WHY IS WINE SO EXPENSIVE IN JAPAN?

Why Is Wine so Expensive in Japan?

Yasunori Takano
Partner, Parabola Consulting
—————-
Japan Today, Insight
Jul. 09, 2015

That said, there are certain products that remain significantly more expensive in Tokyo than elsewhere. According to the survey basic groceries are 43 percent more expensive in Tokyo than in New York (the survey benchmark). Wine and cheese in particular are significant components in our basket and are at a significant premium compared to back home.

Over the next couple of articles we’ll be exploring the reason for this and offering some buying tips to get better value for money. So if you’re a wine and/or cheese lover—do read on.

Let’s start with wine
Wine is two t0 three times more expensive in Japan than in Europe, although it should be noted that due to 100 percent import duties, it’s even more expensive in Singapore.) Take for example one of our favourite Cotes du Rhone: it’s on sale at La Vinia wine shop in Paris for US$11.50. Meanwhile, the recommended retail price in Japan is $21.60. Strip out the consumption tax (20 percent and 8 percent for France and Japan respectively) and we’re comparing $9.70 with $20.

So why the doubling of the price? Well let’s consider first of all the wine’s journey. It will have been bought from the winery for around 50 percent of the French retail – call that $5. Shipping to Japan costs around $1 per bottle, another $1 is required to cover import duty and consumption tax at 8 percent is then payable on the combined amount. That gives us a landed Japan price of $7.50. The cost of storage and transportation in Japan is not cheap so we need to add another $1—that equals $8.50. So far so good—little difference from the price back home.

But we’ve got to sell the stuff and there begins the hard part.

In a nutshell, people simply don’t drink enough to sustain a relatively over supplied market.

Although wine consumption has been steadily increasing in Japan—indeed a 50 percent increase between 2011 and 2013—it is still only four bottles per person per year. This compares with 60 bottles for France, 27 bottles for the United Kingdom and 14 bottles for the USA. (In case you were wondering, consumption in China is a paltry two bottles per person per year but sharply increasing.)

Meanwhile, the Japanese market enjoys a very high status to the extent that every producer worth his or her salt “wants to be in Japan.” Result? A very over supplied market relative to consumption. So as a consumer you’re getting fabulous choice but you have to pay for it as distributing and selling wine in Japan is a painstaking process.

Here’s why
As an importer of a wine your main concern is obviously to distribute the stuff. Although international restaurants in central Tokyo seem to get through a decent quota of high end wine, the overall market is very different. Did you know that over 80 percent of the market is in the $1,500 per bottle range and dominated by supermarkets, convenience stores and discounters (52.5 percent)? A large number of these wines will have been imported in bulk and bottled in Japan to save costs (clue: look at the back label and if it’s all in Japanese it is likely to be a bulk import). Best avoided—life is too short to drink bad wine, after all.

The premium wine market in Japan, therefore, represents the very tip of the iceberg. And it’s a very crowded place with myriad importers all hoping to get lucky. As an importer once your wine arrives in Japan – typically a minimum quantity of a pallet (equivalent to 50 cases or 600 bottles) begins the arduous process of selling it. This typically entails an enormous amount of shoe leather, traipsing around Tokyo’s 150,000 bars and restaurants, attending trade tastings and organising events. A successful bar or restaurant visit might give you a sale of a case or two and you’d be lucky to have more than one a day.

As an importer you’re also subject to a significant amount of cash flow and foreign exchange risk as it can be as much as six  months between paying for the wine ex cellar (in local currency) and receiving cash in (in JPY).

Add to that Japan’s perfection psychosis whereby bottles with minor cosmetic imperfections such as damaged labels are effectively unsalable means that there is a significant amount of product wastage to factor in.

Once in a shop it’s a similar story: a low sales volume relative to high fixed costs of doing business. The average consumer buys by the single bottle with all the attendant mollycoddling. Understandable after all: Tokyo apartments are hardly famed for their capaciousness and few beyond hedge fund managers have proper wine cellars. But it’s an expensive process.

This all makes for high margins: 10-30 percent for the importer—more for boutique wineries, less for large scale distribution—and another 20-40 percent for the retailer. Combine those margins and that brings us to the magical $20 Japan retail price on our beloved bottle of Cotes du Rhone.

The good news
So fine wine is indeed expensive in Japan but for very understandable reasons. Would be importers, don’t give up your day job yet. As they often say, the easiest way to make a small fortune is to start off with a big one in the wine trade and I don’t recall the last time I saw an importer in a Maybach!

The good news is that fine wine doesn’t have to be expensive. Here are some of our tips for wine lovers seeking value:

  1. Buy directly and in as large volumes as possible.
    You can normally haggle a 20 percent discount for an unmixed case which takes a big chunk out of the Japan premium.
  2. Seek out damaged goods.
    If the label is a little torn you’ll be able to get a decent discount as it is unsaleable to the local market. Some importers even organise damaged bottle sales.
  3. Make the most of trips back home.
    Stock up and bring items back to Japan. Although the duty free limit is only three bottles, there is nothing stopping you from bringing in a case or two, declaring them at customs and paying the duty. It’s only going to set you back around ¥1,200 a case so you’re getting a huge savings.
  4. Import yourself
    If you’ve got a favourite producer back home get a group of friends or colleagues together and organise your own pallet—or even container.
  5. Join our direct from France wine club.
    Receive wines by the case directly from the producer
  6. Beware discount shops.
    These stores often bring in wine on the so-called “gray market” (nothing illegal here, it just means that it doesn’t come through the official importer) as storage conditions are often far from ideal to the detriment of the wine.

If you have any questions, need more information or would like to buy or import wine, please contact us by email or direct line at 03-6805-1926. We’re here to help.

Kanpai (cheers) and happy drinking!

[ Japan Today, Insight ]

Henri Daros

******

Post a comment or leave a trackback: Trackback URL.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: