Research and Markets: Profiled Japanese Food and Drink Report Q1 2009

Japan Food Drink Report provides independent forecasts and competitive intelligence on Japan’s food and drink industry.

Flagging consumer confidence has begun to change the mass grocery retail (MGR) and food and drink landscape in Japan. In a bid to spur consumer spending, all of the country’s major retailers over the last quarter, including AEON, Seven & I, Seiyu and Daiei, have announced various rounds of price discounts and price cutting campaigns, some of which are running into early 2009. Similarly, discount stores are finding better reception in the market. For example, in mid-October, Seven & I-owned Ito-Yokado announced plans to open more of its “”The Price”” discount stores and also convert its struggling namesake stores in the Tokyo metropolitan area to “”The Price”” format, as the company wants to tap the increasing demand for low-cost food. In a similar vein, convenience store chain Lawson announced in November that it was to focus on its fledgling discount division. Currently the company operates discount stores under two brands, Lawson Store 100 and Shop 99. Lawson plans to unite both networks under the Lawson Store 100 banner before going on an expansion spree, opening 100 new stores a year in 2009 and 2010.

The changing operating landscape is by and large forcing Japanese companies to either look abroad for growth or consolidate on the home market. For example, in October, it was announced that Japanese food and beverage giant Suntory had agreed a EUR600mn (US$750.4mn) deal for Frucor, the Australian and New Zealand beverage business of French major Danone. The acquisition, Suntory’s largest to date, will benefit the company allowing it to diversify away from the stagnant and ultra-competitive Japanese marketplace. A month later, Kirin Holdings indicated that it is considering further acquisitions overseas following the purchase of Australia’s second largest dairy concern, Dairy Farmers. The company is hoping to find more synergies through mergers and acquisitions (M&A), as well as looking to expand overseas in light of the shrinking Japanese consumer base.

On the home market, structural consolidation in the food processing industry continues apace. In early September, Meiji Dairies and Japan’s second largest confectionery manufacturer Meiji Seika confirmed plans to merge in 2009, to create the country’s third-largest food company, with annual sales exceeding US$10.3bn. At the end of the quarter, Morinaga Milk Industry and confectionery manufacturer Morinaga denied reports that they are in merger talks. Press speculation continues to centre on a merger as early as autumn 2009 creating a food company with annual sales of about JPY760bn (US$8.5bn) in a bid to counter shrinking domestic sales.

Food consumption in Japan is forecast to increase only slowly over the forecast period to 2013. BMI expects food consumption in dollar terms to post 8.7% growth, standing at US$396.2bn in 2013. The outlook for the Japanese economy continues to remain gloomy with the country having slid into its first recession since 2001 and facing weakening exports. A continued shift to overseas markets and further M&A activity can certainly be expected in 2009.

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