Advice on doing business in Japan

Japan is an important market for wine, though not an easy one. James Lawrence gets advice on doing business there, from four people who know the market well.

(Clockwise) Luisa Bortolotto, Fermin Hidalgo, Ginevra Venerosi Pesciolini, Adrian Bridge
(Clockwise) Luisa Bortolotto, Fermin Hidalgo, Ginevra Venerosi Pesciolini, Adrian Bridge

In recent years, Japan’s economy has come out of its slump, with consumers enjoying renewed confidence. The country operates one of the freest markets in the world, with low crime rates and levels of corruption. While the Japanese are wine lovers, the market is mature, yet there are still opportunities for exporters if they get the offer right.

Luisa Bortolotto
export sales manager, 
Genagricola, Italy

Genagricola is a relative newcomer to the Japanese market; we started exporting in 2015. It is perhaps the most complex and sophisticated society in Asia, although like other mature markets there is plenty of competition. Japanese wine consumers (typically 40-60 years old) know what they want and will pay a premium for quality and distinctive wines. I’ve noticed an increase in the number of smaller importers bringing Italian wines into the market in recent times – winemaker dinners remain extremely popular in Japan. Moreover, the 2019 Economic Partnership Agreement between Japan and the EU has made Italian wines more price-competitive. In my experience, although the major urban areas boast a sophisticated and thriving on-trade, the retail sector is expanding at a faster rate, due to the rise of convenience stores, supermarkets and discounters. I don’t think “dynamic” is the right word to describe this market. I think “confidence” and “relationships” are more appropriate words. Consumers are open to trying new products – that anxiety that is often found in emerging markets is largely absent. 

Yet I cannot deny that the market isn’t growing as quickly as others in the region. We expected more growth and it is undeniable that France dominates the premium and super-premium end of the market, particularly when it comes to sparkling wine. I know that Prosecco firms are disappointed with the lack of progress, but I hope Japanese consumers will come to love our easy-drinking sparkling wine style. If you want to sell into Japan, you need to be confident of your quality credentials and your capacity to make good on your promises. The Japanese place a great emphasis on consistency and loyalty – trust has to be earned before you can do business. 

Ginevra Venerosi Pesciolini
owner, Tenuta di Ghizzano, Italy

Japan was one of the first markets I started to export to – we sent some cases over in 1990. Unfortunately, the market for our wines has been shrinking over the past couple of years, which I suspect is partly due to the increased competition and strong euro versus Japanese yen. The market for premium Italian wines remains niche in Japan, although the buoyant and sophisticated on-trade helps to maintain demand. The level of consumer knowledge at the top end is very high, but the Japanese market is like any other – the major retailers dominate overall, flooding the market with low-priced wines. Nevertheless, Japan is quite a dynamic market for Italian wines, but it requires a great investment in marketing and promotion if you want to differentiate your product. In addition, after a period of impressive and sustained growth, the economy is slowing. Aim for the big cities – Tokyo and Osaka – if you want to reach an interested audience. It is also essential to find a good broker with fluent Japanese, who understands this unique and different (compared to the West) culture towards business and people. You need to know Japan inside out, but I should warn you that the market for high-end wines is utterly saturated.

Fermín Hidalgo
director, Bodegas Hidalgo
Spain

We started exporting to Japan in the 1990s, although initially our volumes were very small. But at the beginning of 2000, the Spaniard Alfonso Martin joined our importer Union Liquors and started working with our product. Thereafter, sales started to increase rapidly.  Today our brand La Gitana is the number one selling Manzanilla in Japan, accounting for over 50% of the market share. Moreover, we have over 25% of the whole Sherry category market share.

However, the total imported wine market in Japan is stable, rather than rising and I must admit that overall Sherry exports are falling; Hidalgo La Gitana’s wines continue to grow slightly. It’s worth exploring the history of imported wine in Japan: the wine culture started to rise up in Japan at the end of the 1980s. There was a big wine boom in the times of prosperity in Japan, allowing French wines to cement their position at the top of the hierarchy. But following the economic crisis in Japan, consumer behaviour has been progressively changing. Chile now plays a dominant role in the market, as lower export prices and tax exemption position the wines at a very competitive price point in the market, while consumers are becoming very conservative in their spending habits in lieu of the changing economy. Yet the new tax agreement from February 2019 is helping EU wines to recover lost market share. Our big challenge is to get closer to a bigger mass of consumers and overcome the widespread perception of Spanish wine as cheap and cheerful; 2.8 million cases were imported in 2018, mostly at low price points. Some fortified wine categories show limited room for growth due in part to an ageing population, however, we expect to increase our market share given that Bodegas Hidalgo La Gitana has been constantly investing and supporting the market. The on-trade continues to expand, and we have seen better Sherry displays in specialist retailers. But Japan is a complex market: mature and very traditional. Also the weight of Tokyo for the wine industry is huge. It is definitely the dominant city. However, there are other important cities not just for wines but for Sherry too. For example: Osaka, Nagoya, Kyoto and Sendai are important markets for us. 
 

Adrian Bridge
CEO, Taylor’s, Portugal

Taylor’s has a long history in the Japanese market and has been exporting to Japan for over a century. The wine market has expanded steadily over the last decade. Although demographic trends – in particular a declining and ageing population – may constrain future volume growth, they are likely to create opportunities for premium wines. Demand is sustained to a large extent by affluent middle-aged and older consumers. It is important to take the tastes and attitudes of this key segment into account when marketing premium wines in Japan. Younger consumers tend to be health conscious, preferring lighter, more straightforward and affordable wines. They are often less interested in wine culture than in the lifestyle benefits of wine consumption and tend to have a broader wine drinking repertoire than older, more traditional consumers. Although about half of the population is said to enjoy a glass of wine at least once a week, per capita wine consumption lags well behind that of European markets.

In terms of sectors, the wine market is roughly one-third on-trade and two-thirds off. There is a significant polarisation between the two channels. The on-trade accounts for much of the market for classic, premium wines and is very important for Taylor’s in Japan. Although the trend is towards more informal dining, Japan still has more sommeliers and Michelin-starred restaurants than France. Fashionable wine bars are also an increasingly important channel for quality wine consumption, particularly for younger consumers. The off-trade tends to be more price-sensitive and competitive, with a strong focus on value for money. Home consumption is on the increase and supermarkets now offer a broader range of wines. Moreover, in a traditional society, women in Japan control household budgets meaning that, in the off-trade, an estimated 55% of wine is purchased by women. 
For brands hoping to export into Japan, there is much to remain excited about. The nation is, in many ways, a dynamic and sophisticated wine market. It has a thriving and creative restaurant scene. However, some traditional aspects subsist. The three-tier distribution system, in which the wholesaler plays a key role, has remained remarkably resilient. It has been to some extent undermined by the grocery channel which has developed its own sourcing capabilities. The market has become more diverse in terms of the geographic origin of wines appealing to Japanese consumers. But some traditional attitudes continue to prevail. Geographic origin continues to be a paramount criterion of choice for many Japanese consumers, with some countries – notably France – being identified as wine producers and others not.

My final advice is not to ignore the potential of Japan’s less densely populated regions; there is significant wine consumption in smaller cities which together account for a significant proportion of the market. But although it offers significant opportunities, Japan is a relatively saturated and competitive wine market. Introducing and growing a brand from scratch can involve significant costs and requires a high degree of commitment. Identifying the appropriate route to market and finding the right distribution partner are key challenges.

Interviews conducted by James Lawrence

This article first appeared in Issue 6, 2019 of Meininger's Wine Business International magazine, available by subscription in print or digital.

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