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Report on the Impact of Japan's Consumption Tax Increase in 2014

Report on the Impact of Japan’s Consumption Tax Increase in 2014

June 05, 2014

INTAGE Inc. launched the 2014 Consumption Tax Increase: Impact Analysis Project to gauge the effect of Japan's consumption tax increase, which took effect in April 2014. Utilizing our research panel data and proprietary survey tools, we looked at pre-increase and post-increase effects on the food, beverage, and daily sundries categories from three perspectives: the market, consumers, and retailers.

Due to increased focus on the Japanese market globally, we have now made these insights available in English. Project background and findings are summarized below. Please also see the final report document (PDF 2.95MB) for details.

Project Background

On April 1, 2014, Japan's consumption tax was raised from 5% to 8%. It was the first time in 17 years that the consumption tax was raised, since the last tax hike in 1997. Because the market environment today differs from that of 1997 for a number of reasons, it is difficult to make straight comparisons or extrapolate trends directly from the former data set.

Here are some differences in market environment between the 1997 and 2014 consumption tax increases:

  • The 2014 consumption tax hike was not accompanied by decreases in income tax and inhabitant taxes as was the case in 1997, so from a consumer perspective it is a simple increase.
  • Average household incomes and consumer spending are down by approximately 13% since the 1997 study, according to research by the Japanese government.
  • In stores, most retailers use a single combined price display (taxes included in the sale price), so for consumers, the consumption tax is less "visible" than before.
  • The number of private brands has increased and have penetrated the market.

In addition, Japan's consumption tax is scheduled to be raised again, from the current 8% to 10%.

With this background, INTAGE conducted research to determine the impact of the consumption tax hike on those product segments used in daily life (daily necessities*) that are most affected by such a tax increase, namely food, beverages, and daily sundries. We looked at pre-increase and post-increase effects from three perspectives: the market, consumers, and retailers.

*For purposes of this report, "daily necessities" are defined as food/snacks (excluding perishables), beverages/soft drinks, alcoholic beverages, daily sundries, cosmetics, pet food and pet goods.

Overview and Key Findings

Pre-tax Hike:
More bulk purchases than in 1997; 60s segment accounts for most
bulk purchases

Looking at trends in overall spending on daily necessities before the 2014 tax increase, by the final week before the 2014 tax hike (week of 3/24), purchase value was up 37.4% and purchase quantity was up 17.6% compared to the previous year, both of which are increases over 1997. Bulk purchases also increased compared to 1997
[See Figure 1].

Three major factors contributed to these increases.

(1) There was an increase in the number of consumers who made bulk purchases. In particular, housewives in their 40s who were bulk purchasers at the time of the 1997 tax hike are now in their 60s, and account for most of the bulk purchasers in 2014 [See Figure 2-2].
(2) Bulk purchasers spent more and bought larger quantities than in 1997 [See Figure 2-3].
(3) At retailers, "bulk purchase sales" conveyed by flyers and in-store communications encouraged bulk purchases by consumers. For 31 out of 45 items, the ratio of "impulse bulk purchasers" was over 20% [See Figure 2-4].

From the above it may be assumed that the strong response to pre-tax increase campaigns among the discount-oriented segment, and an increase in bulk purchase quantity, particularly by the 60s segment, contributed to the higher bulk purchase figures compared to 1997.

Post-tax hike:
Limited effect on daily necessities; 60s segment driving purchase recovery

Regarding April (post-tax hike) income projections, only 12% of consumers saw an increase in income from April. In the 60s segment only 1.7% saw an income increase [See Figure 4-1]. As a result, in real terms, the tax increase placed an additional burden on consumers' budgets. However, consumer "willingness to spend" for April remained positive. The indexed ratio of respondents who said they are "not belt-tightening" compared to those who said they are "belt-tightening" was 1.8 points. In particular, the 20s and 60s segments showed a higher willingness to spend. In addition, consumer outlook regarding the "effect you think the tax increase will have on individual consumption" improved after April [See Figure 4-2]. This more positive outlook may be due to some people feeling that the tax increase had less impact than they thought it would.

Consumers' purchase of daily necessities dropped off immediately after the tax increase as a result of pre-hike bulk purchases, but as of the week of 5/5, purchase quantity had recovered to -6% versus the previous year. Bulk purchasers are driving this recovery [See Figure 8-1]. Looking at age breakdown, the 60s segment accounts for much of the recovery in demand [See Figure 8-2]. The high frequency of bulk purchases among the 60s segment suggests that shopping has become "routinized" for this segment. It is possible that they visit retailers even when they have nothing to buy, but are induced to purchase by in-store sales campaigns, which accounts for the increases seen. In other words, the 60s segment's willingness to purchase has driven the recovery in demand after the tax hike.

Upcoming tax hike: Points for consideration

Overall purchase trends before and after the tax increase make it clear that the 60s segment accounts for the post-tax hike recovery in demand for bulk purchases. The market is still recovering from the last-minute surge in demand before the tax hike, but it may be possible to further stimulate recovery in demand through sales promotions targeting the 60s segment.

Conversely, with the upcoming tax hike to 10%, retailers should prepare to implement effective in-store sales promotions that appeal to 60s segment bulk purchasers. To this end, companies should probe more deeply into the pre- and post-tax hike purchase characteristics and perceptions of the 60s segment, and plan their initiatives accordingly.


Summary of Research Results

Pre-Tax Hike

1. Comparison of pre- and post-tax hike market trends in 1997 and 2014

Looking at trends in overall spending on daily necessities before and after the 2014 tax increase, by the final week before the 2014 tax hike (week of 3/24), purchase value was up 37.4% and purchase quantity was up 17.6% compared to the previous year.

The following is a comparison of market trends in 1997 and 2014, before and after the consumption tax increase. (March 1997 and March 2014 were the same in terms of dates/days of the week).

  • The market showed a larger and earlier pre-tax hike expansion in 2014 than it did in 1997, and also showed a larger "rebound" after the tax hike [Figure 1].
  • The last-minute surge in demand for food and drinks started 3 weeks earlier than it did in 1997. Pre-tax hike bulk purchase of food began on the week of 3/3, and beverages on the week of 2/24.
  • Purchase of daily sundries grew from the week of 2/17; by the week of 3/24 purchase value expanded to 86.1% versus the previous year, an increase in bulk purchase over 1997 which was 37.4% for the same week.
[Figure 1] Spending by housewives on daily necessities vs previous year


Data source: 1997: SCI; 2014: SCI-personal; Respondents: Housewives aged 20-69/Households of 2+ people

2. Comparison of consumer bulk purchase trends between 1997 and 2014

The following shows an analysis of factors contributing to the increase in bulk purchases in 2014 over 1997.

  • The ratio of bulk purchasers* was 4.8% larger than it was in 1997 [Figure 2-1].
  • In the housewife segment, the ratio of people in their 60s is larger than it was in 1997 [Figure 2-2].
  • Looking at the gender/age profile of bulk purchasers in 2014, in terms of both "n" and purchase quantity, women in their 60s are the largest bulk purchaser segment.
  • Bulk purchasers spent more and bought larger quantities than in 1997 [Figure 2-3].
  • Compared to 1997, there were bulk purchases of more categories, mainly in the staple food/seasoning and daily sundries categories. In addition, bulk purchasers made larger bulk purchases of nearly every category.
  • At retailers, "bulk purchase sales" conveyed by flyers and in-store communications encouraged bulk purchases by consumers. For 31 out of 45 items, the ratio of "impulse bulk purchasers" is over 20% [Figure 2-4].

*"Bulk purchasers" are defined as those whose purchase quantity in March 1997/2014 was at least 1.8 times higher than it was the previous year.

[Figure 2-1] Purchasers of daily necessities: breakdown


Data source: 1997: SCI; 2014: SCI-personal; Respondents: Housewives aged 20-69/Households of 2+ people

[Figure 2-2] Bulk purchasers of daily necessities: age profile


Data source: 1997: SCI; 2014: SCI-personal; Respondents: Housewives aged 20-69/Households of 2+ people

[Figure 2-3] Bulk purchasers' purchase value and quantity vs previous year (%)


Data source: 1997: SCI; 2014: SCI-personal; Respondents: Housewives aged 20-69/Households of 2+ people

[Figure 2-4] Reasons for buying in bulk, by category


Data source: Internet survey (Mar 29-30, 2014)

3. Pre-tax hike retailer campaigns

The following shows an analysis of the kinds of pre-tax hike campaigns conducted by retailers as revealed through titles/headlines of flyers from 13 supermarket chains in the Keihin and Kinki regions (Tokyo greater metropolitan region and surrounding areas, and the Osaka-Kyoto greater metropolitan region and surrounding areas).

  • 89% of flyers in the week of 3/24 contained the word "tax", "bulk", "planned" and/or "necessity" [Figure 3-1].
  • Flyer titles/headlines in the week of 3/17 (two weeks before the tax hike) contained words such as "planned" and "before it's too late" to promote pre-hike purchasing.
  • In flyer titles/headlines in the week of 3/24 (one week before the tax hike) words such as "…more days" and "last chance" were prominent [Figure 3-2].
[Figure 3-1] Incidence of tax hike-related words in flyer titles/headlines


Data source: INTAGE Flyer Index; Research target: Titles/headlines of flyers from 13 supermarket chains in Keihin and Kinki regions

[Figure 3-2] Flyer titles/headlines before tax hike (in the week of 3/24)


NOTE: chart shows selection of representative examples.
Data source: INTAGE Flyer Index; Research target: Titles/headlines of flyers from 13 supermarket chains in Keihin and Kinki regions

Post-Tax Hike

4. Post-tax hike effect on household budgets

  • 12% of consumers saw an increase in income from April. 12.6% of consumers saw a decrease in income. In real terms, the tax increase placed an additional burden on consumers' budgets [Figure 4-1].
  • The household budget categories that were strained by the tax hike were leisure, travel and socializing.
  • After the tax hike, household "willingness to spend" remained positive, and consumer outlook improved. Some people may be feeling that the tax increase had less impact than they thought it would [Figure 4-2].
[Figure 4-1] Income after April (after the tax increase)


Data source: Internet survey (Apr 18-20, 2014)

[Figure 4-2] Effect of tax hike on consumers' mindset


Data source: Internet survey (Feb 21-23, 2014; Mar 29-30, 2014; Apr 18-20, 2014)

5. Post-tax hike changes to purchase criteria for daily necessities

Post-tax hike purchase criteria for daily necessities were surveyed, and each of the major items were mapped on two axes: (i) priority on low price ⇔ priority on added value; and (ii) comparison of products ⇔ attachment to one product.

  • After the tax hike, there is a possibility that the increase in spending on the "attachment/added value" group will put a strain on the "low price/comparison" group [Figure 5].
[Figure 5] Mapping of daily necessities by purchase criteria


Data source: Internet survey (Apr 18-20, 2014)

6. Post-tax hike store prices and flyer campaigns

  • Price-oriented flyer titles/headlines making "low price declarations" and/or emphasizing their own store brands (private brands) emerged after the tax hike. There were also a notable number of titles that focused on year-round campaigns in certain cities, or tie-ups with manufacturers [Figure 6-1].
  • Seasonal-type flyers increased compared to the previous year. Although low prices were also promoted, many titles/headlines contained words referring to events in April [Figure 6-2].
[Figure 6-1] Price-oriented flier titles/headlines after the tax hike (week of 3/31 and 4/7)

"Low price declaration"-type


"Private brand oriented"-type


Data source: INTAGE Flyer Index; Research target: Titles/headlines of flyers from 13 supermarket chains in Keihin and Kinki regions

[Figure 6-2] Seasonal-type flyer titles/headlines after the tax hike (week of 3/31 and 4/7)


NOTE: chart shows selection of representative examples.
Data source: INTAGE Flyer Index; Research target: Titles/headlines of flyers from 13 supermarket chains in Keihin and Kinki regions

7. Changes in retailer unit price trends after the tax hike

  • After the tax hike, 70% of items saw an increase in unit price. The price increase rates were relatively high for key food items at supermarkets and key sundries at drugstores [Figure 7-1].
[Figure 7-1] Items whose price rose vs. items whose price decreased (tax-excluded volume unit price)


Data source: SRI (retail tracking research): supermarkets and drug stores
Categories: Food, beverages, daily sundries, pet food, pet goods
Period: Pre-hike: w/o 2/17-3/24, 2014; Post-hike: w/o 3/31-w/o 5/5, 2014

8. Consumer purchase trends after the tax hike

  • As of the week of 5/5, purchase value had recovered to -7.4% and purchase quantity to -6.0% versus the previous year.
  • Bulk purchasers showed a larger drop-off than usual purchasers, but also recovered more quickly [Figure 8-1].
  • The quick recovery of bulk purchasers after the tax increase was due in large part to the recovery in purchases in the 60s segment. (In the week of 5/5, purchase quantity had recovered to -3% versus the previous year). The 60s segment accounted for 30% of the purchase quantity in the five weeks after the tax hike [Figure 8-2].
  • Shopping has become "routinized" for the 60s segment. It is possible that they visit retailers even when they have nothing to buy, but are induced to purchase by in-store sales campaigns.
[Figure 8-1] Trend in daily necessities purchase quantity vs. previous year


Data source: SCI-personal; Respondents: Panel of 50,000 respondents, comprised of 15-69 year-olds nationwide
Categories: Food, beverages, daily sundries, cosmetics, pet food, pet goods

[Figure 8-2] Age breakdown of post-tax hike purchase activity by bulk purchasers


Data source: SCI-personal; Respondents: panel of 50,000 respondents, comprised of 15-69 year-olds nationwide
Categories: Food, beverages, daily sundries, cosmetics, pet food, pet goods

Data Used in This Summary*

SCI-personal (Nationwide consumer panel research)

INTAGE's consumer market trend tracking service based on data from 50,000 male and female panelists nationwide. SCI comprises consumer purchase panel research for food (excluding perishables, prepared foods and pre-prepared meals), beverages, daily sundries, and pharmaceuticals. Using mobile devices and the Internet, the service collects barcode data from products purchased, and tracks product code, date/time of purchase, purchase channel, quantity, amount and other data, to analyze consumer purchase trends.

SCI (Nationwide household panel research)

INTAGE's consumer market trend tracking service based on data from a panel of more than 12,000 households (of 2 or more people) nationwide.

SRI (Nationwide retail tracking research)

INTAGE's retail tracking research service based on data from a body of 3,994 stores nationwide. Including major retailers in the GMS, supermarket, convenience store, drug store, home center (DIY) and other channels, this service collects POS data and provides an overview of what products were purchased/sold when, where, in what quantity, for how much, at what kind of store.

INTAGE Flyer Index

Researchers collect and analyze flyers from some 600 supermarket, home center (DIY) and drug store chains nationwide. This data provides an overview of sale and bargain information for foods, sundries and other categories.

Internet survey (voice1000)
Methodology: Internet survey
Area: Nationwide
Respondents: INTAGE Net Monitor ("Cue Monitor"); 20-69 year-old men and women
Sample size: 1000n (weighted sample size)
Research dates: Pre-tax hike:Feb 21 (Tue) - 23 (Thu), 2014; Mar 29 (Sat) - 30 (Sun)
Post-tax hike: Apr 18 (Fri) - 20 (Sun), 2014

*Please see the full report document for a detailed list of sources and samples used.

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