It’s Time Japan’s Shareholders Buy Their Own Wine

At just ¥1,000 ($6.30) for 1.5 liters, the famed magnum of wine at Saizeriya Co., a Japan-based chain of Italian restaurants, is already a bargain.

But investors have been able to get the vino — along with its $2.50 pizzas, $3.15 bowls of pasta and $1.90 tiramisu — for free, thanks to the country’s program of shareholder perks. Those holding 100 shares in the firm get ¥2,000 worth of coupons each year to spend at the famously cheap restaurant with more than 1,000 outlets.

At the risk of mixing culinary metaphors, that gravy train screeched to a sudden halt last week, when Saizeriya unexpectedly announced it would become the latest company to end the perk. Retail investors, many of whom hold the stock just to receive the benefits, were up in arms; the shares briefly fell nearly 9%.

They are entitled to be upset. But with the Nikkei 225 Stock Average last week hitting new highs, it’s another sign the quirks that have made Japan a stock outlier might be fading.

Saizeriya is far from the first company cutting back on shareholder perks, but it’s the most high profile. Known as yutai (loosely meaning hospitality, or special treatment), the system works like a reward card: For each bundle of shares held, investors get an annual freebie, from coupon cards to bags of rice. The practice isn’t unique to Japan — Berkshire Hathaway Inc. offers shareholders discounts on Geico insurance policies — but it has certainly reached its final evolution there.

Kirin Holdings Co. offers a case of beer, soy-sauce maker Kikkoman Corp. a selection of condiments. Even Japan Exchange Group Inc., which operates the Tokyo Stock Exchange, gives out a widely accepted prepaid card. Websites and magazines list the combined yield of dividends and gifts in search of the best deals, such as the whopping 85% offered by used motorcycle dealer Bike O & Co. (which is, admittedly, almost all in the form of a ¥30,000 discount on a used bike).

Yutai might be best understood as a symptom of the Japanese stock market’s lost decades. Unable to promise shareholders capital gains, companies tempted them with tangible benefits instead. The system has many parallels in Japanese society, where there’s a tradition of sending seasonal gifts of food or drinks to relatives. It also mirrors the popular furusato nozei (hometown tax) scheme that lets residents pay part of their taxes to a municipality of their choosing, in return for local produce.

A third of listed companies offer some form of yutai, down slightly from a pre-pandemic peak, according to Nomura Investor Relations Co. And it’s far from limited to small firms. SoftBank Corp., Masayoshi Son’s Japanese mobile network operator, established a program for the first time in April, offering the equivalent of ¥1,000 in points on its PayPay mobile payment service. Seven & I Holdings Co. recently added one, too.

For companies, it helps diversify ownership bases, while encouraging long-term, and mostly pliant, investors. Others can funnel money back into the business — customers are likely to order more than just the magnum of wine. Some firms can use the scheme to juice their stock far above what fundamentals might reflect. A 2020 paper found such programs aid smaller enterprises to increase their share price.

Yutai are also the hallmark of Japan’s most high-profile investor, Hiroto Kiritani. An eccentric former professional player of Japanese chess, he lives off the perks he gets from his $3 million portfolio of some 1,200 stocks. He’s a frequent sight on local TV, hurtling his bike across Tokyo to take advantage of freebies before they expire, from eating in izakaya pubs owned by Chimney Co. to buying electronics in K’s Holdings Corp. stores.

But not everyone is as enthusiastic. The system has long been criticized for disadvantaging overseas investors (shareholders need to be Japan residents to get the gifts). Domestic institutional investors and custodians must either refuse the perks or, like the mammoth Government Pension Investment Fund, donate or convert them back into cash, which added some $2.3 million to its coffers in 2022.

Yutai have served as a good way to encourage trading novices to dabble in the stock market. Since the introduction of the massively expanded tax-free NISA accounts at the start of this year (1.7 million were opened in the first three months alone), they are helping to awaken a younger generation to more lasting returns. Tax-free gifts were also once a way to reduce costs.

This means that the time for perks should probably come to an end. In recent years, Saizeriya’s stock price has doubled as it increasingly monetizes its overseas offerings. (In fact, the Japan business has been profit negative for years, due to the firm’s reluctance to raise prices, which are cheap even when discounting the impact of the weak yen.)

More important than what Saizeriya eliminated is what it added — an increased dividend, its first hike since the Global Financial Crisis. Investors holding around 300 shares or more will be better off; the increased payout can be reinvested in the firm or elsewhere.

It’s high time for the Tokyo Stock Exchange itself to start encouraging companies to do the same. That’s not just a fairer system or a superior way to grow wealth — it’s a lot better for you than a $6 magnum of wine.

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