A 30-year waitlist for Kobe beef croquettes, and counting

The next time you find yourself on the waitlist for some product or service, spare a thought for the Japanese consumers waiting 30 years for Kobe beef croquettes. As reported on CNN last week:

If you order a box of frozen Kobe beef croquettes from Asahiya, a family-run butcher shop in Takasago City in western Japan's Hyogo Prefecture, it'll take another 30 years before you receive your order.

That isn't a typo. Thirty. Years.

Founded in 1926, Asahiya sold meat products from Hyogo prefecture -- Kobe beef included -- for decades before adding beef croquettes to the shelf in the years following WWII.

But it wasn't until the early 2000s that these deep-fried potato and beef dumplings became an internet sensation, resulting in the ridiculously long wait buyers now face.

When there is a shortage of some good or service, we usually expect the price to go up (for example, see here). Not only is that not happening in the case of Asahiya beef croquettes, the low price that leads to the shortage is a purposeful business strategy:

"We sold Extreme Croquettes at the price of JPY270 ($1.8) per piece... The beef in them alone costs about JPY400 ($2.7) per piece," says Nitta.

"We made affordable and tasty croquettes that demonstrate the concept of our shop as a strategy to have customers enjoy the croquettes and then hope that they would buy our Kobe beef after the first try."

To limit the financial loss in the beginning, Asahiya only produced 200 croquettes in their own kitchen next to their shop each week.

So, not only are the croquettes being sold at a price that generates a shortage of them, they are being sold at below the cost of production. There are a number of reasons why firms may sell some of their products at below cost, but generally it is because they are a loss leader - the firm sells that product at a loss, and uses it to generate additional customers who then buy other products, which are more profitable. It appears that is the strategy that Asahiya has adopted:

"We hear that we should hire more people and make croquettes more quickly, but I think there is no shop owner who hires employees and produce more to make more deficit... I feel sorry for having them wait. I do want to make croquettes quickly and send them as soon as possible, but if I do, the shop will go bankrupt."

Fortunately, [the business owner, Shigeru] Nitta says that about half of the people who try the croquettes end up ordering their Kobe beef, so it's a sound marketing strategy.

Is it a sound marketing strategy though? You can generate a lot of buzz about your products without creating such a shortage that your customers are waiting 30 years for their purchase. I mean, even now:

Customers receiving croquettes these days placed their orders about 10 years ago.

Surely, they could reduce the size of the waiting list for croquettes from 30 years back to 10 years, or back to one year, and rapidly increase profits? On the other hand, perhaps that would entail a loss of quality, as the article notes:

The cheap price tag of the Extreme Croquettes flies in the face of the quality of the ingredients. They're made fresh daily with no preservatives. Ingredients include three-year-old female A5-ranked Kobe beef and potatoes sourced from a local ranch.

I guess there is a limit to how much you can ramp up production when you use very specific ingredients. But surely, there is scope for the ranch to increase beef and potato production? While loss leading can be a very profitable strategy, there is just so much scope for increasing profits in this case that I'm not convinced that this is a profit maximising business strategy at all. It even makes me wonder, how many other profit-maximisation failures are contributing to the decades of underperformance of the Japanese economy?