years. Consumption patterns are shifting. In a landscape of aging consumers, it is the elderly with more money to spend and time available while consumption among young families is shrinking. Moving forward, it will be extremely important to ensure the needs and requirements of specific demographic groups are met, with the optimal product offering and means of communication.
Japan’s slowing birth rate and aging population means that working household compositions are changing with both men and women in the workforce. The enhancement of online services such as those discussed above is a sign of what is to come, with these services catering both to the growing demand for convenience and access among working households as well as the elderly. Technology and robotics will play a pivotal role in the future to combat the dwindling workforce with new solutions to meet changing consumer needs.
Commentary supported by Ayako Ono, senior analyst, INTAGE
