It's the end of the year, and that means party time not just in the West but also in Japan. Christmas goes by without a blink, but New Year is a big deal. Many people take a week off, and retailers get a boost from the sales that begin with a new calendar year.
But party time is taking on a different face in Japan, due in large part to the country's ageing population. This is creating divergent behavior for the profits of Japanese companies devoted to traditional izakaya bars vs. those that either offer either cheap restaurant fare or serve people who eat and drink at home.
It's that domestic partying that is causing the structural change. Households whose head is in his or her (well, it's always his in Japan) 50s or 60s are the most likely to celebrate at home instead of eating out. That's creating great pressure for izakaya, the bar-style restaurants offering skewers of everything from wagyu beef to mushrooms, with a side order of salty edamame soybeans, washed down of course with plenty of beer.
It's another Japanese institution that's under threat. Airbnb-style accommodation is already disrupting the hotel industry in Japan, stealing market share from traditional ryokan inns, as I explain in this story that I wrote for Forbes.
The izakaya is an institution as central to Japanese culture as the pub is to British culture. Salarymen gather there after work for virtually mandatory drinks with the boss. It's a good release valve. Once everyone's had a few drinks, you're allowed to tell the chief what you really think about work, having kept your tongue in check and your head down while in the office.
But Japan is ageing, and the ranks of salarymen are thinning. To combat that threat, Japan is trying to encourage more women to enter the workforce, and has just given families with one full-time and one part-time worker a tax break. It has raised the amount that a dependent spouse can earn without being taxed from ¥1.03 million per year to ¥1.5 million ($12,773).
Still, the country was the first major nation to see a declining population, bringing with it the drop in consumer spending that entails. The median age in Japan is 46.9 years old, according to the CIA World Factbook, edging ahead of Germany's 46.8 years old and behind only Monaco, at 52.4 years old. Monaco, as a tax haven, has an older population since it is home to people who have already made their fortune.
What demand there is for eating out has gravitated away from mid- or high-range izakaya such as Watami T:7552, Daisyo T:9979 and Chimney T:3178 and towards lower-priced versions such as Torikizoku T:3193, where a bowl of yakitori chicken and rice costs just ¥280 ($2.40).
Low-priced restaurants such as Italian-restaurant chain Saizeriya T:7581 and ramen specialist Hidakaya (run by the company Hiday Hidaka T:7611) are also seizing the traditional business of the izakaya. Their sales are solid. Saizeriya in particular has boosted its selection of wine and offers glasses starting as cheap as ¥100 (85 cents) to lure in people looking for a light drink rather than a boozy izakaya night out. It's also looking to expand in China.
Supermarkets are the main beneficiaries of the "celebrate at home" trend. They and convenience stores are now stocking a wider range of snacks and deli items for you to take back with you to go with your bottle of sake or wine.
The supermarket operator Yaoko T:8279 is a perfect play on this trend. Based in Saitama Prefecture, it offers a wide selection of pre-prepared dishes. It is attempting to capture the drink-at-home market by stocking more snacks than its competitors, which is already driving an increase in same-store sales. It is also looking at expansion in Tokyo as well as Kanagawa and Chiba Prefectures.
Another stock to consider is Kameda Seika T:2220, which makes the famous Kameda Kaki-no-Tane brand of rice crackers, and is the largest producer of rice crackers and snacks in Japan. They fly off the shelves and have high margins. However, the company has demonstrated weak sales growth of late because it is actually offering too many products. The company is cutting back on the number of items it makes, pushing its core products, and expanding overseas into places such as the United States and Vietnam.
Sales of sake and wine are on the rise, since older people favor them. Whiskey sales are also growing. The main downturn has come in sales of beer, which younger people tend to drink.
People in their 50s and 60s spend a combined ¥4,386 ($37) per month on alcohol bought in supermarkets. That is almost double the ¥2,422 ($20) spent by people below 40.
In total, including alcohol stores, discount stores, convenience stores, department stores and mail-order companies, those in their 50s and 60s spend ¥8,123 per month on booze, compared with ¥4,115 for those under 40, such as Millennials.
Japan plans to reform its liquor-tax system in the fiscal 2017 year, which runs through March 2018. This should only increase the popularity of sake, reducing tax per 350ml from ¥42 to ¥35. The same decline is slated for wine.
Beer would benefit from a drop of ¥77 in tax per 350ml now to around ¥55. But the tax change would increase the rate for low-malt beer known as happoshu (from ¥47 to ¥55), and the same for other kinds of beer and alcohol-related products such as alcopops. That removes the main attraction for happoshu, a beer category with under 67% malt that has proved popular in Japan because it used to have cheaper tax than beer. That will no longer be true.
You could do worse than identifying consumer-goods stocks that are likely to benefit from Japan as it ages. Japanese stocks, particularly financials, are the best equity trade in the world right now, according to CLSA's Asia equity strategist Chris Wood. But investors must hedge against the yen, down 11% since the election of Donald Trump.
The optimism stems from the improved sentiment about the Japanese economy demonstrated by Bank of Japan Governor Haruhiko Kuroda and the BOJ. It offered a more generous take on growth after this week's meeting, having previously warned that slow demand from emerging markets would weigh down exports and output.
There's no mention of such concerns now. Like the United States, the Japanese economy appears to be moving in the right direction, slowly. "Japan's economy continues to recover moderately as a trend," the BOJ stated after the meeting.
Kuroda reiterated his pledge to keep the mid-term 10-year Japanese government bond rate at a yield of 0%, which is actually an improvement on the negative rates Japan is experiencing now. That's another factor that lures Wood to Japan.