TOKYO (THE YOMIURI SHIMBUN/ASIA NEWS NETWORK) - Some retailers and eateries in Japan are cutting the pre-tax prices of their products and services, so that prices will remain unchanged even after the consumption tax hike kicks in in October.
The move is an attempt to continue attracting customers after the consumption tax increases from 8 per cent to 10 per cent.
While the cutting of pre-tax prices is good for consumers, the move may compel companies to engage in a gruelling war of price competition.
Ryohin Keikaku, which runs Muji Stores, has displayed posters in its outlets since mid-September saying: "Our prices won't change after Oct 1."
Muji will reduce its pre-tax prices such that the tax-inclusive retail price with 10 per cent tax would be the same as the current price with 8 per cent tax.
The variety store has cut costs by cooperating with suppliers to consolidate factories and streamline production processes.
The company took the same approach when the consumption tax rate was raised from 5 per cent to 8 per cent in April 2014. As a result, it saved itself the trouble of changing price tags, the company said.
Fukuoka-based leading drugstore chain Cosmos Pharmaceutical, which runs about 1,000 outlets nationwide, mainly in western Japan, will keep its tax-inclusive prices unchanged for pharmaceuticals, daily necessities and other items. Those products account for between 30 and 40 per cent of its sales in monetary terms.
"We may temporarily lose profits but we believe that we will gain the trust of budget-minded consumers," a spokesman said.
The food service industry - where a reduced consumption tax rate of 8 per cent will be applied to takeout meals - are either keeping prices unchanged or reflecting the tax increase, depending on the product.
Kentucky Fried Chicken Japan announced on Sept 19 that it would keep the tax-inclusive prices of its mainstay products the same after the tax hike, such as that of Original Recipe Chicken.
McDonald's Company (Japan) will keep its tax-inclusive prices unchanged for 70 per cent of its products, including the Big Mac and five-piece Chicken McNuggets.
Companies are concerned that consumers will hold back on spending due to the tax increase.
In line with the hike, a government-led reward points programme for cashless payments will be introduced at small and mid-sized retailers, resulting in many other companies aiming to compete through real price cuts.
"Excessive price-cutting competition could rekindle deflation," said executive director Atsushi Inoue at the Japan Chain Stores Association that comprises supermarket chains nationwide.