TOKYO -- A clear gap between major izakaya chains and small businesses is emerging as Japanese-style pubs are seeing more bankruptcies in 2024 than during the COVID-19 pandemic, and the failure of these businesses is expected to set a new annual record.

According to a survey by credit research firm Teikoku Databank Ltd., 203 izakaya restaurants, including casual pubs and yakitori diners, went bankrupt between January and November 2024. This exceeds the 189 bankruptcies in 2020 during the height of the COVID-19 crisis and is approaching the 204 cases seen in 2023. The izakaya market shrank to about 890 billion yen (roughly $5.68 billion) in fiscal 2021 during the pandemic. While recovery has since continued, the market size for fiscal 2024 is estimated at 1.66 trillion yen ($10.6 billion), still below the pre-pandemic level of around 1.89 trillion yen in fiscal 2017.

About 40% of izakaya operators reported a net loss in fiscal 2023, suggesting a large number of businesses are at risk of collapse. Teikoku Databank attributes the struggles to the persistently high procurement costs of food and alcohol due to inflation, as well as rising labor and utility costs, all of which are squeezing profits.

Amid the challenges facing these businesses, large izakaya chain Watami Co. is performing well. Reservations for year-end parties in December, including the number of bookings, guests and revenue, are about 10-20% higher than the previous year. A Watami spokesperson noted a shift in consumer behavior, explaining that while pre-pandemic gatherings often included second or third rounds of drinks at different venues, "now consumers mostly get together only for the first round. As a result, customers are opting for slightly more luxurious banquet plans."

Breaking down the 203 izakaya that went bankrupt by the size of capital, 100 businesses including sole proprietors had a capital of less than 1 million yen ($6,400), followed by 86 that had a capital of 1 million to 10 million yen. Teikoku Databank observed, "Medium, small and micro-size businesses have limited options for countermeasures, and the current situation is accelerating the survival of the fittest within the izakaya industry, which was hard to see during the pandemic."

(Japanese original by Yuko Shimada, Business News Department)