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Eateries in Japan hit hard by ingredient price hikes as virus emergency lifted

A staff member is seen cooking at the beef cutlet eatery Gyukatsu Motomura in Tokyo on Sept. 17, 2021. (Mainichi/Hironori Takechi)

TOKYO -- Japan's restaurant industry, which has been hit hard by the COVID-19 pandemic, may be seeing the light at the end of the tunnel at last as the state of emergency was entirely lifted on Oct. 1. However, some owners have been struggling with a separate set of challenges that overshadow their hopes to bring their eateries to a pre-pandemic state -- ingredient price hikes.

    Jun Sakaguchi, 41, of Tokyo-based Five Group Corp., who manages the beef cutlet chain Gyukatsu Motomura, looked up to the ceiling and groaned, "So it's going to rise again."

    Beef tongue costs have risen virtually month by month since around February this year, with the price for procurement in July having grown to 1.8 times that of February. Sakaguchi had no choice but to raise the price for the popular beef tongue cutlet set dish from 1,600 yen (about $14) to 1,800 yen (about $16).

    Kumiko Furuya, wife of Shinsui Furuya and the common proprietor of a Yokohama branch of the karaage fried chicken shop Torisho, is seen filling chicken into lunch boxes at the shop on Sept. 10, 2021. (Mainichi/Mio Ikeda)

    Amidst all this, Sakaguchi had been notified of a further price hike from the purchasing personnel. "We can't raise the price any higher," he said. The company was left with no other option but to decide to suspend selling its beef tongue cutlet set meal.

    Due to the coronavirus pandemic, the company reduced the number of establishments it ran in and outside Japan, from around 30 to 19. Sakaguchi dropped his voice and said, "I'd like customers to return in around December, but it's tough with the shackles of the procurement price."

    Shinsui Furuya, 49, who manages a branch of the karaage fried chicken shop Torisho in Yokohama, has also faced a drastic surge in procurement prices. Following the spread of the coronavirus, the number of customers had temporarily fallen by 20 to 30%, and the establishment devoted itself to home delivery services to recover lost profits. The shop succeeded in having earnings nearly return to the original state. Despite this, expenses for procuring ingredients have piled up, and overall profits are said to have decreased by 10 to 20%.

    Cooking oil has seen an extreme price hike. One 18-liter drum cost about 3,000 yen (about $27) at the beginning of the year, but the latest price is 1.5 times higher. The cost is expected to increase further in November. Furuya grimaced and said, "Mayonnaise, containers for takeout food, eggs, vegetables and all sorts of things are increasing in price, and I'm sick of it."

    What rubs salt in the wound is the reality that the eatery is unable to raise its sales prices despite an increase in procurement prices. Furuya said, "Customers come to our store because of the current price. If we raise the price, I'm afraid that we'll return to a state like when customers suddenly decreased due to the coronavirus." The shop manager is troubled over what to do with its sales prices that have not changed since the shop opened in December 2017.

    Sugino-gomu chemical plant president Yukio Sugino is seen in Tokyo's Katsushika Ward on Sept. 13, 2021. (Mainichi/Mio Ikeda)

    It is not only the restaurant industry that is being directly hit by a rise in raw material prices. According to the Bank of Japan, the corporate goods price index, which measures the price development of goods traded among companies, has indicated an approximately 5% rise in the last several months compared to the same month of the previous year. A price hike was noticeable in various categories, such as food products like vegetable fat, oil and beef, as well as petroleum and coal products, plastic and other chemical products, metal and wood.

    The Sugino-gomu chemical plant in Tokyo's Katsushika Ward, which manufactures construction material and anti-vibration rubber, has been suffering from a price hike in the raw material of rubber. President Yukio Sugino, 72, commented, "Major buyers do not respond to negotiations for price rises."

    So why are raw material costs on the up? Hideo Kumano, chief economist at Dai-ichi Life Research Institute, said, "China has been leading a recovery in demand after the spread of the coronavirus was contained at an early stage, and following this, prices for resources in general have been on the increase in the United States and other countries as well." Another factor is hindrances to production brought on by poor crop harvests due to abnormal weather conditions observed worldwide, and difficulties in accepting foreign laborers in various countries due to the pandemic.

    It is difficult to shift raw material price rises onto the sales price. "In Japan, where deflation has been continuing for a long time, consumers have greatly rejected price increases. Therefore, companies have no choice but to absorb them themselves," said Tsuyoshi Ueno, senior economist at NLI Research Institute.

    So how long will this situation continue? Bank of Japan Gov. Haruhiko Kuroda said at a Sept. 27 press conference that the spread of the coronavirus is estimated to "pass a peak within this year at the earliest, and early next year at the latest, leading to an increase in outings and dining, making it easier to shift price rises onto consumers."

    However, according to a survey conducted in August by research firm Teikoku Databank Ltd., about 70% of firms predicted they will see a rise in procurement unit prices one year later, while only around 40% estimated that there would be an increase in sales unit prices.

    Teikoku Databank pointed out that there are many companies that have been taking a careful stance while the outlook on whether the coronavirus will be entirely contained is unclear.

    (Japanese original by Hironori Takechi and Mio Ikeda, Tokyo Business News Department)

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