Business / Economy

Pricy beef bowls show how to beat deflation

by Keiko Ujikane and Monami Yui

Bloomberg

Restaurants, food producers and retailers are among a small but growing number of companies doing what few managed for long during Japan’s lost decades: raising prices.

From beef bowl chain Matsuya Foods Co. to supermarket and convenience store operator Seven & I Holdings Co., enterprising businesses are increasingly betting that consumers will pay more for premium products, shifting from discount-driven strategies that Fast Retailing Co. used to build its Uniqlo brand into a force during the long years of deflation.

“We are no longer at the stage where lower prices mean higher sales,” Seven & I President Noritoshi Murata said in April, when the company posted its fourth straight year of record operating profit. “The key is how many new products of greater value we can bring to the market.”

The shift is finding the most traction in food-related companies, where the yen’s decline over the past two years has pushed up the cost of imported corn, soybeans, sugar and wheat, encouraging new thinking. It’s also reflected in efforts by businesses to increase revenue by introducing new products sold in smaller portions at the same price.

Livening up pricing strategies is one step toward the virtuous cycle that Prime Minister Shinzo Abe and Bank of Japan Gov. Haruhiko Kuroda are looking for. The idea is that companies raising prices will push consumers to spend now and not wait for later with the expectation that costs will be lower. With revenue rising, employers can then boost pay, spurring more spending.

While wage rises have been limited so far, the evidence of at least some retailers breaking out of their longtime focus on price cuts indicates “Abenomics” is having an impact. The challenge for executives is to avoid spooking consumers with excessive increases.

“What’s important is whether businesses can present an acceptable price increase that offers customers value,” said Seiji Kanno, a business consultant who previously worked at McKinsey & Co. “The ones that can convince their customers that they’re not just raising prices but also adding value will be among the survivors in an inflationary era.”

The economy is still far from seeing widespread price gains. By the BOJ’s main measure, inflation has averaged 0.1 percent in 2015, two years after Kuroda began unprecedented monetary stimulus to drive price gains to 2 percent. He’s counting on wage gains and supply constraints to stoke inflationary pressure.

Yamazaki Baking Co. and Morinaga & Co. are among the companies that are increasing their prices to compensate for higher costs of imported food and commodities.

When Matsuya Foods last summer started selling “premium” bowls of rice topped with stewed beef and onions at ¥380, it was concerned about how customers would react to the ¥90 price difference compared with standard servings, according to Kiichiro Tanzawa, a director at the fast-food chain operator.

“Consumers are becoming more discerning, so we really need to convince them if we change our prices. Otherwise, we may lose customers,” Tanzawa said.

Matsuya Foods found the answer by starting with chilled meat, rather than cheaper frozen beef, which once cooked has a softer texture and better taste.

Seven & I has been scaling up its Seven Premium brand that it introduced in 2007. More recently, it renewed its premium Golden Bread products in February.

Food producers, food retailers and restaurants are likely to be the ones to lead the way in changing mindsets because it’s harder for consumers to put off purchases of food and beverages, said Thomas Jastrzab, a consumer products analyst at Bloomberg Intelligence.

“It is much easier to postpone the purchase of a new car, television or refrigerator,” he said.