Cheap is king in recession-mired Japan
Dinner at a pub: 270 yen. A bowl of ramen: 290 yen. Yakitori: 280 yen. And so on and so on. You see the signs on which these prices are writ large and wonder, How do such establishments survive, charging so little? The fact is, says Shukan Post (Jan 25), they are not only surviving but thriving. Cheap is king in recession-mired Japan. Thirty years ago, consumers splurged on gold-flecked sushi. Now they flock to where small change suffices.
Japan’s business climate has always been harsh, Shukan Post points out. Land is expensive, natural resources are few. In the U.S. and China, profit margins average 15%; in Japan, 5%. But the fact is, the magazine explains, cheap prices do not necessarily mean low profits – if you master a trick of the trade or two.
Take izakaya pubs, for example. The Kin no Kura Jr chain offers every item on its menu for 270 yen; at the Torikizoku chain it’s 280 yen. On some items – chicken thighs, for example – the pub makes less profit, on others – like chicken livers – they make more. Most customers order a little of this, a little of that. On average, cost price is 30% of what you pay. Seventy percent is clear profit.
It’s partly because overhead is relatively low. Even on prime land near a train station, rent is not too high if you’re on an upper floor of a multi-purpose building, and large signs, visible for blocks around, obviate advertising costs. Touch-panel ordering reduces personnel costs. So don’t fret for the purveyors. They’re making your 270 yen go a long way.
It’s not just restaurants, of course. Lower prices and higher profits have spread throughout the service sector. The trend has brought back the humble barbershop, once swamped by the more expensive and fashionable hair stylist. A barber charging 1,000 yen for a no-frills haircut will have you out of the chair and be attending to another customer in 15 minutes, whereas a 3,500-yen shave-cut-shampoo-set job takes a good 50 minutes. The latter, on average, brings in 25,000 yen in the course of a 6-hour day; the former, 36,000 yen. Consider in addition that most barbershops are run by couples operating out of a corner of their homes. No rent, no staff. Typical annual earnings: 5.2 million yen – not big money, but still, a secure and reasonably comfortable livelihood.
Every neighborhood seems to have one – an inconspicuous little flower shop where you never see a customer. You can’t help feeling sorry for the owners. Don’t. They know what they’re doing, and are profiting handsomely. The secret, Shukan Post informs us, is funerals. “We have contracts with funeral parlors,” explains the owner of one rather forlorn-looking flower shop. Even small funerals need altar flowers, a floral tribute and so on. They order them from us. If we charge 15,000 yen, 80% of that is profit.”
Two “lost decades” have shaped today’s economy of small business, parsimonious consumption and rock-bottom prices. It’s been this way so long it feels normal. Last month a new government charged into office promising robust inflation and muscular growth. How will the pubs, barber shops and flower shops adapt?