Japan Food and Drink Report Q1 2012

While the lives of Japanese consumers are slowly returning to normal after the March tragedy, they are now facing growing external headwinds of a sovereign debt crisis in Europe, a hard landing in China and economic stagnation in the US. Although retail sales and consumer confidence are on the mend, the global headwinds are likely to increasingly weigh on consumer confidence and prompt consumers to keep a firm grip on their purse strings in the near term. With hardly any sign of optimism in Japan's consumer outlook, both in the near term and over the long run, domestic consumer goods manufacturers such as Asahi and AEON are looking afield for stronger growth opportunities and will continue to seek out desirable acquisition assets to fulfil their diversification ambitions.
Headline Industry Data
.. 2012 per capita food consumption = +2.6%; CAGR growth forecast to 2016 = +3.3%
.. 2012 alcoholic drinks value sales = +2.6%; CAGR growth forecast to 2016 = +3.4%
.. 2012 soft drinks value sales = +7.0%; CAGR growth forecast to 2016 = +5.3 %
.. 2012 mass grocery retail sales = +0.8%; CAGR growth forecast to 2016 = +0.5%
Key Industry Trends
Strong Yen Prompts Consumer Players To Embark On An Acquisition Spree – Japanese consumer-facing companies are embarking on an acquisition spree as the yen climbs to a post-World War II high of JPY77.8/US$ at the time of writing. AEON agreed to acquire all outstanding shares in Japanese supermarket chains Marunaka and Sanyo Maraunaka for JPY44.9bn (US$577mn) in October while Kirin recently agreed to buy an additional 49.54% stake in Brazilian brewer Schincariol, taking its total purchase price to BRL6.3bn (US$3.5bn). Meanwhile, Asahi agreed to acquire New Zealand alcoholic drinks company Independent Liquor for US$1.5bn and the mineral water and juice businesses of Australian soft drinks producer P&N Beverages for AUD188mn (US$203mn). The yen strength has equipped Japanese consumer goods investors with a stronger buying power, bolstering their appetite for overseas acquisitions.
Switching Sights To Higher Growth Markets – US-based fast food chain Yum! Brands has agreed to offload its Long John Silver's restaurants to LJS Partners and its A&W All-American Food chain to the National A&W Franchisees Association and A Great American Brand for undisclosed prices. Both A&W and Long John Silver's make little strategic sense with Yum's ambitions of building an international profile. A&W and Long John Silver's are both relatively underweight in international markets, when compared with Yum's other fast-food chains such as Pizza Hut, Taco Bell and KFC. Outside of the US, A&W has stores in only four international markets, namely Indonesia, Malaysia, Thailand and Japan, while Long John Silver's only operates in Singapore. Also looking to lock in higher growth opportunities abroad, Japanese ingredients producer Ajinomoto set up a sales company in Bangladesh in August to sell seasonings and processed foods to local consumers. This investment forms part of Ajinomoto's broader strategy of growing its footprint across international markets with a particular focus on emerging markets (EMs) in the Middle East, Africa and South Asia.
Risks To Outlook We are mindful of the external risks posed by economic uncertainties in Japan's key trading partners, especially in the eurozone and the US. With the fiscal crisis in Europe spreading from Greece to larger countries including France, we are concerned that the contraction in spending in these areas would result in a sharp drop in demand for Japanese products from European consumers. Similarly, with the uncertain employment conditions amid the Standard and Poor's downgrade of US government debt to AA+ from AAA – the first time in history – the growth prospect for the US economy remains precarious as well. Should the economic performances in these countries turn out to be worse than expected, Japan's growth would be penalised, potentially resulting in an economic recession that extends beyond 2012. This scenario clearly would not bode well for the consumer and could deal another blow to domestic demand growth.

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SWOT Analysis 9
Japan Food SWOT 9
Japan Drink SWOT 10
Japan Mass Grocery Retail SWOT 11
Business Environment 12
BMI’s Core Global Industry Views 12
Table: Agricultural Commodity Prices 14
Table: Core Views Q112 23
Asia Pacific Food & Drink Risk/Reward Ratings 24
Q112: Food & Drink Risk/Reward Ratings - China 25
Q112: Food & Drink Risk/Reward Ratings - Asia Pacific 30
Japan’s Food And Drink Business Environment Rating 31
Macroeconomic Outlook 32
Table: Japan - Economic Activity 37
Industry Forecast Scenario 38
Consumer Outlook 38
Food 41
Food Consumption 41
Table: Food Consumption Indicators - Historical Data & Forecasts 42
Confectionery 43
Table: Value/Volume Sales of Selected Food Sub-Sectors - Historical Data & Forecasts 44
Table: Chocolate 45
Canned Food 47
Table: Value/Volume Sales of Selected Food Sub-Sectors - Historical Data & Forecasts 47
Trade 48
Table: Japan Food & Drink Trade Indicators - Historical Data & Forecasts 48
Drink 49
Alcoholic Drinks 49
Table: Japan Beverage Sub-Sectors - Value Sales - Historical Data & Forecasts 52
Table: Beer 53
Table: Wine 54
Table: Spirits 55
Hot Drinks 55
Table: Japan Beverage Sub-Sectors - Value Sales - Historical Data & Forecasts 56
Table: Tea 56
Soft Drinks 57
Table: Japan Beverage Sub-Sectors - Value Sales - Historical Data & Forecasts 57
Table: Carbonated Drinks 58
Table: Fruit/Vegetable Juice 59
Table: Bottled Water 60
Mass Grocery Retail 60
Table: Japan Mass Grocery Retail Indicators - Sales Value by Format - Historical Data & Forecasts 63
Food 64
Key Industry Trends and Developments 64
Switching Sights To Higher Growth Markets 64
Downside Risks On Japan’s Agriculture Outlook 65
Market Overview 67
Food Consumption 67
Confectionery 68
Functional Food 68
Canned Food 69
Frozen Food 70
Trade 70
Agriculture 71
Drink 72
Key Industry Trends And Developments 72
Venturing Into Healthy Drinks 72
Japanese Brewers' Expansions Not Entirely Plain Sailing 73
Beer Market Growth Stuttering Along 74
Market Overview 75
Alcoholic Drinks 75
Beer 75
Wine 76
Hot Drinks 76
Soft Drinks 77
Functional Drinks 78
Mass Grocery Retail 79
Key Industry Trends and Developments 79
Retailers Have Big Overseas Ambitions 79
…While Consolidating Their Japan Footprint 80
Strong Yen Prompts Consumer Players To Embark On An Acquisition Spree 81
Market Overview 83
Leading MGR Players 84
Table: Structure of Japan's Mass Grocery Retail Market by Estimated Number of Outlets 86
Table: Structure of Japan's Mass Grocery Retail Market - Sales by Format (US$bn) 86
Table: Structure of Japan's Mass Grocery Retail Market - Sales by Format (JPYbn) 86
Table: Average Annual Sales per Outlet by Format - 2010 87
Table: Grocery Retail Sales by Format - Historical Data & Forecasts 87
Competitive Landscape 88
Consumer Share Price Analysis 88
Key Players 93
Table: Key Players in Japan's Food & Drink Sector 93
Table: Key Players in Japan's Mass Grocery Retail Sector 94
Company Monitor 95
Food 95
Ajinomoto 95
Drink 98
Asahi Breweries Ltd 98
Kirin 101
Mass Grocery Retail 104
Seven & I Holdings 104
Japan Food & Drink Report Q1 2012
© Business Monitor International Ltd Page 5
Lawson Inc 106
AEON110
Seiyu 114
Risk/Reward Ratings Methodology 115
Table: Rewards 116
Table: Risks 116
Weighting 117
Table: Weighting 117
BMI Food & Drink Industry Glossary 118
Food & Drink 118
Mass Grocery Retail 118
BMI Food & Drink Forecasting & Sourcing 120
How We Generate Our Industry Forecasts 120
Sourcing 121
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