As Hideko Tanaka sits at her desk on the top floor of Hakusui-Sha explaining how a small company needs to be creative to survive, part of her arsenal arrives.
It’s the Hi-Sour mobile, a bright-yellow truck with a huge bottle of Hi-Sour, the company’s signature product, on its bed. Sours are popular drinks in Japan. Add Hi-Sour carbonated drink mix to traditional shochu, gin, vodka or a liqueur, and you have an instant cocktail.
For a company with a small marketing budget, the Hi-Sour vehicle represents mobile marketing. And it’s not Tanaka’s only strategy to survive in an economy that is now officially in recession. Even before that, Hakusui-Sha had to learn to navigate through two decades of lackluster growth and falling prices in Japan.
Prime Minister Shinzo Abe, who recently dissolved the lower house of parliament and called snap elections for Dec. 14, has been trying to deal with Japan’s economic woes with a series of economic reforms known as Abenomics, but recent inflation figures show prices are continuing to decline.
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Now many supermarkets only want to stock products in the lower price ranges, Tanaka said, but margins are so low, some of these stores have gone out of business or merged with other chains.
Traditionally the big supermarket chains have positioned themselves in central shopping areas and had big parking lots. But the new business model, she said, is locating smaller stores in residential areas — a move that has forced some small, local stores out of business.
“It’s impossible for the smaller stores to compete with the lower prices that the big chains can afford, and it’s getting harder to do business with small, local stores,” Tanaka said. “A lot of Japanese retailers also have developed private brands and want to fill the shelves with their own brands.
“That means small manufacturers like us and small stores should create unique products with strong characteristics,” she said.
Hakusui-Shai, which has 20 employees and generally has annual sales of $10million to $11million, is now a market leader in its category. But it has been a hard-fought battle.
The cocktail mix comes in six flavors — lemon, green apple, grapefruit, plum, cranberry and lime — as well as a diet version. Hakusui-Sha also manufactures carbonated drinks and other mixes.
But last year it came out with its first cocktail in a can — a lemon sour. Following Tanaka’s mantra of creating a unique product, this one is a high-alcohol, sour drink. Typically canned cocktails in Japan are low-alcohol and sweet.
“This one appeals to people who like to drink a lot,” she said holding up a can. “They like it.”
An 8 percent sales tax increase in April was designed to eat into Japan’s huge public debt but it slowed consumer spending drastically and officially pushed the economy into a technical recession in November. Gross domestic product shrank by 1.6 percent from July to September, prompting Abe to put off a second sales tax increase for 18 months.
That first sales tax increase has taken a toll on small business, Tanaka said. “We were expecting people would get used to the tax increase, but they haven’t. You can’t sell products if they aren’t cheap enough, but right now in Japan you can’t sell even if things are cheap.”
Wage increases haven’t kept pace with consumption, and that means people are drinking less and consuming fewer sours. The bars of Shinbashi, a Tokyo neighborhood of office towers, bars and restaurants known for salarymen bacchanals, used to be packed until the last train of the night, said Tanaka.
“Now since the the wages of salarymen aren’t increasing, they’ve cut back, maybe from three times a week at the bar to two times a week,” she said.
In general, she’s not a big fan of Abenomics.
“I don’t really think it’s working,” Tanaka said. “We realize he’s at the forefront of these policies and can’t go back, but sometimes, small businesses wonder if this economy will make it to the Olympics.” Tokyo is the host of the 2020 Summer Olympics.
Under Abenomics, billions were pumped into the economy through stimulus spending and the Bank of Japan also printed new money and used it to buy government bonds — causing the yen to decline. The dollar recently hit a seven-year high against the yen.
While theoretically an anemic yen should help Japanese companies that export, it also has made imports more expensive. Hakusui-Sha imports, among other things, resins for its bottles, cardboard for packaging, and lemons from Sicily to make the lemon Hi-Sour mix.
Replacing the imported fruit juices and Sicilian lemons with cheaper products isn’t an option, Tanaka said, because quality and taste would suffer.
“When the yen depreciated, the cost of our imports went up, and we wanted to reflect this in our pricing, but the economy is weak, so we can’t,” Tanaka said. “Even if the margins are smaller, we want to offer our customers the same product.”
Hakusui-Sha exports a small amount of Hi-Sour products to New York, Los Angeles and San Francisco and would like to export more. But Tanaka said, “When a small company tries to export, they need someone on the ground overseas.”
So what’s a small company to do in such a challenging environment?
Tanaka said many small companies, including Hakusui-Sha, have shifted at least partially to online sales. “We not only sell the products online but offer Hi-Sour coasters and glasses to make it more interesting,” she said. The company also sells some products, such as a six-pack of small bottles, exclusively online.
Right now, Tanaka conceded, online sales are tough and only represent about 1 percent of the company’s business. With small markets and liquor shops feeling the pinch — and in some cases going out of business — she expects online sales to become increasingly important. The target for most small businesses is to do 10 to 15 percent of sales online, Tanaka said.
She’s also searching for new ways to use Hakusui-Sha products. “Our cocktail mixes go great with wine too,” she noted.