Japanese producers to feel squeeze

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From butchers to bakers, a string of Japanese food ­producers has announced plans to raise prices – in some cases for the first time in decades. However, Motoya Okada, chief executive of Aeon, one of the country’s two dominant retail groups, is not having any of it.

“Manufacturers need to do what they can to eliminate waste,” Mr Okada said at Aeon’s half-year earnings briefing this month.

Translation: Aeon will use its vast buying power to ensure its customers see as little difference as possible at the cash register. With sales of Y2,525bn ($22bn, £10.8bn, €15.5bn) in the six months through August – a shade behind Seven & I holdings, its rival – Aeon can squeeze its much smaller suppliers into exempting it from some or all of their announced price increases.

If this sounds like the ­everyday back-and-forth of the global retail business, it is a relative novelty in Japan. Historically, retailers lacked the scale to challenge more powerful wholesalers and the manufacturers they served and it is only with the emergence of big groups such as Aeon in the past decade or so that the balance has begun to shift.

“We’re coming to the point where Aeon and Seven & I are playing the same game as Wal-Mart and Tesco are in the west,” says Roy Larke, editor of Japan­Consuming, an industry newsletter. “We’re moving towards a modern system.”

Food makers are pushing for higher prices in response to soaring input costs. Flour, oil and other ingredients are dearer, shipping costs are up and a weak yen – particularly against the euro – ­exacerbates the pain. Bread, noodles, cooking oil, mayonnaise and other basics are all due for price rises.

These follow a decade of economic rot accompanied by broad consumer price deflation. Retailers put some pressure on suppliers during the slump but were reluctant to go too far for fear of igniting damaging price wars. Now, the true extent of their leverage will be tested for the first time.

So far, consumers seem grateful that big retailers are holding prices down. Aeon’s sales grew 7.7 per cent in the first half and sales at Seven & I, which owns the 7-Eleven convenience store chain as well as supermarkets, rose 10.2 per cent.

However, if manufacturers begin to buckle on prices, the next challenge for Aeon and Seven & I might be to persuade the public that their ruthless price policies are all for the greater good.

“In the west, there are people who don’t like Wal-Mart and Tesco because they’re too powerful,” says Mr Larke. “We haven’t seen that sentiment here but that could change.”

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