June 19th 2008
Japanese market trends
by Ned Goodwin in Japan

Picture: A wine shop in a train station.

Based on market statistics for 2007, it is possible to cast predictions for forthcoming trends in the Japanese market during 2008 and beyond.

France
Imported volume of still wine from France in 2007 declined by 4.5% to 5.95m cases. Volume of bottled wine showed a comparatively larger decline to 5.78m cases. Clearly, French imports in 2007 are far below imports of one-year prior chiefly due to a steep decline in Beaujolais Nouveau.

Export volume of Vin de Pays and Vin de Table fell by 3.7%, largely due to price hikes. Anecdotal evidence suggests, despite stereotypes to the contrary, price rather than quality forces the wallet of the average Japanese consumer in the case of French wine. This is evidenced by the continual support of generic Bordeaux AC in both the on and off-trades at large.

Bordeaux AC and Bordeaux Superieur AC were mainly responsible for the 1.8% increase in 2007 of imported Bordeaux to Japanese shores. This exceeds the total imported volume of Chilean wine. While such lowly categories are increasingly unsaleable elsewhere (as the demand for, and divide between Bordeaux`s finest and many poor quality generic examples becomes wider), they continue to grow due to the impregnable name of Bordeaux in Japan

Local trade journal WANDS reports that while supermarket buyers have realised that better cost-performance items exist, and that reasonably priced wines from the New World for example, have begun to erode Bordeaux’s aura of indispensability; the average consumer still champions Bordeaux’s image as the must-have-wine, irrespective of taste or quality.

AC Bordeaux retailing at the relatively high price range of JPY 1,480-2,500 ($13/$23) is mainly sold at department stores and high-end supermarkets. Meanwhile, convenience stores such as Lawson handle Ginestet retailing at less than JPY 1,000. At regional supermarkets and family-run liquor stores, demand remains focused on low-end Bordeaux.

Most startling however, is the penetration that these generic categories have in the on-trade. Lower priced Bordeaux is often consumed at wedding parties and banquets, and remains as a by-the-glass staple at restaurant chains. Given little variance in quality among this category, importers are making strenuous efforts to add value by way of tweaking labels to display pictures of a chateau, awards etc.

Conversely, and optimistically, 2005 Burgundy sold extremely well despite high prices. Still, overall sales declined due to small allocations.

French dominance will continue to be eroded through 2008.

Italy
Imported volume of Italian wine in 2007 remained almost unchanged, with 0.4% growth to 2.6m cases. This is the second consecutive year of small, but significant increases given the economic climate.

The greatest volume of Italian wine is sold at the ubiquitous price-point of JPY 1,000 ($9.30). Thus, vast quantities of Sicilian wine, generic Soave and Montepulciano d`Abruzzo, for example, are sold. Wines in 3-liter bottles that are exponentially less expensive per unit, are also selling well, while a change of many wines at this price-point to screwcaps has been accepted without fuss.

As with imports from other countries, the skillful use of words like “biologic”, or “distinctive artisanal wine”, empowers higher priced items sold directly to restaurants.

Some Italian wine importers plan to raise their shipping prices which, together with a 10% decrease in yields for all regions aside from Friuli and the Veneto, will likely see Italian FOB prices increase by 20%. Such price hikes are likely to cause Italian sales to fall through 2008.

US
The imported volume of still wine from the US declined by 5.8% in 2007, yet the volume of wine sold remained virtually the same as 2006 at 2.1m cases.

While imports of wine in large containers such as BIB exceeded 2006, those in regular bottles declined by 10.3%. This decline was largely due to the temporary demise of Carlo Rossi, Japan`s former single best selling wine. Carlo Rossi`s sales suffered due to bottling line issues at the beginning of 2007. Moreover, once the bottling situation was rectified, Suntory took over imports from Gallo Japan. However, sales of premium US wine have maintained momentum. Specialist importers of such wines indicate a remarkable 30-40% growth in their annual sales. WANDS attributes this to the influence of Parker, and the fact that Japanese demand for such wines subsequently exceeds supply.

Pinot Noir remains the variety most in demand from the US, while online shops have begun to play an important role in the sale of expensive American wine. In the on-premise sector, the surge in luxury hotel development fuelled by foreign capital has seen an increase for highly rated American wines. This status has trickled down to listings in fusion restaurants, outlets serving ‘Californian cuisine’, and even contemporary Japanese establishments.

This reporter believes that among New World imports to Japan, only US wine and Californian wine in particular, can be perceived as almost the equal of Old World wines steeped in heritage. This trend bucks the belief elsewhere, that American wine is too expensive for the quality. The success of US wine in Japan is due to a number of reasons including the all-pervasive nature of US culture in Japan. However, credit must be given to the tireless work of importers such as Orca International and Hotei, and the tenacious by-the-glass promotions conducted over many years.

Furthermore, the value of the yen against the weak US dollar has created a fertile market for further success. Soaring growth of the US category in Japan can be expected through 2008.

Chile
Imported volume of Chilean wine grew substantially for the first time in many years, with a 31.4% increase to 1.17m cases in 2007. Moreover, imports in 2007 broke the record of 1.01m cases established in 2001. Chile`s growing stature may indicate that the Japanese market has become aware of its improving wines and their value for money. Sales outlets have so far been limited to supermarkets and discount stores. However, Chilean wines is being rolled out online, and in wine bars.

This being said, 92% of Chilean wine is accounted for by items retailing at less than JPY 1,500 ($13.30). To put this statistic in perspective, in the case of Spanish or Australian wine whose respective imported volumes are less than that of Chile; the market share of wines retailing at more than JPY 1,500 is 12%.

Despite recent success however, importers report that residual stock is likely to hamper imports in 2008.

Spain
Imports of still wine from Spain increased 17.2% to 950,000 cases, closing in on the one million mark. Spain remains the only country whose volumes to Japan have shown steady growth every year since 2000. While Spain exports a number of BIB offerings to Japan, market penetration is stifled by American competition and the weak US dollar. Thus, further increases will depend on nurturing a perception of value for quality wines.

Among the category leaders of JPY 1,000 or more are Torres and Marques de Riscal, while in contrast, an increase of small specialist importers has seen availability of niche wines such as Roda, reflective of the contemporary and dynamic Spanish landscape. Larger importers offer little but the conventional portfolio of Cava, Sherry and Rioja despite the on-going Spanish food boom.

As it stands, there is very little Spanish wine retailing for JPY 3,000 or more and as WANDS notes, Spanish wine is perceived as cheap. As a counterfoil, the Economic and Commercial Office of the Spanish Embassy in Tokyo recently announced by-the-glass campaigns for the first time as integral to their promotions throughout 2008 and beyond.

Australia
The imported volume of Australian wine in 2007 showed 18% growth to 890,000 cases. The trend reversed the downward spiral of 2006, although it did not recover to the record levels of 2005. Imported volumes of Australian wine for the last several years have been erratic, reflecting launches of major brands such as Yellowtail, and importer changes.

All four leading brands—Yellowtail Eagle Hawk, Banrock Station and Jacob`s Creek—enjoyed increases in volume exceeding the 100,000 cases mark. Other major brands include Penfolds, De Bortoli and Yalumba. A major catalyst for recent success appears to be the backing of screw caps by the Australian industry as a whole. Even premium producers such as Leeuwin Estate and Shaw and Smith have rolled their entire production, including red wines, into screw cap. The Japanese catchphrase, “Australian wine is with screwcap”, appears to be catching on.

Another noticeable trend in the expansion of Australian influence in the Japanese market is increasing Australian wine in the on-trade. According to WANDS, Australian wine has managed to transcend the Japanese notion that cuisine should be served with wine from the same origin, and is increasingly appearing in orthodox French restaurants in addition to, as with American wines, the slew of recent luxury hotels and restaurants within. WANDS magazine notes that many restaurants are switching from American glass wines to Australian wines, due to superior value for money.

Other wines
German imports dropped by a staggering 27.7% to 405,500 cases in 2007, where New Zealand’s grew 5.1%, having shown steady increases since 2002, with the ‘green’ PR campaign working wonders. Austrian wines rose by 4.1% yet could not achieve the 10,000 case mark.

Meanwhile, Argentine wine boasted a strong 15.5% increase to 154,000 cases. While superlative quality is to celebrate in many cases, the popularity of Argentine wine is also due, many taste-makers believe, to an aesthetic and flavour-profile akin to dense, polished styles from the likes of California that are already popular in Japan. Either way, the future for Argentine wine is clearly bright for 2008 and beyond.

Source & Credits: Meininger’s Wine Business International (US).