Agribusiness Review - Vol. 7 - 1999

Paper 5
ISSN 1442-6951

Prospects for the Japanese seafood market in the late 1990s:
Implications for Australian exporters

Dr S. C. Williams and Professor K Taya

• Abstract
• Introduction
• Objectives
• Research methods
• The Current Situation
• Supermarkets and Department Stores
• Fishing Port Co-operatives
• Specialist Seafood Retailers
• Port and Central Wholesale Markets
• Convenience Stores
• Food Service Industry
• Current Strategies and Proposed Solutions
• The role of the Japanese government
• Implications for Australian exporters
• Conclusion
• References

Abstract

The domestic seafood industry in Japan in the late 1990s has been in crisis. Competition is now so intense that the seafood retailing sections of many department stores and supermarket chains are consistently losing money. As a result, the seafood sections are being markedly reduced in size and scope or the space is being leased to independent operators. These effects are rippling downwards, causing problems for wholesalers, importers, and Japanese producers. Radical changes to ‘traditional' marketing practices have occurred, new marketing solutions are being tried, and others have been proposed. In this paper, the authors set out the current situation of the seafood market in Japan, and the changes that are taking place. The current strategic responses of the various sectors to these changes are described, as well as the implications of these responses and suggested strategies for the marketing of Australian seafoods in Japan.

Introduction

Japan is Australia's most important seafood market, with exports in 1995 – 1996 worth almost A$ 2 billion (Australian Bureau of Agricultural and Resources Economics [ABARE] , 1998 ). It is the largest country market for shrimp, scallop, tuna, abalone, and live fish. While the consumption of seafood overall appears to be slowly declining ( Williams 1998) , some market sectors are expanding, with a continuing growth seen in demand for processed seafood products, and for services related to the seafood industry (Australian Embassy 1997 ).

While Australia is continuing formal and informal bilateral trade consultations with Japan to remove obstacles impeding access to Australian products, and to make the Japanese marketing and distribution system more transparent, other countries are pursuing these same objectives. The continued opening of the Japanese market under trade liberalization to food products means that exporters to Japan are becoming increasingly competitive. At the same time, the domestic industry in Japan has reached a situation where prices are so low and competition so intense that many companies are going out of business. This places exporters in a very difficult situation.

These developments are taking place against a background of continuing economic stagnation (since 1989) where consumers are lacking in confidence and uneasy about Japan's future. They are concerned by increasing unemployment, Japan's difficult situation with respect to internal debt, a large exposure to lending in the troubled economies of South-East Asia, and political instability. Companies are laying off full-time workers, more people are being forced to work only part-time, and land values have declined, in some places by more than twenty- five percent (particularly in the major cities). A recent increase in the consumption tax from 3 to 5 percent has further suppressed consumer spending. Consumers are now far more cautious compared to the boom years of 1985 to 1989 and are seeking value for money in their purchasing. Industry participants are concerned about declining prices and the future effects of further import liberalization in line with Japan's obligations under the World Trade Organization (W.T.O.) (Australian Embassy Tokyo 1997 ).

In late 1997, one of the top ten general trading companies ( Sogo shosha ) experienced financial difficulties and several major banks and securities firms were also in trouble. Many discount store chains, which boomed in the period 1990 – 1995 have gone out of business or have been taken over by rival firms. Many producer and consumer co-operatives are now in dire straits. In such troubled times, Japanese consumers tend nationally to restrict their spending, particularly on imports. In January, 1998, imports fell for the 10 th consecutive month (Ministry of Trade and Industry, Tokyo) . Also in such times consumers might be expected to respond more favourably to exhortations to ‘buy domestic' in order to help fellow workers.

Given the importance of this market to Australian seafood exports, an assessment was made of the current situation and its implications.

Objectives

The aims of the study were to answer three questions:

1. What is the present situation of the seafood industry in Japan in terms of key marketing elements and trends?
2. What are the strategies now set in place and proposed by the Japanese Government and industry to deal with the current situation?
3. What are the implications for Australian seafood exporters in terms of appropriate strategic response?

Research methods .

Information for this article was gathered during a field trip to the Kanto area of Japan (Tokyo and Yokohama) in February, 1998. Interviews were conducted with Japanese trading companies, government officials, university academics, and fishing associations. Information was also obtained from analyses of statistics provided by the Ministry of Agriculture, Forestry and Fisheries, Tokyo. Direct observations were also made of a wide range of seafood retail outlets, including supermarkets, department stores, discount stores, convenience stores, family marts, specialist seafood shops and consumer co-operatives. These observations were compared with earlier observations of the authors in the same areas of Japan from 1983 to 1996 (Williams 1995; Williams 1998 ).

The Current Situation

To appreciate the current situation in the Japanese seafood market it is useful to study a number of key economic elements that indicate the extent of the decline in seafood prices in Japan; viz. the relationship between the consumption of seafood and the consumption of beef; the changes in the price relativities of various meats and seafoods; the overall trend in fish prices at Port and City Wholesale Markets; and the trend in fresh tuna landings and price.

As expenditure on food increased due to the economic boom from 1988 to 1990, meat consumption per person per year in Japan (e.g. beef, pork, poultry etc.) and seafood consumption (e.g. fish, molluscs, squid) tended to move in the same direction.. In 1991, however, many restrictions on beef imports were lifted, and the price of beef fell. There were also declines in the prices of pork and chicken due to increasing imports. Meat consumption then tended to increase, while overall seafood consumption fell. There was a marked decline in the consumption of lower-value species such as saury and sardine, but there was little change in the consumption of high value species such as snapper ( tai ) ( Williams 1998) .

In Table 1, the relative prices of seafood and meat for the period 1970 to 1995 are shown in five-year intervals. It can be seen that while there was a small decline in average beef prices to 1995, prices of pork and chicken fell dramatically in comparison to seafood, encouraging a shift in consumption to meat. Since 1995, the average price of beef has declined further (Ministry of Agriculture, Forestry and Fisheries [MAFF], unpublished data ), with retail prices in the Kanto area currently ranging from A$4 per kilo for the cheapest cuts (mostly imported) to A$400 per kilo for the highest quality domestically-produced brands.

Table 1 - FISH AND MEAT PRICE COMPETITION

(Highest price at top, lowest price at bottom)

Source: Taya (1998 ) Compiled from Annual Household Expenditure Statistics. Ministry of Agriculture, Forestry and Fisheries

Study of trends in seafood prices at fishing ports (Port Wholesale Markets) and in major cities (City Wholesale Markets) as well as expenditure per household on seafood from 1982 to 1995 shows that seafood prices in general trended downwards about twenty-five percent over the period as household expenditure on seafood declined. This decline in prices, however, was not solely due to a decline in demand. Increasing competitive pressures at retail level meant that supermarkets and department stores (which currently have around 70 per cent of the retail market for seafood) have put increasing pressures on wholesalers and producers to give larger discounts and to generally reduce prices. More and more supermarkets now buy direct from fishermen, by-passing the traditional wholesale market system entirely (Williams 1998) and thus eliminating wholesaler margins.

From 1979 to 1984, the general trend was that consumption of tuna (chilled and frozen – for consumption raw as sashimi ) increased as price decreased . However, from 1985 to 1994 (the mostly recently available figures) declines in prices had lesser effects on consumption increase. According to the interviews, this is because increasing quantities of poor quality ( and therefore low-value) yellowfin tuna are being imported; consumers are now less influenced by price alone (they are now looking for value-for-money); and also because of very strong competition between beef and tuna. The most recent figures (MAFF – unpublished) do not significantly change this scenario.

The current situation is one of continuing decline and desperation for many sectors of the seafood industry. Competition is intense, prices are still falling, and all sectors are being squeezed.

Supermarkets and Department Stores

As noted earlier, price competition between the large chains is intense, with the seafood section of many major supermarkets and department stores making losses. Most stores rely primarily on imported product, and restrict their product ranges to fast-moving items. As far as these stores are concerned, seafood is just another commodity to be handled in the course of normal operations. If the commodity does not pay its way, it is dropped from the product mix. Many stores have either markedly reduced the size and scope of their seafood sections, closed their own seafood corners, or leased the space to independent operators. Some stores are trying to maintain their seafood operations by experimenting with new products in an attempt to attract more consumers to seafood. They are introducing new species (i.e. non-traditional species, such as tilapia), more convenient forms of product( e.g. cooked), new flavour combinations, and different sizes of product (e.g. family pack, bulk pack, individual serves). Species not traditionally used for consumption raw as sashimi and sushi are being tried ( eg rockfish). Three years ago, new ‘hit products' in supermarkets and department stores were negi-toro (minced onion and raw tuna) and mentaiko (a mix of cod eggs and chilli) (Williams 1998 ). Many new versions of these ‘hit products' are now to be found (e.g. cod eggs with curry, minced tuna meat with garlic and spices).

Fishing Port Co-operatives

Some fishing port co-operatives (e.g. Misaki, near Tokyo) have attempted to alleviate competitive pressures by promoting their own brands via ‘push' campaigns at retail level in association with particular seafood retailers (e.g. supermarkets or specialist fish retailers such as Nakajima Suisan). Such campaigns usually involve in-store promotions which emphasize the uniqueness of the fishing ground and the excellence of the products caught in that area. Those campaigns tie in well with broader ‘buy-domestic' campaigns run by the national fishing associations.

Other fishing port co-operatives have vertically integrated into wholesaling and retailing in an attempt to capture margins higher in the distribution chain, and to better control the marketing of their products at retail level. Until recently, however, such campaigns and strategic responses to competitive pressures have been few.

Specialist Seafood Retailers

Specialist seafood retailers (independent stores or small chains) have about 30 per cent of the retail market for seafood. They range from the traditional neighbourhood fish shop ( sakana-ya ) to retail chains, such as Nakajima Suisan (see earlier).

In recent years there has been somewhat of a renaissance in their business prospects after gradually losing market share to supermarkets over the past twenty years (Williams 1998) . Since 1996, their numbers have increased significantly, particularly as tenants within department stores and large supermarkets, as tenants of shopping centres, and as tenants of new developments projects now taking place in many train station precincts. This has especially been the case since the Japanese National Railway was privatised (MAFF 1998) .

Port and Central Wholesale Markets

In the Port and Central Wholesale Market system product landed by fishermen is first auctioned to middlemen in the Port (the auction usually run by the Port co-operative) and then transported to major city markets to be re-auctioned to city-based middlemen. Although cumbersome, with two auction steps and many levels of intermediate wholesalers, the system operated quite efficiently in terms of rapid flow-through of fresh product but was only maintained by very high prices (compared with other countries) at retail level (Williams 1986, 1988) . Increasing competition in the 1990s has led to dramatic changes in this traditional system, with many more distribution channels opening between producer and consumer (Harada 1994 ). As a result, less and less product is consigned for auction, while more and more (particularly the high-value product) by-passes the traditional system entirely. In Chiba prefecture, for example, many fishing villages load their catch into supermarket trucks on the beaches. It was suggested in the interviews that the Port and Central Wholesale Markets may soon be forced to abandon the auction system entirely and rely solely on brokers (as in the Paris fishmarket in France). As prices and throughput decline, some regional markets (within the traditional system but privately –owned [see Williams 1998 ]) are expected to close.

Convenience Stores

Convenience stores are small franchise operations that are affiliated with large supermarkets or department stores (e.g. Ito Yokado [dept. store] has 7-11, Daiei [dept. store] has Lawson). Since 1995 they have been introducing many new seafood products into their necessarily limited product ranges in response to an increasing demand for ‘round the clock' fast foods for individuals. The rapid product turnover and frequent delivery of fresh product to these fast food outlets means that the quality of their seafood can sometimes exceed that of supermarkets. It was observed that these retail outlets have been instrumental in broadening the markets for many ‘high class' seafood products such as nori (dried seaweed) that was previously only available from selected outlets.

Food Service Industry

In the food service industry (restaurant and catering sector), the trend over the last twenty years has been increasingly towards chain and franchise operations with centralised processing facilities, and away from small, independent restaurants. This shift in operations has meant that many restaurants now are basically factory-type operations where real ingredient costs are critical. An example is the Ten-ya chain which offers shrimp tendon (prawns on a bowl of rice) for 490 Yen across Japan. The set retail price means that suppliers have to meet a very low price per shrimp in order to do business. This type of operation has placed intensive price pressures on fishermen, aquaculture producers and importers. If they can't meet the specified price, they lose the business. Similar pressure comes from the Japanese school lunch system and catering operations (e.g. company canteens, institutions). It was suggested in interviews that the current maximum per-shrimp price required by the Japanese school lunch system was 10 Yen. They also demand long-term contracts, consistent supply, consistent quality, stable prices and six to twelve month minimum planning periods.

Current Strategies and Proposed Solutions

According to interviews, the ‘traditional' marketing and distribution system of Port and Central Wholesale Market auctions encouraged Japanese producers into a ‘price-taker' mentality. Prices set at auction by buyers at Port and Central Wholesale Markets set the prices for seafood across Japan at all levels of distribution. There was little variation in price from market to market. Fishermen did not need to market the product. They sold all their produce at prices set on the particular day. Their main concern was to sell the fresh product as quickly as possible, as a premium was obtained for freshness. There was no need for sophisticated marketing planning or strategy.

On the other hand, the rise of the large department stores and supermarkets and increasing competition at retail level meant that there were rapid developments in the use of technology and great pressures to reduce costs. It was noted earlier that while supermarkets and department stores currently hold 70 per cent of the seafood market, seafood to a supermarket or department store is just another commodity in their product line. It has no special quality to separate it from other protein products.

The supermarkets and department stores were not bound by nor interested in the traditional seafood production and distribution systems. They accessed domestic products and imports on the same basic criteria of low cost, stability of supply, consistency of quality, and efficiency. They revolutionized seafood distribution through direct distribution pathways, through the use of computers at point of sale (POS), logistics management, central in-house processing and packaging, transport, and warehouse cold-storage. With their bulk-buying capacity, they found they (along with other bulk-buyers such as the Sogo shosha ) could control the market prices for many domestic and imported species. In many cases, imports were preferred because they were mainly standardized frozen commodities that could be traded sight unseen using currency hedges to minimize risk (Williams 1998 ). The Japanese producers did not realize the deterioration in their position with respect to market power until it was too late. Now they find it difficult to resist retail pressures to reduce prices.

The role of the Japanese government

To alleviate this situation, the Japanese government is presently considering a proposal for an 8-point marketing program aimed at increasing the fortunes of Japanese producers. Funding for the proposal is to come from a suggested 1 per cent levy on producer sales. Financial and other support will also be provided by the Japanese government.

The components of the proposal are:

1. A generic ‘buy-domestic' campaign for seafood, involving the education of consumers on the locations and special qualities of domestic fishing grounds and species, and their superiority over imported product. As noted earlier, some fishing co-operatives are already engaging in such campaigns, highlighting their product as all-domestic (Nakajima Suisan).
2. A focus on safety. Consumers will be shown how local producers check and preserve the quality of their fish and other seafood and how the products also meet rigorous Japanese quality standards.
3. Fisheries co-operatives will be assisted and encouraged to establish their own brands, and create particular images for their products.
4. Each region will also be encouraged to create distinctive, positive images for their seafood (e.g. Hokkaido – a northern cold-sea image; Okinawa - a clean-water ‘tropical' image).
5. Where the products are processed, an ‘organic' image will be created (free of additives and preservatives), together with an image of environmental care. New processed products will be developed to attract the interest of consumers.
6. Where product is sold live or fresh, the proximity of the domestic grounds to retail markets and short times from capture to consumer will be emphasised.
7. A wider variety of package sizes will be encouraged to cover the wider spectrum of seafood consumers now existing in Japan (Williams 1998) . A range of pack sizes suitable for single households, couples, small families, the elderly, and larger families will be developed and standardised.
8. The image of value – for – money in the domestic product (as opposed to imports) will be promoted widely. High quality at competitive prices will be emphasised. Aggressive pricing and sales promotion strategies will be followed where necessary to woo consumers away from imports.

Implications for Australian exporters

If one looks at the previous (not proposed) strategies of Japanese producers in terms of marketing and economic theory, they were price-takers selling largely undifferentiated products in a large number of similar markets. They pursued simple segmentation strategies (e.g. different sizes, different weights of product packs) and few attempted to differentiate their image from other competitors. While many exporters to Japan pursued such differentiation strategies (e.g. Norwegian salmon, Tasmanian salmon), few Japanese producers did so .The proposal as outlined broadens this simple approach dramatically. The eight points as outlined include the strategies of price, image, support, design, quality, product development, market development, and business redefinition (Mintzberg 1988) .

Because Japanese producers are loyal to their fishery associations and are highly organized at the local, regional, and national levels (Williams 1988) it is likely that a concerted marketing effort, if it goes ahead, will have considerable impact on imports.

Although it might be argued that some seafood exports from Australia (e.g. large shrimp, live lobster, abalone), are dominant in particular segments of the market (and thus relatively immune from competition) others are not ( e.g. banana prawns, scallops, tuna and live fish) and may suffer from a concerted ‘ buy domestic' campaign. Over the past twenty years, Australian exporters have generally followed a strategy essentially the same as Japanese producers. They are mostly price-takers, sell essentially undifferentiated products, and few attempts have been made to promote Australian seafood in a co-ordinated way. One notable exception has been the efforts of the Australian Prawn Promotion Association to promote Australian prawns in Japan as ‘clean and green' (environmentally sound). This promotion was supported by an industry levy but has recently lapsed. Another was the successful promotion of Tasmanian farmed Atlantic salmon in Japan, making it the most preferred imported salmon product in Japan for the past few years.

If the ‘buy domestic' and other aspects of the proposed Japanese promotional campaign are funded, Australian exporters might consider an appropriate response.

The authors suggest that such a response might include the following:

1. Following the successes of the Norwegian seafood and Tasmanian salmon promotions in Japan, the interviews suggest that there are still good prospects for a generic ‘Try Australian seafood' campaign to counter the proposed ‘Buy domestic' campaign. Thanks to the efforts of the Australian Meat and Livestock Corporation (AMLC) in promoting Australian beef in Japan over the past ten years, the term ‘Aussie' has now a very high level of consumer recognition and a very positive image. It would be a simple matter to extend the positive image of ‘Aussie beef' to ‘Aussie seafood'.
2. This general campaign could be backed by more focussed campaigns which promote Australia's regional (e.g. Gold Coast, Sunshine Coast, Barrier Reef, Southern Ocean) and local fisheries (e.g. the Eden Fisheries Co-operative) to further counter the local and regional campaigns of Japanese producers.
3. A straightforward way of countering Japanese claims to higher quality would be to match the standards targeted and (especially for processed products) obtain Japan Agricultural Standard (JAS) certification. All foreign firms are able to apply for the JAS mark (of safety certification) on their products. This mark has wide support among Japanese consumers concerned about product safety. Australian product could also be certified as meeting the highest international standards (e.g. ISO, HAACP).
4. A wider range of product sizes and convenient forms and packaging might be considered, to match the proposed Japanese strategy.
5. A range of exiting new products could be developed following the lead of Japanese retailers. Such a strategy might be pursued in direct co-operation with a particular department store or supermarket chain. For example, a selection of prime seafood in a read-to-cook pastry or seaweed ( wakame ) casing, or a mix of seafood and beef along the lines of the ‘reef and beef' dishes popular in Australia. Dining-in by barbeque is increasing in popularity in Japan, and there are many opportunities in this market segment for new seafood products. New variations on ‘hit products' such as negi-toro could be tried, using uniquely Australian ingredients (e.g. negi-toro with Australian native herbs).

Conclusion

This paper has outlined the current situation of the seafood industry in Japan, its problems, and proposed solutions. If a united strategy is put in place by Japanese producers to promote ‘buy domestic' and promote the virtues of branded Japanese products, Australian exporters will also need to be more united in their marketing efforts if market share is to be retained. Other countries (e.g. Norway and the United States) will respond quickly to any Japanese promotional efforts. An effective Australian response will require both a sharing of market research information and expertise across the industry. Government support for overseas promotion is still available in the form of funding for the organisation of trade shows, and according to the interviews, Japanese buyers are impressed by well-run promotions where leading Australian politicians visit Japan to personally promote particular industries and regions. If the Japanese producers do mount an effective campaign, it is hoped that Australian exporters will be able to quickly respond.

References

Australian Bureau of Agriculture Resource Economics ( ABARE) (1998) Nation Economic Outlook – Fisheries National Outlook Conference , February, Canberra, ACT.

Australian Embassy (1997) Australia – Japan Priority Market Access Issues . February, 1997. Australian Embassy, Tokyo.

Harada , K (1994) Improvements for distribution through wholesale markets . Distribution of Fresh Fruits and Vegetable Course Notes. Osaka International Training Centre. Japan International Co-Operation Agency. P4.

Ministry of Agriculture , Forestry and Fisheries. Statistics Information Section, Tokyo.

Ministry of Trade and Industry, Tokyo (unpublished)

Mintzberg , H. (1988) Generic strategies: Towards a comprehensive framework. In Advances in Strategic Management . Volme 5. Greenwich CT. JA1 Press. pp.1 – 67.

Taya , K (1998) Fisheries Economics Department Tokyo University of Fisheries (unpublished)

Williams , S.C. (1986) Marketing Tuna in Japan . Queensland Fishing Industry Training Council. Brisbane.

Williams, S.C. (1988) A Market-Oriented Management Program for the Coral Sea Tuna Fishery . PhD Dissertation. University of Queensland.

Williams, S.C. (1998 ) Long-Term and Recent Trends in the Japanese Seafood Industry: Implications for Exporters . Graduate School of Management Monograph No. 1/98.