Great article from Bloomberg on the Pachinko industry:
Japan’s Pachinko Parlors Beat Vegas as Gamblers Defy Recession
As Japan’s economy shrank at an annual 12.1 percent pace in the last quarter and revenue slumped at Las Vegas casino companies like MGM Mirage and Las Vegas Sands Corp., the 23 trillion-yen pachinko industry is on a roll. Sales from the machines, which resemble upright pinball games, rebounded 0.5 percent in last quarter, reversing a six-year decline, and rose 0.9 percent in January, according to government statistics.
Kyoto-based Maruhan Corp., the biggest pachinko-hall operator by sales, forecast net income will rise 11 percent to 20 billion yen in the fiscal year ending today, according to a statement on its Web site. Operators aren’t publicly traded and typically don’t provide financial information.
Casino gambling revenue in Las Vegas fell the most on record last year and dropped 15 percent in January as the U.S. recession curbed spending on travel and betting. Shares of MGM Mirage and Las Vegas Sands fell more than 95 percent in the 12 months through March 27.
Introduced in the 1920s, pachinko is played by about 13 percent of Japan’s population, who fed 23 trillion yen into the machines in 2007, according to the Japan Productivity Center for Socio-Economic Development.
Numbers are down from 16 percent of the population and 29.6 trillion yen in 2003, a drop that was caused by a regulatory crackdown on types of machines that encouraged heavy gambling, according to a February 2007 report by CLSA Asia-Pacific Markets.
Japan’s 13,000 pachinko halls — more than one for every 10,000 residents — are located throughout the country around train stations, along highways and in entertainment areas.
Pachinko players seek to amass piles of small steel balls that can be exchanged for prizes. Because casinos are illegal in Japan, cash can’t be paid out on the premises. Prizes can usually be exchanged for money at a nearby booth.
Operators are luring customers with new high-stakes machines that yield bigger profit margins, while lowering fees for others to 1 yen per ball from 4 yen.
“Parlors are thinking more carefully about which machines customers like, which machines are the most profitable,” S&P analyst Miyuki Onchi said. “Sales have come up bit by bit.”
Lower-fee machines have widened the customer base at Maruhan, the company said in an e-mail. Founded in 1957, Maruhan said it has 242 parlors, up from 225 a year ago, and about 12,000 workers.
Spending by Japanese households dropped 5.9 percent in January from a year earlier, the most in more than two years, the government said last month.
“It’s an industry that in the past, when the economy has slumped, it has improved,” Kobayashi said. “But this time we don’t know how bad the recession will be.”
That’s a whopping 13,000 parlors, compared to:
- 3,800 McDonald’s stores
- 1,102 Sukiya beef bowl stores (they edged out Yoshinoya in 2008)
- If pachinko parlors were a convenience store chain, it would be the biggest (7-11 Japan is the biggest with 12,071 stores, with more than 50,000 convenience stores nationwide)
For some reason the article doesn’t mention that part of the new attraction of these “new high stakes machines” is the aggressive advertising and licensing deals. Recent titles have included Evangelion, Space Battle Ship Yamato, Korean drama Winter Sonata, and even Tensai Bakabon. There is also a difference between pure pachinko and pachinko-slots (“pachi-slo”) that I still don’t really understand.