The ad
shows a group of 100 workers and executives from Akagi Nyugyo ice cream company lined up in neat rows in
front of their suburban Tokyo factory. As gentle folk music plays, they bow in
apology. The text on the screen says “We held on for 25 years, but……” followed
by “60→ 70” referring to the rise in price of the bars from 60 to 70 yen (74 to
86 cents).
Akagi last
increased prices a quarter of a century ago, and it debated the recent rise for
seven or eight years, said Fumio Hagiwara, one of the marketing executive at the
maker of the ice cream bar. The rising cost of raw materials finally forced
Akagi’s hand. Tighter logging restrictions in China, for instance, meant it
had to use more expensive Russian lumber for ice cream sticks.
In stronger economic circumstances, Akagi’s price
increase would not stand out. Companies in other places routinely pass on
higher costs to consumers. But in Japan, businesses that face rising costs feel
they have less ability to do so because wages are flat. Instead, they take a
hit to their profits or cut back rather than alienate consumers.
Increasing
prices are a big deal in Japan. The country’s sluggish economy means that the
cost of most things has not risen in 20 years, and almost any increase makes
headlines.
Consumer
prices are a painful economic headache for Japan. Japan’s economy, which has been oscillating
between growth and contraction for years, picked up speed in the first quarter,
according to government data released on Wednesday.
But the
price increases that go through — like the cost of the Garigari-kun ice cream
bar rising to ¥70, from ¥60 — do not reflect a more vibrant economy or a
stronger consumer. They usually mean a company is facing higher costs cutting
into its profit. The deflationary trends are still firmly in place. And wages
are under more pressure than prices, so buying power for most Japanese has
declined compared with a generation ago.
In the ice cream business, Akagi estimates that
Garigari-kun’s sales volume will drop by 7 percent as a result of raising
prices. The sales hit, the company believes, will be more than counterbalanced
by the higher price.
It appears
that for Akagi, at least,
an apology is an effective way to deal with the pain. “We figure it will take
another year before we know how consumers really take to it,” Mr Hagiwara said.
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