On a Wednesday night at Marco in central Tokyo, the smell of grilled pork pervades the air. The tables in the restaurant gradually filled with customers, mainly office workers coming in after work. Marco is a traditional Japanese pub (Izakaya), where people gather to drink alcohol and eat light snacks.
Izakaya are present throughout the capital, almost on every commercial street, nestled under train tracks or located on high floors of narrow buildings. Owner Kazuhiko Inada, 41, said the barrier to entry in the industry is very low. "Opening a shop is relatively easy and if you don't prepare carefully, closing it is just as easy," he said.
In the first half of 2026, there will be 118 Izakaya bankruptcies in Japan, the highest since 1989, according to Tokyo Shoko Research. Nearly 90% said revenue was stagnant and most employed fewer than 10 staff, suggesting that the small shops that make up much of Japan's drinking culture are increasingly struggling.
The rate of elimination is expected to increase rapidly, as the government proposes a plan to reduce taxes on take-out food for two years, starting from April 2027. Currently, the consumption tax is 8% on most food purchased at home, compared to 10% at restaurants. The new policy will lower the tax rate on food consumed at home to only 1%.
Restaurant owners worry that cheaper supermarket food prices will create more reasons for people to eat at home. Naoko Ogata, senior economist at the Japan Research Institute, said the 7 percentage point decrease was "significant". "The trend towards eating at home will definitely appear to some extent," she said.
The way Japanese people go out to drink has also changed. Long company drinks, when colleagues move together from one bar to another, are much less common than they used to be. Sunny Yasuda, 51, opened his first pub 16 years ago, when corporate receptions were more common and a night out often meant visiting multiple establishments in quick succession. "People who used to go to three or four shops now only stop after one or two shops," he said.
The year-end parties (bōnenkai) and new year parties (shinnenkai) that were once familiar in Japanese corporate life are also fewer. Tokyo Shoko Research's survey shows that 57.2% of businesses have or plan to organize these parties in the 2025-2026 season, a sharp decrease from 78.4% before the pandemic. This means thousands of group table reservations disappear, while this is usually the stable source of revenue and highest profit margin for Izakayas.
Young Japanese people also drink less alcohol. A 2022 analysis by the NLI Research Institute found that among people in their 20s who drink alcohol, about 27% say they rarely drink or have stopped drinking. Including those who do not drink alcohol at all, it accounts for about half of men and 60% of women in their 20s.
With a business model that revolves around alcohol and socializing, this trend reflects an erosion of its core customer base. On the contrary, raw materials, wages and rental prices continue to increase.
Due to labor shortages, restaurants have to increase wages and improve working conditions just to retain employees. Mr. Yasuda said some restaurant owners had to close or reduce operations because the remaining employees were exhausted due to work pressure.
Opening a new shop is also more expensive. When old buildings in Kagurazaka are reconstructed, increased construction costs will be included in the rental price. Therefore, the cost of completing a shop today is about 1.8 times higher than in 2010, according to Mr. Yasuda.
Under pressure, Japan has recorded an increase in the number of restaurant businesses going bankrupt for three consecutive years, with a record of 900 units by 2025, according to Teikoku Databank. More than three-quarters have debt of less than 50 million yen, suggesting the majority are small establishments. The "bars and brewpubs" group, which includes Izakaya, leads with 204 bankruptcies, more than any other segment in the industry.
The common point of this group is that the increased costs cannot be passed on to customers. Teikoku Databank's July 2025 survey showed that the rate of cost transfer into selling price was only 32.3%, significantly lower than the industry average of 39.4%.
This means that the shop has to bear about two-thirds of each additional cost itself, instead of including it in the selling price. Naohiro Fujimoto, the analyst who conducted the report, said that large businesses in general have more ability to increase prices while small shops cannot therefore take big risks.
For Kazuhiko Inada, a slight decrease in sales is not enough to cause his shop to close, but for establishments that are already at the threshold of survival, even a 10% decrease in revenue can be a fatal blow. Today, he believes the key to survival is the ability to offer something customers can't get at home.
During the epidemic season, he learned the lesson that a dish that has cooled after being taken home cannot be the same as the dish that was just prepared and served right at the counter. "Izakaya has values that only this model can bring," he commented.
Mr. Sunny Yasuda is the co-owner of three restaurants and doubts that cheaper takeaway food will cause a large number of regular customers to stop coming to drink. "If the price was only a few percent cheaper, would people really buy ingredients, cook at home, wash everything and then take the trash out?", he asked.
According to him, people who are that sensitive to price have probably reduced the frequency of eating out before. For the rest of the group, pubs offer something that supermarkets can't offer: pre-cooked food, a bustling atmosphere and an evening with friends in a way that's hard to get when gathering at home. Yasuda describes what he sells not as food, but as "space and time".
