Japan Industry Outlook / 38
Japan Industry Outlook / 38 2012 No.1 Table of Contents
1, Comprehensive Industry - Japan 2, Iron and Steel - Japan 3, Non-ferrous Metals - Japan
15, Broadcasting (Japanese only) 16, Marine Shipping (Japanese only) 17, Logistics - Japan
4, Paper and Pulp (Japanese only) 18, Electric Power - Japan 5, Cement - Japan 19, City Gas (Japanese only) 6, Chemicals - Japan 20, Retail - Japan 7, Pharmaceuticals - Japan 21, Food and Beverage - Japan 8, Petroleum - Japan 22, Food Service Industry - Japan 9, Automobiles - Japan 23, Construction (Japanese only) 10, Shipbuilding (Japanese only) 24, Real Estate and Housing - Japan 11, General Machinery (Japanese only) 25, Travel and Tourism - Japan 12, Electronics - Japan 26, Nonbank (Credit Cards & Credit) (Japanese 13, IT Services - Japan only) 14, Telecommunications - Japan 27, HR Service Industry (Japanese only)
Contact: Industry Research Division Mizuho Corporate Bank, Ltd. [email protected]
FY2012 Japan Industry Outlook (F&B)
Food and Beverages Summary
■ Although the processed food consumer price index in 2011 saw some temporary fluctuation before and after the Great East Japan Earthquake, the general downward trend has stopped in response to the increasing prices of raw materials. Food expenditures for the January–November period in 2011 saw a decrease of 1.2% やや year-on-year, due to the decrease in eating out as well as the demand for fresh food such as seafood and vegetables. Although demand for eating out is forecast to recover in 2012, the index is estimated to fall by 0.5% year-on-year with decreasing prices of raw materials and recurrent price competition. ■ Cumulative earnings during the second quarter in FY2011 for the 31 major food manufacturing group companies saw an increase of 0.3% year-on-year in sales and a decrease of 2.8% in operating profits. As prices of raw materials are expected to start falling in September 2011 and will continue falling thereafter, many companies are estimated to see an increase in earnings with reduced costs in FY2012. ■ Although the processed food industry is estimated to see the Japanese market shrink in the long term due to the decrease in population, there are possibilities for the entire market to expand in the medium term through corporate efforts to develop business by adding value for the increasing number of elderly people. On the other hand, the overseas market is estimated to see 260 million people move into the upper-income range in Asian countries by 2020. It is thus possible for exporting businesses, which saw difficulty in pricing products due to a lack in purchase power, to grow significantly in the times ahead.
I．INDUSTRY TRENDS 1. While the market price for grains remain high, the level of low price strategies in the retail market is returning to that before the earthquake. Price indexes fluctuated between the appreciation of raw material prices and an economizing trend.
The latest result of the consumer price index of processed food products (hereinafter referred to as “processed foods”) has leveled off, although it was rising since January 2011 (see Figure 21-1). This is considered to be because of the fact that the prices are in conflict with the increase in raw material prices along with rising grain prices and an economizing trend among consumers, based on concerns over the severe income environment in the times ahead.
Food expenditures in 2012 are forecast to decrease by 0.5% year-on-year.
Food expenditures for the January–November period in 2011 were down 1.2% year-on-year. Observing expenditure charges by major items from January to November 2011, the main reason for the decrease is considered to be the remarkable fall caused by the impact of the earthquake in eating out as well as the high component ratio of seafood and vegetables. Price revisions to raise
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Mizuho Corporate Bank, Industry Research Division
FY2012 Japan Industry Outlook (F&B)
prices were seen only in some sections, and special demand after the earthquake was temporary. Although special sales decreased in the retail market in 2011 after the earthquake, they resumed once the problem of undersupply was resolved. When prices were raised in July, the increase in retail prices was smaller than the increase of prices shown by manufacturers. Therefore, food expenditures in 2011 are forecast to decrease by 1.1% year-on-year (see Figure 21-2). Even though demand for eating out is expected to recover in 2012, the falling prices of raw materials and recurrent price competition are likely to lower unit prices. Thus, food expenditures in 2012 are expected to see a decrease of around 0.5% year-on-year. [2005 average=100] 107 (Annual average) (M onthly change)
Overall (goods/services) Goods Food Products
Figure 21-1: Consumer price index for processed food products
106 105 104 103 102 101
Source: Compiled by MHCB Industry Research Division based on the Monthly Report on the Consumer Price Index (Ministry of Internal Affairs and Communications)
100 99 08/2 08/4 08/6 08/8 08/10 08/12 09/2 09/4 09/6 09/8 09/10 09/12 10/2 10/4 10/6 10/8 10/10 10/12 11/2 11/4 11/6 11/8 11/10
1998 2000 2002 2004 2006 2008 2010
98
Figure 21-2: Growth rate of food expenditures over the previous year (left) and expenditure changes by major item from January to November 2011 (right) Change (left axis) Composition ratio (right axis)
Food Expenditures Consumption Expenditures
3%
18%
(Processed foods)
2%
Eating out
Vegetables/seaweed
0% Fish
2%
-6% Meat
4%
-5%
Beverages
-4%
Alcohol beverages
6%
Prepared foods
8%
-3%
Confectionary
10%
-2%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011(estimate)
-4%
-1%
Oil/seasonings
(yr)
12%
Milk
consumption tax hike
14%
Dairy(Ex. Milk)
-2%
16%
0%
Bread
0%
(Fresh foods/ eating out)
1%
Noodles
2%
Source: Compiled by MHCB Industry Research Division based on the “Annual Report on the Family Income and Expenditure Survey” (Ministry of Internal Affairs and Communications) Note: Nominal basis; fluctuations in the right-side graph are compared to the same period of 2010. Composition ratios are compared to food expenditures (January–November 2010).
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Mizuho Corporate Bank, Industry Research Division
FY2012 Japan Industry Outlook (F&B)
2. Outlook for the shipment values of the processed food manufacturing industry in 2012 The international prices of major raw materials, the leading factor for the shipment value of the manufacturing industry, have stopped appreciating, but are still on an upward trend in the long term.
In 2011, there were concerns for the appreciation of the Food Price Index released by the United Nations Food and Agriculture Organization, as the index renewed its all-time high, exceeding that recorded in 2008. However, the prices of raw materials are currently stable with a good harvest of wheat—the index of which dropped in September 2011. Yet, the future trends are unknown. The market prices for grains are expected to continue fluctuating while gradually going up in the long term. Demand for cooking oil and edible meat is on an increase, along with the economic growth of emerging countries. As around four to eight times as much grain is necessary to feed livestock in order to produce one kilogram of edible meat, demand for grain is expected to increase faster than the increase in population. Demand for cooking oil is also growing five times as fast as the increase of population, along with the increase of income. While seeing a long-term upward trend supported by fundamentals, the market prices for grain are expected to fluctuate in the short term, following changes in weather and trends in speculative investment. Figure 21-3: International prices of major raw Wheat
Soy
Corn
Sugar
700
Source: Compiled by MHCB Industry Research Division based on data released by Reuters. The forecast figures for 2012 are future prices of the Chicago Board of Trade as of January 17, 2012 (for each contract month in 2012).
600
USD/ton
500 400 300 200
0
2010/1 2010/2 2010/3 2010/4 2010/5 2010/6 2010/7 2010/8 2010/9 2010/10 2010/11 2010/12 2011/1 2011/2 2011/3 2011/4 2011/5 2011/6 2011/7 2011/8 2011/9 2011/10 2011/11 2011/12 2012/1 2012/2 2012/3 2012/4 2012/5 2012/6 2012/7 2012/8 2012/9 2012/10 2012/11 2012/12
100
The shipment value of the manufacturing industry is expected to slightly decrease in 2012 due to the declining prices of raw materials.
Chicago future price
The domestic processed food manufacturing industry is unlikely to see a significant change in amount in 2012, as it is an industry that provides daily necessities. Factors related to weather are expected to cancel each other out. Therefore, prices are likely to be the major factor for changes in market size. With regard to prices, the shipment value of the manufacturing industry is mainly impacted by consumer preference for lower prices as well as the fluctuation in the prices of raw materials.
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Mizuho Corporate Bank, Industry Research Division
FY2012 Japan Industry Outlook (F&B) Figure 21-4: Estimated changes in the shipment value of the food manufacturing industry materials (Unit: JPY billion) 23,000
22,648 22,500
22,000 10 20
) e e es t) ) ls ls es n) n) s) as ate rat rat ns ric ria ria ric tio tio rn r m e e p e e p e a e a i t t rec t l t l t g g a a y t t n u u o s n n i a a b f p p e m a a m 2( np po po np 1( w ch ch ted t ed aw ra 01 in in 01 ex ex ec tio tio ec l rr r 2 f p p 2 f f f e e f o o s s o o e j a m m aj ct ct tr su su r ea r ea ma Un fm pa pa ec ec No on on of o c c m m D D s I I s ( ( od od ice ice fo fo Pr Pr in in s s e e ng ng ha ha C C ( (
Source: Compiled by MHCB Industry Research Division based on “Beverage & Food Statistics Monthly Report” published by Nikkan Keizai Tsushin Co., Ltd., “Food Imports 2010” published by JETRO, and the websites of various business organizations, hearings, and data released by Reuters.
The major factors for price fluctuations are seen to be the prices of raw materials and foreign exchange rates.
The cost of raw materials accounts for around 40% of the total shipment value of the food manufacturing industry. The cost (the consumed amount multiplied by the price) of the major raw materials (wheat, soy, corn, and sugar) is estimated to be around one eighth (around 5% of the total shipment value)1 of the total cost of raw materials. Factors for price fluctuation are considered to be the fluctuation of the prices of these raw materials as well as the changes in foreign exchange rates. However, as processed food products are daily necessities, the violent fluctuation of the prices is undesirable. Thus, the fluctuation range at phases of both the appreciation and depreciation of the market prices are expected to be restricted to a certain extent through sales prices adjustment or adjustmentｓ to import price made by the government, as well as the cost absorption by enterprises. In this review, figures are adjusted as a portion not reflected in prices. The Japanese yen is expected to remain strong for a while, which will contribute to the reduction of procurement cost. It is also worth noting that the
1
MHCB Industry Research Division took the impact of feed grains for processed meat products and dairy products into consideration.
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Mizuho Corporate Bank, Industry Research Division
FY2012 Japan Industry Outlook (F&B)
prices of raw materials other than the major ones mentioned above are appreciating, such as those of coffee, cacao, spices, and packaging materials. Although the international prices for grains rose significantly in 2011 and led the shipment value of major raw materials to increase by 1.1%, only some products saw an increase in their prices. As a result, the change in the raw material prices was generally absorbed by enterprises. With regard to the shipment amount, the population (which has been a factor of concern) is estimated to decrease by 0.24% year-on-year in 2012. However, there has been a change in the patterns of food consumption in which food expenditures have been pushed up by rising unit prices. This is caused by the fact that there have been an increasing number of elderly and one-person households that tend to consume more food, causing a shift from fresh food to processed food, the increased production of individually packaged products in smaller quantities, and the development of high-value-added products that respond to needs for healthier and more convenient food products. The negative impact of the decrease in population is therefore expected to be cancelled out until around 2015.
II. CORPORATE EARNINGS 1. The earnings of the 31 top food manufacturers for the second quarter in FY2011 saw a slight increase in revenues and a decrease in profits. There is an overall tendency for profits to decrease due to the increase in cost.
The weighted average of the second-quarter earnings of the 31 listed food manufacturers with consolidated net sales in excess of 200 billion yen (hereinafter referred to as the “major food manufacturer groups”) (based on the FY2007 settlement) saw an increase of 0.3% year-on-year in sales and a decrease of 2.8% year-on-year in operating profits (see Figure 21-5). There were only a few companies that saw an increase in both revenues and profits, excluding the cases in which the new consolidation of subsidiaries contributed to the increase. With regard to sales, some companies with a high ratio of overseas sales saw a decrease in revenues due to the appreciation of the yen. With regard to profits, there was an overall downward trend due to the rising cost caused by the appreciation of the prices of raw materials. In particular, there were many companies that saw a decrease both in revenues and profits with dairy products because of the difficulty in procurement as well as the disruption in production caused by the earthquake. Companies in the flour milling as well as the oil and fat industries saw an increase in revenues, as there was price revision for some products, while they saw a decrease in profits, as they were not able to fully reflect the increase in the prices of raw materials on their product prices.
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Mizuho Corporate Bank, Industry Research Division
FY2012 Japan Industry Outlook (F&B) Figure 21-5: FY2011 second-quarter total earnings of major food manufacturer groups (percentage change over FY2010) ←% change of sales →
Revenue Decrease/ Profit Increase
Nippon Suisan （Sales +14.6% , Operating Profit+91.8%）
Revenue Increase/ Profit Increase
70 60 50
Coca-cola West HD
40
Sapporo HD （Sales +21.5％, Operating Profit +51.0%）
House Foods
← → % change of operating profit
-10
Maruha Nichiro 30
Prima Meat
20
Asahi
10
Ito En
Ajinomoto
Marudai
Kirin HD
Showa Sangyo Nisshin OilliO
0 Megmilk Snow
-5 Kagome
Kikkoman
Coca-Cola Central Japan Morinaga
-10
0 Total
Nichirei
T oyo Suisan
5
Nippon Yakult Kewpie Yamazaki -20 Baking Nisshin Foods Nisshin Seifun
-30
10 Nippon Flour
Fuji Oil
Ezaki Glico
-40
Revenue Decrease/ Profit Decrease
Revenue Increase/ Profit Decrease
Meiji HD （Sales -2.1％, Operating Profit -58.9％） Ito ham （Sales -0.2％, Operating Profit -213.3％）
Source: Compiled by MHCB Industry Research Division based on corporate financial statements. Note: Targets the 31 top food manufacturers with consolidated net sales in excess of 200 billion yen (based on the FY2007 settlement). Figures for companies that close their books in November and December have been revised according to the LTM (Last Twelve Months), based on the 3Q settlement.
2. Outlook for FY2011 and FY2012: Profits are expected to increase in FY2012, with improved profitability as a result of a fall in the prices of raw materials. Corporate earnings in FY2011 are expected to be weak, while some recovery is expected in FY2012.
Among the major food manufacturer groups, the top seven companies with consolidated net sales of more than 700 billion yen saw a decrease in sales revenues in FY2011, due to the decline in demand for alcoholic drinks as well as the decrease in overseas sales as a result of the appreciation of the yen. Although prices were raised for some products along with the rising prices of raw materials, it was not sufficient to absorb the increase in cost. When the prices of bread products were raised, the companies tried to maintain the overall selling prices by releasing new products with lower prices in order to respond to the needs of consumers who demand low-price products. It was thus difficult to increase revenues. Profits are forecast to decrease due to the profit deterioration caused by the appreciation of the prices of raw materials as well as the postponement of structural reforms, such as factory restructuring as a result of the earthquake (see Figure 21-6). The companies are expected to see a slight increase in revenues and an increase
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Mizuho Corporate Bank, Industry Research Division
FY2012 Japan Industry Outlook (F&B)
in profits in FY2012, thanks to some improvement in conditions such as the effects of the consolidation seen by the acquiring companies, recovery in commercial demand, and the fall in the prices of raw materials. Figure 21-6: Balances for seven listed food manufacturers Actual:
Sales Operating Profit
Companies
FY10
FY11
FY12
(Unit) 7 (JPY billions) 7 (JPY billions)
(Actual)
(Estimate)
(Forecast)
8775.6
8670.4
8696.1
439.3
410.9
449.4
Rate of Incrase and Decrease: Brief (Unit)
FY10
FY11
FY12
(Actual)
(Estimate)
(Forecast)
Sales
7 (％)
＋ 0.9%
- 1.2%
＋ 0.3%
Operating Profit
7 (％)
＋ 21.2%
- 6.5%
＋ 9.4%
Source: Compiled by MHCB Industry Research Division based on publicly released data by each company. Note: Consolidated basis: Figures for FY2011 and FY2012 are based on MHCB Industry Research Division forecasts. Seven companies: Kirin Holdings Co., Ltd., Asahi Group Holdings, Ltd., Ajinomoto Co., Ltd., Nippon Meat Packers Inc., Maruha Nichiro Holdings Inc., Yamazaki Baking Co., Ltd., Meiji Holdings Co., Ltd.
III. TOPICS: Consideration of business areas with middle-term potential – the processed food industry The role played by the industries related to agriculture and food is growing both in the domestic and overseas markets.
The agriculture- and food-related industries have been playing an important role in the country, as can be seen in the fact that the domestic production of these industries was 43 trillion yen in FY2009, accounting for 9.1% of the total GDP of Japan, and the number of employees accounted for 13% of that of all industries in 2010 (see Figure 21-7). Even though these industries are expected to shrink in the long term due to depopulation, the decrease in final food consumption may remain negligible in the middle term mainly thanks to the shift in consumption from fresh food to processed food (see Figure 21-8). Thus, there are potentials for the overall market to grow, depending on the efforts made by companies in developing products that can provide unique experiences or narratives. With regard to overseas markets, on the other hand, there will be additional 260 million wealthy people whose annual family disposable income is 35,000 dollars or above by 2020 in Asian countries that are close to Japan in geographical terms as well as in food culture (see Figure 21-9). Thus, the conditions will be more than desirable for the government, which has set out a goal to achieve food exports of one trillion yen (see Figure 21-10), as well as for the major food manufacturers expanding local manufacturing and sales.
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Mizuho Corporate Bank, Industry Research Division
FY2012 Japan Industry Outlook (F&B)
Figure 21-7: Size of the agriculture- and food-related industries
8 .17 million Agricultureand foodrelated industries
pe ople
43 trillion yen Gross Domestic Product: 473 trillion yen (2009)
One out of 7.7 people is involved in work related to food.
Employed population: 62.56 million (2010)
Source: Compiled by MHCB Industry Research Division based on “Summary of Economic Calculation on Agricultural and Food-related Industries” and on “Basic Statistics on Agriculture, Forestry, and Fisheries,” published by the Ministry of Agriculture, Forestry and Fisheries.
Figure 21-8: Estimated final consumption of food and beverages （JPY trillions ）
Increase in expenditures on 100% “values” such as experiences and narratives 90% 80%
100
80
-1.9%
70% 60
40
51.1% 62.6% Increase in the 73.6 trillion ratio of 72.2 trillion JPY JPY expenditure for processed food
60%
26.8% Decrease in the ratio of21.3% expenditures on fresh food
20%
20
0
2005
50% 40% 30%
10% 0%
(CY)
2025
Figure 21-9: Changes in the number of those wealthy in Asia (Billion people) 0.3
0.26 billion people 2.3 times
Other Asian countries
0.3
Taiwan Korea
0.2
India
0.2
China
0.1 0.1 0.0 1995
2000
2005
2010
2015
8
2020
(cy)
Source: Compiled by MHCB Industry Research Division based on “Future of the Low Birth Rate and the Aging Society and Outlook for the Food Consumption Patterns in Japan” and on “Input Output Table 2005” (trial calculation by the Ministry of Agriculture, Forestry and Fisheries) published by Policy Research Institute, Ministry of Agriculture, Forestry and Fisheries.
Source: Compiled by MHCB Industry Research Division based on Euromonitor International. Note: The figures refer to the size of the population with a disposable income of USD 35,000 or above, calculated with the component ratio of households by disposable income group multiplied by the population. Other Asian countries include Malaysia, Thailand, the Philippines, Indonesia, Vietnam, Hong Kong, and Singapore.
Mizuho Corporate Bank, Industry Research Division
FY2012 Japan Industry Outlook (F&B)
Figure 21-10: Target set out by the government to expand exports of agricultural, forestry, fisheries, and food products Exports expanded through: - Efforts to deal with the impacts of the nuclear plant disaster - National strategic marketing - Systems to support exports
(Billion JPY) 1,000 Fresh food etc. Processed food etc.
800
600
516.0
507.8
449.0
445.4
492.0
1trillion JPY
453.3
400
200
0 2006
2007
2008
2009
2010
2011 （Estimate）
2020 （Target ）
（CY）
Source: Compiled by MHCB Industry Research Division based on “Statistics on Imports and Exports of Agricultural, Forestry, and Fisheries Products” and “Food Industry Newsletter” published by the Ministry of Agriculture, Forestry and Fisheries.
The highly aging society will benefit the processed food industry.
The most important middle-term factor in the Japanese market is a significant increase in elderly and one-person households. There are estimated to be 18.99 million elderly households in 2020, up 21% compared to 2010, reaching 37.7% of the total population. The food expenditure per person is higher for elderly people than young people (see Figure 21-11), as people in this generation value the quality of food rather than prices. It is considered structurally impossible to avoid price competition among food providers (retailers, wholesalers, and manufacturers). On the other hand, however, there are potentials for companies to improve total marketing performance by designing products and making value propositions that attract elderly consumers. The elderly market will be an attractive market for the processed food industry to develop value-based business.
Figure 21 -11: Changes in the number of elderly households (2010–2020) （ 10,000 households） 4,000 3,500 3,000
Householder 65 years old or above Householder less than 65 years old
2010
2020
1,102 1,268
2,500 2,000 2010 1,500
465
2020 631 2,356
1,000 500
1,105
2,042
1,102
0 One-person households
Source: Compiled by MHCB Industry Research Division based on data in “Household Projections for Japan,” published by the National Institute of Population and Social Security Research.
Households with two people or more
9
Mizuho Corporate Bank, Industry Research Division
FY2012 Japan Industry Outlook (F&B) Figure 21-12: Food expenditures per person (2010) 10,000 JPY 80 70 60
Eating out Eating in and home meal replacement Eating out
50 40 30 20 10 0 29 years old 30 – 39 years 40 – 49 years 50 – 59 years 60 – 69 years 70 years old and under old old old old and over
Source: Compiled by MHCB Industry Research Division based on a household survey carried out by the Ministry of Internal Affairs and Communication. Note: The figures were calculated from the food expenditures for households with two people or more divided by the number of household members by the age group of the homeowner.
Age group of householder
There are possibilities for growth in food exports which had been restricted due to pricing difficulties.
Although there are issues to deal with (such as the impact of the nuclear plant disaster), there are possibilities for food exports from Japan (which had seen difficulty in pricing products due to a lack of consumer buying power) to grow and bring business chances contributing to the maintenance of employment in Japan, through the expansion of the middle-income and higher-income population in Asian emerging countries. However, it is not easy for domestic food providers to deal with complicated trade administration and local regulations while appropriately responding to overseas demand. It is considered to be another obstacle for food exports that there is no distributors that seize the needs of local consumers in realtime while encouraging local demand in order to build a stable supply system. In order to solve such problems, it is seen effective to build a tight food distribution relationship between major Japanese food wholesalers and local companies (not restricted to retailers or wholesalers) with dominant power in distribution in emerging countries. There are companies in Asian emerging countries that are highly interested in importing Japanese food, expecting the expansion of the middle-income and higher-income population. There are potentials for such companies to build a mutually beneficial alliance with Japanese major wholesalers
Shingo Tanaka [email protected] Makiko Kitamura [email protected] Distribution & Consumer-related Team Industry Research Division Mizuho Corporate Bank, Ltd.
10
Mizuho Corporate Bank, Industry Research Division
1, Comprehensive Industry - Japan 2, Iron and Steel - Japan 3, Non-ferrous Metals - Japan
15, Broadcasting (Japanese only) 16, Marine Shipping (Japanese only) 17, Logistics - Japan
4, Paper and Pulp (Japanese only) 18, Electric Power - Japan 5, Cement - Japan 19, City Gas (Japanese only) 6, Chemicals - Japan 20, Retail - Japan 7, Pharmaceuticals - Japan 21, Food and Beverage - Japan 8, Petroleum - Japan 22, Food Service Industry - Japan 9, Automobiles - Japan 23, Construction (Japanese only) 10, Shipbuilding (Japanese only) 24, Real Estate and Housing - Japan 11, General Machinery (Japanese only) 25, Travel and Tourism - Japan 12, Electronics - Japan 26, Nonbank (Credit Cards & Credit) (Japanese 13, IT Services - Japan only) 14, Telecommunications - Japan 27, HR Service Industry (Japanese only)
Contact: Industry Research Division Mizuho Corporate Bank, Ltd. [email protected]
FY2012 Japan Industry Outlook (F&B)
Food and Beverages Summary
■ Although the processed food consumer price index in 2011 saw some temporary fluctuation before and after the Great East Japan Earthquake, the general downward trend has stopped in response to the increasing prices of raw materials. Food expenditures for the January–November period in 2011 saw a decrease of 1.2% やや year-on-year, due to the decrease in eating out as well as the demand for fresh food such as seafood and vegetables. Although demand for eating out is forecast to recover in 2012, the index is estimated to fall by 0.5% year-on-year with decreasing prices of raw materials and recurrent price competition. ■ Cumulative earnings during the second quarter in FY2011 for the 31 major food manufacturing group companies saw an increase of 0.3% year-on-year in sales and a decrease of 2.8% in operating profits. As prices of raw materials are expected to start falling in September 2011 and will continue falling thereafter, many companies are estimated to see an increase in earnings with reduced costs in FY2012. ■ Although the processed food industry is estimated to see the Japanese market shrink in the long term due to the decrease in population, there are possibilities for the entire market to expand in the medium term through corporate efforts to develop business by adding value for the increasing number of elderly people. On the other hand, the overseas market is estimated to see 260 million people move into the upper-income range in Asian countries by 2020. It is thus possible for exporting businesses, which saw difficulty in pricing products due to a lack in purchase power, to grow significantly in the times ahead.
I．INDUSTRY TRENDS 1. While the market price for grains remain high, the level of low price strategies in the retail market is returning to that before the earthquake. Price indexes fluctuated between the appreciation of raw material prices and an economizing trend.
The latest result of the consumer price index of processed food products (hereinafter referred to as “processed foods”) has leveled off, although it was rising since January 2011 (see Figure 21-1). This is considered to be because of the fact that the prices are in conflict with the increase in raw material prices along with rising grain prices and an economizing trend among consumers, based on concerns over the severe income environment in the times ahead.
Food expenditures in 2012 are forecast to decrease by 0.5% year-on-year.
Food expenditures for the January–November period in 2011 were down 1.2% year-on-year. Observing expenditure charges by major items from January to November 2011, the main reason for the decrease is considered to be the remarkable fall caused by the impact of the earthquake in eating out as well as the high component ratio of seafood and vegetables. Price revisions to raise
1
Mizuho Corporate Bank, Industry Research Division
FY2012 Japan Industry Outlook (F&B)
prices were seen only in some sections, and special demand after the earthquake was temporary. Although special sales decreased in the retail market in 2011 after the earthquake, they resumed once the problem of undersupply was resolved. When prices were raised in July, the increase in retail prices was smaller than the increase of prices shown by manufacturers. Therefore, food expenditures in 2011 are forecast to decrease by 1.1% year-on-year (see Figure 21-2). Even though demand for eating out is expected to recover in 2012, the falling prices of raw materials and recurrent price competition are likely to lower unit prices. Thus, food expenditures in 2012 are expected to see a decrease of around 0.5% year-on-year. [2005 average=100] 107 (Annual average) (M onthly change)
Overall (goods/services) Goods Food Products
Figure 21-1: Consumer price index for processed food products
106 105 104 103 102 101
Source: Compiled by MHCB Industry Research Division based on the Monthly Report on the Consumer Price Index (Ministry of Internal Affairs and Communications)
100 99 08/2 08/4 08/6 08/8 08/10 08/12 09/2 09/4 09/6 09/8 09/10 09/12 10/2 10/4 10/6 10/8 10/10 10/12 11/2 11/4 11/6 11/8 11/10
1998 2000 2002 2004 2006 2008 2010
98
Figure 21-2: Growth rate of food expenditures over the previous year (left) and expenditure changes by major item from January to November 2011 (right) Change (left axis) Composition ratio (right axis)
Food Expenditures Consumption Expenditures
3%
18%
(Processed foods)
2%
Eating out
Vegetables/seaweed
0% Fish
2%
-6% Meat
4%
-5%
Beverages
-4%
Alcohol beverages
6%
Prepared foods
8%
-3%
Confectionary
10%
-2%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011(estimate)
-4%
-1%
Oil/seasonings
(yr)
12%
Milk
consumption tax hike
14%
Dairy(Ex. Milk)
-2%
16%
0%
Bread
0%
(Fresh foods/ eating out)
1%
Noodles
2%
Source: Compiled by MHCB Industry Research Division based on the “Annual Report on the Family Income and Expenditure Survey” (Ministry of Internal Affairs and Communications) Note: Nominal basis; fluctuations in the right-side graph are compared to the same period of 2010. Composition ratios are compared to food expenditures (January–November 2010).
2
Mizuho Corporate Bank, Industry Research Division
FY2012 Japan Industry Outlook (F&B)
2. Outlook for the shipment values of the processed food manufacturing industry in 2012 The international prices of major raw materials, the leading factor for the shipment value of the manufacturing industry, have stopped appreciating, but are still on an upward trend in the long term.
In 2011, there were concerns for the appreciation of the Food Price Index released by the United Nations Food and Agriculture Organization, as the index renewed its all-time high, exceeding that recorded in 2008. However, the prices of raw materials are currently stable with a good harvest of wheat—the index of which dropped in September 2011. Yet, the future trends are unknown. The market prices for grains are expected to continue fluctuating while gradually going up in the long term. Demand for cooking oil and edible meat is on an increase, along with the economic growth of emerging countries. As around four to eight times as much grain is necessary to feed livestock in order to produce one kilogram of edible meat, demand for grain is expected to increase faster than the increase in population. Demand for cooking oil is also growing five times as fast as the increase of population, along with the increase of income. While seeing a long-term upward trend supported by fundamentals, the market prices for grain are expected to fluctuate in the short term, following changes in weather and trends in speculative investment. Figure 21-3: International prices of major raw Wheat
Soy
Corn
Sugar
700
Source: Compiled by MHCB Industry Research Division based on data released by Reuters. The forecast figures for 2012 are future prices of the Chicago Board of Trade as of January 17, 2012 (for each contract month in 2012).
600
USD/ton
500 400 300 200
0
2010/1 2010/2 2010/3 2010/4 2010/5 2010/6 2010/7 2010/8 2010/9 2010/10 2010/11 2010/12 2011/1 2011/2 2011/3 2011/4 2011/5 2011/6 2011/7 2011/8 2011/9 2011/10 2011/11 2011/12 2012/1 2012/2 2012/3 2012/4 2012/5 2012/6 2012/7 2012/8 2012/9 2012/10 2012/11 2012/12
100
The shipment value of the manufacturing industry is expected to slightly decrease in 2012 due to the declining prices of raw materials.
Chicago future price
The domestic processed food manufacturing industry is unlikely to see a significant change in amount in 2012, as it is an industry that provides daily necessities. Factors related to weather are expected to cancel each other out. Therefore, prices are likely to be the major factor for changes in market size. With regard to prices, the shipment value of the manufacturing industry is mainly impacted by consumer preference for lower prices as well as the fluctuation in the prices of raw materials.
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Mizuho Corporate Bank, Industry Research Division
FY2012 Japan Industry Outlook (F&B) Figure 21-4: Estimated changes in the shipment value of the food manufacturing industry materials (Unit: JPY billion) 23,000
22,648 22,500
22,000 10 20
) e e es t) ) ls ls es n) n) s) as ate rat rat ns ric ria ria ric tio tio rn r m e e p e e p e a e a i t t rec t l t l t g g a a y t t n u u o s n n i a a b f p p e m a a m 2( np po po np 1( w ch ch ted t ed aw ra 01 in in 01 ex ex ec tio tio ec l rr r 2 f p p 2 f f f e e f o o s s o o e j a m m aj ct ct tr su su r ea r ea ma Un fm pa pa ec ec No on on of o c c m m D D s I I s ( ( od od ice ice fo fo Pr Pr in in s s e e ng ng ha ha C C ( (
Source: Compiled by MHCB Industry Research Division based on “Beverage & Food Statistics Monthly Report” published by Nikkan Keizai Tsushin Co., Ltd., “Food Imports 2010” published by JETRO, and the websites of various business organizations, hearings, and data released by Reuters.
The major factors for price fluctuations are seen to be the prices of raw materials and foreign exchange rates.
The cost of raw materials accounts for around 40% of the total shipment value of the food manufacturing industry. The cost (the consumed amount multiplied by the price) of the major raw materials (wheat, soy, corn, and sugar) is estimated to be around one eighth (around 5% of the total shipment value)1 of the total cost of raw materials. Factors for price fluctuation are considered to be the fluctuation of the prices of these raw materials as well as the changes in foreign exchange rates. However, as processed food products are daily necessities, the violent fluctuation of the prices is undesirable. Thus, the fluctuation range at phases of both the appreciation and depreciation of the market prices are expected to be restricted to a certain extent through sales prices adjustment or adjustmentｓ to import price made by the government, as well as the cost absorption by enterprises. In this review, figures are adjusted as a portion not reflected in prices. The Japanese yen is expected to remain strong for a while, which will contribute to the reduction of procurement cost. It is also worth noting that the
1
MHCB Industry Research Division took the impact of feed grains for processed meat products and dairy products into consideration.
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Mizuho Corporate Bank, Industry Research Division
FY2012 Japan Industry Outlook (F&B)
prices of raw materials other than the major ones mentioned above are appreciating, such as those of coffee, cacao, spices, and packaging materials. Although the international prices for grains rose significantly in 2011 and led the shipment value of major raw materials to increase by 1.1%, only some products saw an increase in their prices. As a result, the change in the raw material prices was generally absorbed by enterprises. With regard to the shipment amount, the population (which has been a factor of concern) is estimated to decrease by 0.24% year-on-year in 2012. However, there has been a change in the patterns of food consumption in which food expenditures have been pushed up by rising unit prices. This is caused by the fact that there have been an increasing number of elderly and one-person households that tend to consume more food, causing a shift from fresh food to processed food, the increased production of individually packaged products in smaller quantities, and the development of high-value-added products that respond to needs for healthier and more convenient food products. The negative impact of the decrease in population is therefore expected to be cancelled out until around 2015.
II. CORPORATE EARNINGS 1. The earnings of the 31 top food manufacturers for the second quarter in FY2011 saw a slight increase in revenues and a decrease in profits. There is an overall tendency for profits to decrease due to the increase in cost.
The weighted average of the second-quarter earnings of the 31 listed food manufacturers with consolidated net sales in excess of 200 billion yen (hereinafter referred to as the “major food manufacturer groups”) (based on the FY2007 settlement) saw an increase of 0.3% year-on-year in sales and a decrease of 2.8% year-on-year in operating profits (see Figure 21-5). There were only a few companies that saw an increase in both revenues and profits, excluding the cases in which the new consolidation of subsidiaries contributed to the increase. With regard to sales, some companies with a high ratio of overseas sales saw a decrease in revenues due to the appreciation of the yen. With regard to profits, there was an overall downward trend due to the rising cost caused by the appreciation of the prices of raw materials. In particular, there were many companies that saw a decrease both in revenues and profits with dairy products because of the difficulty in procurement as well as the disruption in production caused by the earthquake. Companies in the flour milling as well as the oil and fat industries saw an increase in revenues, as there was price revision for some products, while they saw a decrease in profits, as they were not able to fully reflect the increase in the prices of raw materials on their product prices.
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Mizuho Corporate Bank, Industry Research Division
FY2012 Japan Industry Outlook (F&B) Figure 21-5: FY2011 second-quarter total earnings of major food manufacturer groups (percentage change over FY2010) ←% change of sales →
Revenue Decrease/ Profit Increase
Nippon Suisan （Sales +14.6% , Operating Profit+91.8%）
Revenue Increase/ Profit Increase
70 60 50
Coca-cola West HD
40
Sapporo HD （Sales +21.5％, Operating Profit +51.0%）
House Foods
← → % change of operating profit
-10
Maruha Nichiro 30
Prima Meat
20
Asahi
10
Ito En
Ajinomoto
Marudai
Kirin HD
Showa Sangyo Nisshin OilliO
0 Megmilk Snow
-5 Kagome
Kikkoman
Coca-Cola Central Japan Morinaga
-10
0 Total
Nichirei
T oyo Suisan
5
Nippon Yakult Kewpie Yamazaki -20 Baking Nisshin Foods Nisshin Seifun
-30
10 Nippon Flour
Fuji Oil
Ezaki Glico
-40
Revenue Decrease/ Profit Decrease
Revenue Increase/ Profit Decrease
Meiji HD （Sales -2.1％, Operating Profit -58.9％） Ito ham （Sales -0.2％, Operating Profit -213.3％）
Source: Compiled by MHCB Industry Research Division based on corporate financial statements. Note: Targets the 31 top food manufacturers with consolidated net sales in excess of 200 billion yen (based on the FY2007 settlement). Figures for companies that close their books in November and December have been revised according to the LTM (Last Twelve Months), based on the 3Q settlement.
2. Outlook for FY2011 and FY2012: Profits are expected to increase in FY2012, with improved profitability as a result of a fall in the prices of raw materials. Corporate earnings in FY2011 are expected to be weak, while some recovery is expected in FY2012.
Among the major food manufacturer groups, the top seven companies with consolidated net sales of more than 700 billion yen saw a decrease in sales revenues in FY2011, due to the decline in demand for alcoholic drinks as well as the decrease in overseas sales as a result of the appreciation of the yen. Although prices were raised for some products along with the rising prices of raw materials, it was not sufficient to absorb the increase in cost. When the prices of bread products were raised, the companies tried to maintain the overall selling prices by releasing new products with lower prices in order to respond to the needs of consumers who demand low-price products. It was thus difficult to increase revenues. Profits are forecast to decrease due to the profit deterioration caused by the appreciation of the prices of raw materials as well as the postponement of structural reforms, such as factory restructuring as a result of the earthquake (see Figure 21-6). The companies are expected to see a slight increase in revenues and an increase
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Mizuho Corporate Bank, Industry Research Division
FY2012 Japan Industry Outlook (F&B)
in profits in FY2012, thanks to some improvement in conditions such as the effects of the consolidation seen by the acquiring companies, recovery in commercial demand, and the fall in the prices of raw materials. Figure 21-6: Balances for seven listed food manufacturers Actual:
Sales Operating Profit
Companies
FY10
FY11
FY12
(Unit) 7 (JPY billions) 7 (JPY billions)
(Actual)
(Estimate)
(Forecast)
8775.6
8670.4
8696.1
439.3
410.9
449.4
Rate of Incrase and Decrease: Brief (Unit)
FY10
FY11
FY12
(Actual)
(Estimate)
(Forecast)
Sales
7 (％)
＋ 0.9%
- 1.2%
＋ 0.3%
Operating Profit
7 (％)
＋ 21.2%
- 6.5%
＋ 9.4%
Source: Compiled by MHCB Industry Research Division based on publicly released data by each company. Note: Consolidated basis: Figures for FY2011 and FY2012 are based on MHCB Industry Research Division forecasts. Seven companies: Kirin Holdings Co., Ltd., Asahi Group Holdings, Ltd., Ajinomoto Co., Ltd., Nippon Meat Packers Inc., Maruha Nichiro Holdings Inc., Yamazaki Baking Co., Ltd., Meiji Holdings Co., Ltd.
III. TOPICS: Consideration of business areas with middle-term potential – the processed food industry The role played by the industries related to agriculture and food is growing both in the domestic and overseas markets.
The agriculture- and food-related industries have been playing an important role in the country, as can be seen in the fact that the domestic production of these industries was 43 trillion yen in FY2009, accounting for 9.1% of the total GDP of Japan, and the number of employees accounted for 13% of that of all industries in 2010 (see Figure 21-7). Even though these industries are expected to shrink in the long term due to depopulation, the decrease in final food consumption may remain negligible in the middle term mainly thanks to the shift in consumption from fresh food to processed food (see Figure 21-8). Thus, there are potentials for the overall market to grow, depending on the efforts made by companies in developing products that can provide unique experiences or narratives. With regard to overseas markets, on the other hand, there will be additional 260 million wealthy people whose annual family disposable income is 35,000 dollars or above by 2020 in Asian countries that are close to Japan in geographical terms as well as in food culture (see Figure 21-9). Thus, the conditions will be more than desirable for the government, which has set out a goal to achieve food exports of one trillion yen (see Figure 21-10), as well as for the major food manufacturers expanding local manufacturing and sales.
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Mizuho Corporate Bank, Industry Research Division
FY2012 Japan Industry Outlook (F&B)
Figure 21-7: Size of the agriculture- and food-related industries
8 .17 million Agricultureand foodrelated industries
pe ople
43 trillion yen Gross Domestic Product: 473 trillion yen (2009)
One out of 7.7 people is involved in work related to food.
Employed population: 62.56 million (2010)
Source: Compiled by MHCB Industry Research Division based on “Summary of Economic Calculation on Agricultural and Food-related Industries” and on “Basic Statistics on Agriculture, Forestry, and Fisheries,” published by the Ministry of Agriculture, Forestry and Fisheries.
Figure 21-8: Estimated final consumption of food and beverages （JPY trillions ）
Increase in expenditures on 100% “values” such as experiences and narratives 90% 80%
100
80
-1.9%
70% 60
40
51.1% 62.6% Increase in the 73.6 trillion ratio of 72.2 trillion JPY JPY expenditure for processed food
60%
26.8% Decrease in the ratio of21.3% expenditures on fresh food
20%
20
0
2005
50% 40% 30%
10% 0%
(CY)
2025
Figure 21-9: Changes in the number of those wealthy in Asia (Billion people) 0.3
0.26 billion people 2.3 times
Other Asian countries
0.3
Taiwan Korea
0.2
India
0.2
China
0.1 0.1 0.0 1995
2000
2005
2010
2015
8
2020
(cy)
Source: Compiled by MHCB Industry Research Division based on “Future of the Low Birth Rate and the Aging Society and Outlook for the Food Consumption Patterns in Japan” and on “Input Output Table 2005” (trial calculation by the Ministry of Agriculture, Forestry and Fisheries) published by Policy Research Institute, Ministry of Agriculture, Forestry and Fisheries.
Source: Compiled by MHCB Industry Research Division based on Euromonitor International. Note: The figures refer to the size of the population with a disposable income of USD 35,000 or above, calculated with the component ratio of households by disposable income group multiplied by the population. Other Asian countries include Malaysia, Thailand, the Philippines, Indonesia, Vietnam, Hong Kong, and Singapore.
Mizuho Corporate Bank, Industry Research Division
FY2012 Japan Industry Outlook (F&B)
Figure 21-10: Target set out by the government to expand exports of agricultural, forestry, fisheries, and food products Exports expanded through: - Efforts to deal with the impacts of the nuclear plant disaster - National strategic marketing - Systems to support exports
(Billion JPY) 1,000 Fresh food etc. Processed food etc.
800
600
516.0
507.8
449.0
445.4
492.0
1trillion JPY
453.3
400
200
0 2006
2007
2008
2009
2010
2011 （Estimate）
2020 （Target ）
（CY）
Source: Compiled by MHCB Industry Research Division based on “Statistics on Imports and Exports of Agricultural, Forestry, and Fisheries Products” and “Food Industry Newsletter” published by the Ministry of Agriculture, Forestry and Fisheries.
The highly aging society will benefit the processed food industry.
The most important middle-term factor in the Japanese market is a significant increase in elderly and one-person households. There are estimated to be 18.99 million elderly households in 2020, up 21% compared to 2010, reaching 37.7% of the total population. The food expenditure per person is higher for elderly people than young people (see Figure 21-11), as people in this generation value the quality of food rather than prices. It is considered structurally impossible to avoid price competition among food providers (retailers, wholesalers, and manufacturers). On the other hand, however, there are potentials for companies to improve total marketing performance by designing products and making value propositions that attract elderly consumers. The elderly market will be an attractive market for the processed food industry to develop value-based business.
Figure 21 -11: Changes in the number of elderly households (2010–2020) （ 10,000 households） 4,000 3,500 3,000
Householder 65 years old or above Householder less than 65 years old
2010
2020
1,102 1,268
2,500 2,000 2010 1,500
465
2020 631 2,356
1,000 500
1,105
2,042
1,102
0 One-person households
Source: Compiled by MHCB Industry Research Division based on data in “Household Projections for Japan,” published by the National Institute of Population and Social Security Research.
Households with two people or more
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Mizuho Corporate Bank, Industry Research Division
FY2012 Japan Industry Outlook (F&B) Figure 21-12: Food expenditures per person (2010) 10,000 JPY 80 70 60
Eating out Eating in and home meal replacement Eating out
50 40 30 20 10 0 29 years old 30 – 39 years 40 – 49 years 50 – 59 years 60 – 69 years 70 years old and under old old old old and over
Source: Compiled by MHCB Industry Research Division based on a household survey carried out by the Ministry of Internal Affairs and Communication. Note: The figures were calculated from the food expenditures for households with two people or more divided by the number of household members by the age group of the homeowner.
Age group of householder
There are possibilities for growth in food exports which had been restricted due to pricing difficulties.
Although there are issues to deal with (such as the impact of the nuclear plant disaster), there are possibilities for food exports from Japan (which had seen difficulty in pricing products due to a lack of consumer buying power) to grow and bring business chances contributing to the maintenance of employment in Japan, through the expansion of the middle-income and higher-income population in Asian emerging countries. However, it is not easy for domestic food providers to deal with complicated trade administration and local regulations while appropriately responding to overseas demand. It is considered to be another obstacle for food exports that there is no distributors that seize the needs of local consumers in realtime while encouraging local demand in order to build a stable supply system. In order to solve such problems, it is seen effective to build a tight food distribution relationship between major Japanese food wholesalers and local companies (not restricted to retailers or wholesalers) with dominant power in distribution in emerging countries. There are companies in Asian emerging countries that are highly interested in importing Japanese food, expecting the expansion of the middle-income and higher-income population. There are potentials for such companies to build a mutually beneficial alliance with Japanese major wholesalers
Shingo Tanaka [email protected] Makiko Kitamura [email protected] Distribution & Consumer-related Team Industry Research Division Mizuho Corporate Bank, Ltd.
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Mizuho Corporate Bank, Industry Research Division
