Coronavirus spurring change and innovation in Japan’s restaurants and retail sector

The coronavirus has hit the world hard and it’s not slowing down. While the number of confirmed COVID19 cases in Japan has been relatively low compared to some other countries, the impact on the Japanese economy has been significant and has been spurring significant changes in the food service and retail industries over the past few months. Many of these changes are likely to have long-reaching impact.

Above: Family restaurant chain Saizeriya now offers delivery as well as other measures to reduce staff and customer interaction.

Food delivery services are booming in Japan

As people refrain from going out, Japanese consumers have increasingly started to use food delivery apps such as Uber Eats. Uber Eats had about 1.6 million users this January, but jumped to almost 2 million by March and even higher in the following months. Other delivery apps include Demae-can, dDelivery and Rakuten Delivery, and the competition in the delivery market has been fierce. In response to the growing number of people using restaurant delivery services, family restaurant giant Saizeriya decided to start delivery too this month. As recently as the end of last year, the president of Saizeriya said that he was not considering offering a delivery option- the impact of the coronavirus has been enormous enough to cause a 180-degree turnaround in corporate policy.

The online supermarket industry has a very small share of food sales in Japan, but new consumer shopping habits brought on by corona have provided a tailwind for this industry. According to a recent survey, about 60% of online supermarket users say that the frequency of their online supermarket use has increased in the last three months (January to March, 2020). As the number of users grow, retailers have started to focus more on their online supermarkets. The largest retail company in Japan, AEON, has announced that it will increase its online supermarket sales by 50% YoY by early next year, which would grow online sales to about 10% of its in-store food sales. Supermarket giant, Ito-Yokado has also just started full-scale operation of its online supermarket app. These market leaders’ moves are worth paying attention to as they could well inspire other players and bring significant changes to the online supermarket industry.

Infection control measures are changing the restaurant and retail landscape 

There are currently no standardized Japanese government requirements for infection control in stores, so shops and restaurants are on their own to find ways to make consumers feel safe. To ensure that guests feel comfortable eating, many restaurants have taken various measures against coronavirus. This can include plastic shields between the tables or a reduced number of chairs to prevent customers from getting too close to each other. What the major food service chains do always draw attention. Some are trying fairly analog ideas – Saizeriya has stopped having staff take orders and started letting customers to fill out their own orders on paper to minimize the contact between customers and staff.

Kichiri, however, is more extreme. Kichiri is an izakaya pub chain with around 40 restaurants in Japan. A walk-through sanitizing gate was installed at the entrance. When customers pass through, hypochlorous acid water (HAW) is sprayed all over the body from four pipes installed at both ends of the gate. The number of customers entering the restaurant is checked through a monitor. Customers are then asked to take a piece of paper with a map of the restaurant with table numbers written on it and move to their seats by themselves. Customers can then use their smartphones to order food by scanning a QR code on the table to access a website and check a menu.

There are changes on the retail side as well. Lines are drawn on the ground at regular intervals in front of the cash register to encourage social distancing. Transparent shields hang in front of cash registers to prevent infections between clerks and customers. But the most significant change has been the rapid shift to cashless payment. While Japan’s government had made some effort to promote cashless payment systems before corona arrived, Japan has been I famously reluctant to give up its love of cash and had been lagging in the Asian region in terms of cashless payments. But once again, coronavirus is pushing the adoption of new technologies. Various prepaid smart cards and mobile phone payment apps are accepted in stores, taxis and restaurants, with some even offering discounts for using cashless options.

Izakayas have been forced to venture into new business models and revenue streams

Coronavirus has had an impact on all types of restaurants, but the impact on izakayas has been particularly significant. Significant enough that some izakaya chains have even decided to branch out into new services. For example, Watami, the second largest izakaya chain in Japan, with many different izakaya brands in its portfolio, has entered the human resource staffing business. As a result of corona, Watami closed its outlets for a period of time, leaving many of its employees without jobs. To support these employees, Watami is planning to arrange placements for 780 of its full-time and 10,000 of its part-time employees with supermarkets, farms and elderly care facilities which are facing labor shortages. Another example is the Ap Company which runs Tsukada Farm, an izakaya chain operating mainly in the Tokyo metropolitan area. Since the sales of izakaya dropped significantly, Ap Company has decided to reduce the number of izakaya and start something new. Tsukada Farm has opted for a full renovation of some of its izakayas from pubs into a teishoku set-meal restaurant concept called Tsukada Shokudo.

Retail innovation includes a growth in unmanned convenience stores

Another corona era innovation is seen in JR East’s launch of unmanned convenience stores. The advantage of unmanned convenience stores is that they do not require face-to-face interaction with customers, as they use a camera in the store to identify the products customers pick up. At the exit, details of the purchase will be displayed on the touch screen and customers just need to hold a prepaid transportation card over a device to complete the payment and the exit gate will open. The company plans to expand its store network to 100 stores within four years, taking advantage of growing desire for less contact with people at stores. The first store was opened at Takanawa Gateway Station, the newest station on Tokyo’s central Yamanote Line in March of this year.

With the coronavirus showing no signs of settling soon, we expect the Japan restaurant and retail industries will be forced to continue to innovate and react quickly to the changing market.

Meros hosts J-IIN’s first webinar on impact investing and impact measurement

While things have been in a state of adjustment these last months with COVID 19 restrictions in place, we are moving our discussions online!   To kick it off, Meros hosted the Japan Impact Investing Network (J-IIN)’s first webinar on June 4 on the topic of  “Impact Investing 101”.  Some of the key topics that were discussed in the lively after-discussion among the participants included

  • the potential impact of COVID19 on impact investing
  • whether there has been any progress in analysis and information exchange on impact investing failures
  • how widely the GIIN IRIS indicators can be disseminated
  • what kind of education can be provided to Japanese investors, and whether impact investing really has the potential to become a main stream investment strategy

Meros, J-IIN and Impact Investing in Agriculture and Food

The Japan Impact Investing Network has been active since the end of 2019, promoting discussion of practical experiences and case studies around the concept of Business with Impact. While impact investing is gaining recognition internationally as an important investment strategy, in Japan impact investing still has an image as a non-profit, corporate social responsibility (CSR) activity. In addition, Japan’s presence on the international stage often remains limited due to investment interest focused more on domestic issues than global issues.

The Global Steering Group for Impact Investment (GSG) had been created under UK leadership of the G8 In 2015 and in Japan, the Global Steering Group (GSG) Domestic Advisory Committee was established around the same time. Japan’s first domestic impact investment fund was launched by Shinsei Corporate Investment in 2017. However, the Japan Impact Investment Fund has focused on domestic issues such as women’s activities, welfare, education, and energy, and has not put much emphasis on agriculture and food.

Globally, food and agriculture sector has attracted some of the greatest attention within impact investing, and  impact investment has become an important way for entrepreneurs involved in food and agriculture to raise funds. In the past two years in particular, impact investing and impact evaluation have become common topics of discussion at global agricultural investment as well as foodtech and agri-tech events.

This was the impetus for Meros join J-IIN as a founding member- to deepen our own understanding of impact investing, particularly within food and agriculture and to give back to Japan, by contributing our own experiences and global perspectives.

J-IIN was created as a place where both entrepreneurs and investors with links to both Japan and overseas business can gather and communicate informally and learn to “speak the same language” about measuring and defining impact.

J-IIN’s Impact Investing 101 Webinar

 J-IIN’s first webinar was designed to provide an introduction to impact investing and was attended by about 10 institutional investors, VC funds, entrepreneurs, and consultants.

Most of the participants were Japanese and involved in businesses or investments both inside and outside of Japan. For many of the participants, impact investing and measurement of impact were somewhat new topics but all were very interested in discussing practical issues and challenges.

The key speakers at this inaugural event were J-IIN’s founders, Mr Takuro Kimura , president of G-cubed Partners who is based in Tokyo and NYC and Ms. Sawa Nakagawa, founder of Three Arrows Impact Partners who lives in South Africa. Mr Kimura introduced the philosophy and international trends in impact investing and Ms Nakagawa discussed Social Impact Evaluation and Management. Here are some of the highlights of their presentations.

Tak Kimura: Philosophy of Impact Investment and Impact 101

Mr. Kimura spent many years working at the International Finance Corporation (IFC), investing in emerging markets in the manufacturing, agribusiness, services and energy sectors. IFC is part of the World Bank Group and is responsible for investing in the private sector in emerging markets. IFC’s strong performance over the years (15% above the S&P 500) makes it a strong example of how it is possible to combine both market returns and creation of social or environmental impact

Mr Kimura discussed the background of impact investing. The concept of impact investing was first adopted by the Rockefeller Foundation in 2007. In 2013, the G8 Task Force on Social Impact Investing was formed. Today, impact investing has grown to US$500 billion, with an annual growth rate of 26-50%.

The basic principle of impact investing is that if an investment does not create social impact, there can be no investment, despite what the financial returns may be. While some impact investors are philanthropic and are willing to accept a slightly lower expected return, the majority of impact investors seek both return and impact, and seek a financial return that is commensurate with the risk, while also seeking to create social impact. In order to create sustainable impact, the core idea is that impact must grow by scaling the business, rather than by trying to attract more philanthropy funding.

The challenge for impact investing in the future is that numerous institutions are taking the lead in setting standards for impact investing, and this is resulting in multiple standards are being developed. It is therefore important for Japanese stakeholders to be actively involved in these international discussions and to participate in the movement toward the unification of principles and standards.

Sawa Nakagawa: Social Impact Evaluation and Management

Ms. Nakagawa is the founder of Three Arrows Impact Partner, an impact investment and social entrepreneurship advisory firm based in Johannesburg, South Africa. She provides consulting services on impact investing to private investment institutions and government financial institutions in various African countries, as well as assistance to social entrepreneurs in building impact evaluation and management systems. She is also a board member of the National Empowerment Fund, a South African government agency that invests in entrepreneurs from historically disadvantaged backgrounds.

Globally, the extreme poor still account for 10% of the world’s population. 2.2 billion people worldwide lack access to safe drinking water, the number of refugees and displaced people has surpassed 70 million, and the total economic damage caused by droughts in developing countries is US$29 billion (2005-2015). In order to measure progress on solutions to these  problems, the United Nations has set the Sustainable Development Goals (SDGs). It is estimated that an annual investment of 2.5 trillion dollars (about 280 trillion yen) is needed to achieve the 17 SDG targets. Since the investment by international organizations and governments alone is far insufficient, it is necessary to actively utilize private investment.

Why do we need social impact assessment and management in the first place? The first reason is that the establishment of an impact evaluation and management system will enable private investors to make decisions about potential investment based on this system, which in turn will promote the use of private funds and is the key to making impact investment a mainstream and expanding form of private investment.

The second reason is that entrepreneurs who aim to attract impact investment funding and their investors also need to be able to define the desired social impact, monitor the social impact of their business activities, and make further improvements. Just as in the pursuit of economic returns, quantifiable indicators for impact are necessary to set KPIs and implement the PDCA cycle.

The key case study in the presentation was I&P, an impact investment fund that invests in social entrepreneurs in Africa. It invests in more than 50 companies and has 70 million euros in assets under management. I&P has created a framework of social impact assessment tools and processes based on the internationally recognized IRIS indicators developed by the global impact platform Global Impact Investing Network (GIIN) and it was this system that was introduced as part of the case study.

Every year, GIIN obtains data from entrepreneurs, based on more than 100 indicators, and analyzes the broader social impact of its portfolio companies and their stakeholders to provide information to investors. This allows a  better understanding of the scale of social impact, and at the same time, this data gives entrepreneurs that ability to show these results as a tool for raising funds on a larger scale.

Social impact assessment and management is still in the process of global trial and error and that is what makes it such a dynamic and important area to watch.

J-IIN will continue to create opportunities for communication and dissemination of information around impact investment and impact measurement. Please contact us if you are interested in joining future discussions.

CBD Products Making a Move into Mainstream Channels in Japan

CBD products are increasing in the Japanese market, taking steps to move from a niche product into mainstream channels. Although the Japanese government hasn’t explicitly legalized CBD (and continues to strictly ban cannabis itself and any trace of THC),  Japan allows importation of some types of CBD products as long as the products remain within the guidelines of several key relevant laws. CBD products first entered Japan around 2016 and have been continually expanding their market. Now, some mainstream retail chains have begun to handle CBD products and a CBD specialty store opened just this year in Tokyo’s trendy Harajuku.

cbd products in japan

Discount retailer Don Quijote has shelves of CBD vape liquid and HealthyTOKYO cafe in Harajuku offers original CBD beverages.

Don Quijote, one of the largest discount chain stores in Japan, with almost 400 branches nationally, sells a large variety of CBD vape products such as CBD vape liquids, cartridges, and disposable vaping devices. Don Quijote handles overseas brands such as NATUuR CBD, as well as domestic CBD vape liquid brands like Kamikaze and Tsukinoha. Not all branches of Don Quijote handle CBD products, but the fact that this kind of mega-chain has started to sell CBD indicates that CBD awareness has moved to the next level in the Japanese market.

Vape products are not the only CBD products that you can find in Japan. Biople by CosmeKitchen, a shop that sells natural and organic cosmetics, sells foreign branded health and beauty CBD products such as EliXinol’s CBD oil, Endoca’s CBD capsules and Medeterra’s CBD cream. Biople has 18 stores in Japan and some outlets are located in well-known department stores such as Lumine and OIOI (Marui).

While Don Quijote and Biople sell a variety of CBD products, they don’t have their own branded products. HealthyTOKYO CBD Shop & Café, the first CBD specialty store in Japan just opened this year, sells its own branded CBD products. HealthyTOKYO not only sells CBD oil, cream, and capsules but also CBD snacks, coffees, teas and cocoa in their café.  According to the manager, their own private brand HealthyTOKYO CBD is the best-selling of their product lines. The store’s main customers are non-Japanese people and travelers, and therefore sales have unfortunately dropped recently due to COVID19 and the decline in tourists.

With CBD products beginning to appear in popular discount chains and well-known department stores, as well as many online channels, it is clear that CBD has entered a new phase of market expansion. As more people become aware of what CBD is, we expect further domestic product development, increased imports and potentially new usages in health, beauty and food products.

Interested in understanding more about the CBD market in Japan or understanding the steps that exporters have to take in order to export CBD products to Japan? Reach out to us at inquiry@merosconsulting.com


What is CBD?

CBD (Cannabidiol) is a chemical compound found in cannabis. Unlike the cannabis compound THC (Tetrahydrocannabinol) that makes a user feel “high”, the chemical compound CBD is associated with health benefits such as relaxation of the mind and body and relief of anxiety and worry. Products such as oils, cosmetics, and even snacks that contain CBD are increasingly popular in many countries around the world.