It is becoming increasingly apparent that the operators of eating and drinking establishments in Japan are facing difficulties. In addition to soaring labor and raw material costs, traditional business models have become less sustainable due to consumers' changing lifestyles and more economical spending.

The number of bankruptcies in the restaurant industry reached 509 during the first half of 2026, according to a survey by Tokyo Shoko Research Ltd., setting a new record high since the survey began in 1997. There are also fears that the bankruptcy of a credit card payment processing company could further exacerbate the situation.

'No choice but to raise prices'

In late July, the izakaya Japanese-style pub TemaeMiso, located in a busy district of Kita Ward, Osaka, was bustling with customers including office workers and tourists. The izakaya's selling point is that customers can enjoy snacks and drinks for as little as about 300 to 400 yen each.

"I usually have about five or six drinks, so the affordability of the alcohol is a key factor in choosing a place," said Haruna Hirose, a company employee in her 20s.

Rising procurement costs, however, are putting pressure on the izakaya's operations. Beer prices have risen by 10% since it opened in 2023, and sake prices continue to climb. To maintain its affordable prices, the izakaya has adopted a self-service drink bar for its meals with all-you-can-drink options, which start at 3,500 yen including tax. It is also imposing time limits during peak hours on all customers, not just those who order all-you-can-drink packages.

Even so, the outlook remains grim. Owner Mitsuo Tsubota said: "In the past, the business was sustained in part by encouraging customers to drink a lot of alcohol (to keep the cost ratio down). This business model is now difficult to sustain, and as we head into the year-end party season, we have no choice but to consider raising the all-you-can-drink prices by a few hundred yen."

Worrying about losing customers

Among the 509 bankruptcies, the izakaya (pubs and beer halls) segment accounted for 118, exceeding 100 for the first time in the first half of a year. According to the Tokyo Shoko Research survey, 90% were due to "sluggish sales" and bankruptcies at establishments with fewer than 10 employees accounted for 97.4%. This has highlighted that the smaller the business, the more severe the challenges. While major chains are raising prices one after another, there are many establishments that are struggling to pass on price increases due to concerns about a loss of customers.

According to Tokyo Shoko Research, "With consumers becoming more price-conscious, izakaya, where customers tend to stay longer and table turnover is slow, will likely face increasingly strong headwinds."

For eating and drinking establishments, which are already seeing their financial situation worsening, unpaid sales proceeds resulting from the bankruptcy of Osaka-based credit card processing firm Zentoshin could prove fatal. According to survey results compiled as of Aug. 13 by the Tokyo-based Japan Food & Beverage Association, about 70% of the 172 businesses that had responded said their financing had worsened due to the bankruptcy, with the average loss amounting to 580,000 yen per store.

"While opportunities to drink at home have increased in the wake of the COVID-19 pandemic, competition from establishments such as set-meal restaurants that also serve alcohol has also expanded," said Kentaro Seki, a senior manager at Japan Research Institute Ltd. "Within the restaurant industry, the business environment for izakaya in particular remains particularly challenging."

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This article is from The Yomiuri Shimbun. Neither Dow Jones Newswires, MarketWatch, Barron's nor The Wall Street Journal were involved in the creation of this content.

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