Last year, Costco Wholesale opened a warehouse in a small rural town near Tokyo, providing hundreds of high-paying jobs. This move forced a nearby noodle chain to take drastic measures: increasing hourly wages by one-third.
For Yamada-udon, which sells a bowl of noodles for 390 yen ($2.48), this was almost an unimaginable decision, as even a slight increase in costs could make it difficult for them to sustain operations.
"For us, even a rise of one or two yen in raw material costs is tough, so an increase of 10 yen in hourly wages requires a significant increase in sales," said marketing director Takehiro Egihashi.
After internal discussions, Yamada-udon decided to renovate its store in Meiwa Town, Gunma Prefecture, and offer a wage of 1,300 yen per hour for the first three months. Although this is lower than Costco's starting wage of 1,500 yen, it was sufficient to attract job seekers. After three months, the wage would be reduced to 1,050 yen per hour, still an increase compared to the pre-Costco entry-level wage of 970 yen.
The wage competition from large American retailer Costco is overwhelming for businesses like Yamada-udon, but some believe this might be the driving force needed for Japan's local economy to create higher wages, robust consumption, and inflation driven by stable demand.
One of Prime Minister Fumio Kishida's key objectives is to achieve significant and sustainable wage growth, and the Bank of Japan considers this an important factor for normalizing monetary policy. Despite Japanese companies agreeing to the largest wage increases in thirty years for 2023 and 2024, real wages (adjusted for inflation) have fallen for 25 consecutive months.
This has dragged down consumption and the wider economy, making it difficult for the Bank of Japan to exit its easy monetary policy smoothly. According to IMF data, Japan's real average annual wage index saw almost no growth from 1995 to 2021, while it increased by 50% in the US and nearly 30% in France over the same period.
Two years ago, Costco set a minimum hourly wage of 1,500 yen at all its stores in Japan to retain employees. Even in Tokyo, this number is high since the statutory minimum wage in Tokyo is the highest in the nation at 1,113 yen, while in Gunma Prefecture, it is only 60% of that. The Meiwa store, opened by Costco in April 2023, had approximately 300 positions but received over 2,000 applications.
"If we offer higher wages, employees can earn more and spend more," said Kaori Yamamoto, manager of Costco's Gunma Meiwa warehouse. "By doing so, we believe we can significantly contribute by creating a virtuous cycle in the local economy."
Costco plans to accelerate the opening of new stores in Japan, almost doubling the number to over 60 by 2030, with many set to open in remote areas like Shiga and Okinawa.
