Bloomberg Businessweek (Asia)
Vending Machines in Japan Sell Deflation
The ubiquitous machines are locked in a soft-drink price war Many people “are still attached to the idea of low prices”
Japan has vending machines everywhere: in the capital’s vast network of train and subway stations, at Kyoto’s historic shrines and temples, on Okinawa’s remotest islands, and even on Mt. Fuji. With 5 million of them, about one for every 25 people, Japan has the most vending machines per capita in the world—double the rate in the U.S. The machines sell train tickets, flowers, and fried chicken, among other items. More than half offer soft drinks, making beverages the industry’s largest category. They’re also an economic indicator.
The soft-drink vending machines exemplify how difficult it is to stamp out the deflation that’s stifling growth in Japan. Government data show the prices of soft drinks are at their lowest since 1976. About one in three machines has reduced prices, according to Tokyo-based beverage researcher Inryou Souken. At one machine at the main intersection of Tokyo’s fashionable Shirokanedai neighborhood, a half-liter supersize can of Coca-Cola sells for only 100 yen, or the equivalent of 82¢. The standard soft drink price for all vending machines is 130 yen. That’s the price at suburban locations and in train stations, where competition is limited.
Operators of the soft-drink vending machines have been locked in a price war with supermarkets and discount retailers for years. After the government hiked the sales tax in April 2014, many vendors chose to lower prices further to soften the blow of the tax. “There’s a great many people who are still attached to the idea of low prices,” says Takeshi Minami, an economist at Norinchukin Research Institute in Tokyo. “It’s deeply rooted.”
With the recovery still fragile, budget-conscious consumers are increasingly packing drinks from home when they go out. When they purchase them, they tend to buy at supermarkets and convenience stores offering deep discounts. That pressures vending machine operators to lower prices, says Yano Research Institute in Tokyo.
The competition is intense: A halfliter bottle of Coke goes for 75 yen (55 with a coupon) at a Don Quijote discount retailer across the street from the Shirokanedai vending machine. Whoever wins the marketing war in soft drinks, the depressed prices that result will help keep deflation alive in the Japanese economy.
The bottom line The prices at Japan’s soft-drink vending machines demonstrate how hard it is for the government to curb deflationary forces.