Japan’s pub king turns to fast food as customers ditch boozy nights out

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One of Japan’s biggest pub operators is pivoting his business empire to fast food after warning that many customers are “never coming back” to drink in the country’s izakaya watering holes.

Miki Watanabe, chief executive of Watami, a group which operates 340 pubs and eateries in Japan, said he is hunting for more fast food acquisitions after buying the operator of Subway in Japan last month.

In an interview with the Financial Times in Tokyo, Watanabe said he would consider buying the local franchises of McDonald’s, KFC and other global brands if the opportunity arises.

“Only 80 per cent of customers have returned to izakayas,” said Watanabe, referring to the country’s lively pubs, usually smaller establishments serving alcohol and food. “What has been returning is fast food. Delivery is even higher than before the pandemic.”

The Covid-19 pandemic sparked an abrupt change in Japan’s business culture, which traditionally revolved around long nights out. Office workers are spending less time out drinking with colleagues and more time at home, as younger generations abstain from alcohol.

“That’s why I changed direction from izakayas to fast food,” said Watanabe, who has pledged to open as many as 3,000 Subway outlets in Japan over the next 25 years. There are currently 178 in the country.

He said it was “quite possible” that Watami will bid for one of Japan’s other large franchises, such as McDonald’s or KFC. His other plans for the group include enlarging its bento lunchbox delivery business for the elderly and buying out restaurant chains in the US and south-east Asia.

Watami’s plan to expand Subway in Japan will face sharp competition from the country’s convenience stores, which offer a range of affordable sandwiches that are quickly adapted to meet changing consumer tastes.

The company’s net profit slumped 44 per cent to ¥1.8bn ($12mn) in the six months ending September as higher costs hit the group’s revenues, which have yet to recover to pre-pandemic levels. Those issues were slightly mitigated by Japan’s tourism boom, which has doubled the share of Watami’s revenue from overseas visitors to 3 per cent.

Watanabe, a 65-year-old former politician who styled himself after Michael Bloomberg by running for Tokyo governor in 2011, predicted that persistent “hyperinflation” and a weak yen in Japan is going to force many izakayas to shut down as consumers have less money to spend and import costs rise.

Watami is a barometer for services inflation and labour tightness in Japan at a time when the nation’s executives are grappling with rising prices for the first time in decades. The group has said it wants to raise wages by 5 per cent next year and 7 per cent in 2026.

In 2012, the group was labelled as a “black” company by a civil society committee for egregious overtime and abuse of workers following a case in 2008 of karoshi, death by overwork, when a female worker killed herself after working more than 140 overtime hours in a month.

Watanabe said that it was certified as a responsible employer by the economy, trade and industry ministry for the past three years and that its work culture had changed, despite ongoing labour shortages in Japan.

While Watanabe believes the group is currently able to secure enough workers, the weak yen is making it harder to convince people to come to Japan over other countries such as South Korea.

The group has also been hit by inflation from rising bills and a countrywide rice shortage. Watami experimented mixing wheat and other ingredients to its white rice, said Watanabe, but ultimately the company has no option but to consider raising prices by about 5 per cent next year.

“There’s no rice so everyone is scrambling,” he said. “We’re in a bad cycle.”