If recent “acts of God” had been confined to an earthquake and tsunami, those looking to understand how consumer markets may be impacted in the near- to mid-term may have looked to learn lessons from the Kobe earthquake and the 2004 Asian tsunami.
However, for the present, the ongoing efforts to prevent meltdown at the nuclear power plant at Fukushima mean events in Japan continue to evolve on a day-to-day basis. Against this background, Euromonitor International offers some immediate observations as to how the situation is affecting consumer markets and services.
Immediate demand for necessities
The most hit area of Japan following the earthquake and tsunami is the Tohoku region in northern Japan. The three affected prefectures are Miyagi (population: 2.3 million people), Iwate (1.3 million) and Fukushima (two million). Together, these three prefectures represent over 4% of Japan’s total population.
Other than medication and related products necessary for survivors of the earthquake and tsunami, consumer goods that are of immediate focus are necessities, ranging from food and drinks to tissue and hygiene products. With fuel shortages and enforced power blackouts in place to conserve energy, consumers are turning to fallback products such as candles.
There is an expected huge demand for batteries as well, leading to companies like Panasonic, Fujitsu and Hitachi increasing their production in domestic plants and looking to bring in supplies from their overseas plants where these exist. Fears of radiation poisoning in the event of a nuclear meltdown have also led to a surge in demand for – and relatedly, shortages of – potassium iodide/iodine pills. With news of tap water supplies having trace amounts of radiation within Tokyo, demand for bottled water has led to shortages across various supermarkets and even Japan’s ubiquitous convenience stores.
Attempts to minimise disruptions of supply for these products have included manufacturers giving directly to those who have survived the earthquake and tsunami.
Donations in the form of cash and products from domestic companies such as Panasonic, Softbank, Nissin Foods, Suntory, Shiseido, Kao, Lion, Seven and I Holdings, to name but a few, as well as foreign companies such as Coca-Cola and Procter & Gamble, have poured in.
In support of anticipated demand in stricken areas, manufacturers are ramping up production of key products, ranging from ready meals (eg House Foods Corp) to breakfast cereals (eg QP Corp) and tissue and hygiene products (eg Procter & Gamble Japan). In the short- to mid-term, logistics networks and other infrastructure will need to be re-established, which again will impact supplies.
An industry-by-industry view
- Prior to the disaster, Euromonitor International was predicting a 3% value drop in retail sales in 2011, with grocery retail down 4% and non-grocery retail down 3%. Non-store retail was expected to post positive value growth of 2%.
- Following the disaster, the retail business is virtually non-existent in damaged areas. In Tokyo, supply is reportedly not keeping up with demand. Some retailers have been reported to be moving supplies from stores in non-affected areas to those in stricken areas, given the greater need in the latter. With uncertainty looming and fears of a nuclear meltdown, there have also been reports of panic buying in anticipation of having to stay indoors for prolonged periods. Therefore, any expected spike in retail sales would still need to be mitigated, taking into account these factors.
- In the days following the earthquake and tsunami, developments that took place included the possibility of prolonged power shortages in the Kanto area, which significantly impacted retail sales at convenience stores, supermarkets and department stores. The enforced blackouts, which last for three hours at a time, have resulted in bigger retail outlets suspending business during these periods. While convenience stores generally stay open during these enforced blackouts, business in general is down as repatriation commenced in earnest barely a week after the earthquake first hit, with even locals starting to move out of Tokyo during this time due to fears of a meltdown from the damaged Fukushima nuclear power plant.
- The disaster is likely to cause retail sales to fall more sharply than predicted. Non-store sales will also be hit as distribution channels in the north of Japan make it difficult for products to be sent out and received.
Food, beverages and tobacco
- Euromonitor International forecast that value sales of packaged food would decline by 1% in 2011 prior to the disaster. In total volume terms, declines were also projected for alcoholic drinks (-0.1%), soft drinks (-3%) and hot drinks (-1%) in the same year. Tobacco was forecast to fall by 7% in volume terms.
- In the immediate aftermath of the earthquake, sales of packaged food are expected to increase as consumers look to stock up. Long-life products such as instant noodles, rice and canned/preserved food are expected to show growth. Sales of fresh products such as dairy and bakery items will fall as supply chains are hit.
- With consumer foodservice sales likely to be adversely impacted, sales of beverages – both alcoholic and non-alcoholic – are also likely to be negatively affected at these eating establishments.
- Sales of bottled water may however benefit from the expected shortage of potable water, given the destruction of water pipes in the affected areas.
Personal and home care products
- Euromonitor International projected value sales of beauty and personal care products would decline by 0.3% in 2011, home care and consumer health would show marginal growth of under 1% each, while sales of tissue and hygiene products would be flat in 2011.
- Beauty and personal care products – particularly those perceived as non-essential such as fragrances and colour cosmetics – are expected to take a hit as a result of the earthquake and tsunami. Sales of toiletries such as bath and shower products are likely to be less impacted, if at all.
- Over-the-counter consumer health products are likely to remain stable in the aftermath of the disaster. While most of the health supplies to survivors are excluded from Euromonitor International’s coverage of consumer health, the unpredictability of circumstances may result in consumers stocking up on certain basic medicines such as analgesics and cough, cold and allergy products in the event of emergency.
- Given reports in the media of home care and tissue and hygiene manufacturers trying to increase output of products ranging from laundry detergents to toilet paper, it is expected that sales for these products will hold steady if not experience a slight surge in 2011. Non-essentials such as air care may see sales drop however.
Consumer electronics and consumer appliances
- Prior to the earthquake and tsunami, Euromonitor International forecast that volume sales of consumer electronics would drop by 4% and of consumer appliances would grow by 1% in 2011.
- Some replacement sales can be expected for both consumer electronics and consumer appliances, particularly for households where televisions, computers, refrigerators and washing machines to name but a few key items have been damaged as a result of the earthquake and tsunami. However, these are likely to come to the fore of consumers’ minds only after they have rebuilt their homes.
- As Japan supplies components to consumer electronics manufacturers globally, short-term shortages in the supply chain pipeline will occur, driving up component prices. However, other component manufacturers in the region will ramp up production to ensure sufficient supply leading up to critical year-end sales.
Travel and tourism
- Euromonitor International forecast that there would be 9.8 million trips made to Japan in 2011. Of these, 1.5 million would be business trips and 8.3 million would be for tourism.
- Travel advisories across countries were issued when the quake hit on 11 March, telling people to avoid unnecessary travel to Japan. In many countries, these advisories were stepped up on 14 March, telling people to avoid travel to Japan altogether due to uncertainties surrounding the country’s nuclear situation.
- Tokyo Disneyland and Disneysea, which are key tourist attractions in Japan, have also been affected as a result of the earthquake and tsunami. These are now closed until further notice.
- After the tsunami which hit Indonesia in December 2004, business and leisure arrivals to the country fell by 6% in the following year, before experiencing subdued growth in 2006. While both business and tourist trips to Japan will be severely impacted in the short term, it is likely that business travel will recover the fastest given the importance of international trade.
- In light of the unprecedented nuclear situation, the impact on Japan’s travel and tourism industry could be far greater than that experienced by Indonesia as a result of the 2004 tsunami. Fears of nuclear contamination are likely to persist in tourists’ mindset for a longer period of time. Countries that typically rely on Japanese tourists such as Singapore can also expect a drop in Japanese arrivals.