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Japan Food and Drink Report Q1 2011
Business Monitor International, Jan 2011, Pages: 82
The Japan Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Japan's food and drink industry.
Severely impacted by the global financial crisis, consumer spending in Japan remains highly fragile, with high unemployment levels, deflationary pressures and a fiscal stimulus slowdown suggesting that weakness is likely to persist for some time. Given two lost decades, there is little to convince us that Japan's economy will muster anything but feeble growth in the 2010s. While Japanese economic activity appears to have held up relatively well in early Q310, darker clouds are gathering. We expect a deteriorating external picture, a fading capex cycle, and low employment levels to all weigh on headline growth, suggesting to us that the economy could move back into technical recession by Q211. As such, although we have bumped up our 2010 real GDP growth forecast from 1.9% to 2.9%, we are sticking with our below-consensus projection of 0.9% next year. Not surprisingly, the poor economic outlook will weigh on consumer confidence and growth forecasts in the food and drink sector.
Headline Industry Data
- 2010 per capita food consumption = +1.5%; forecast to 2015 = +10.3%
- 2010 alcoholic drink volume sales = +1%; forecast to 2015 = -5.6%
- 2010 alcoholic drink value sales = +1.7%; forecast to 2015 = +17.7%
- 2010 mass grocery retail sales = +0.3%; forecast to 2015 = +2.2%
Key Company Trends Retailers Set Their Sights Abroad
– With little demand growth expected in Japan over the long haul, Japanese retailers are being forced to prioritise international expansion in order to revitalise their growth prospects going forward. In October 2010 AEON, Japan's second-largest retailer, announced that it has earmarked around JPY208bn (US$2.55bn) for its expansion plans in China and South East Asia, as it looks to double its annual operating profit to JPY250bn (US$3.06bn) by FY2014 (end February), from JPY130.2bn (US$1.59bn) in FY10. AEON is not alone, with FamilyMart recently revealing that 80% of its 9,000 planned store openings over the next five years will be in international markets. In October, Japanese supermarket operator Uny announced that it had reached an agreement to enter a joint venture with China's leading food and beverage company Tingyi (Cayman Islands) Holding Corporation to set up supermarkets in China.
Beer Sector Sales Slump
– The latest financial results from brewing majors reflect just how difficult the domestic beer market has become. Japanese brewing giant Asahi Breweries reported lacklustre financial results, with its H110 sales revenues down by 0.41% y-o-y to JPY667.4bn (US$8.0bn), and its H110 net income down by 29.5% y-o-y to JPY15.5bn (US$185.4mn). Meanwhile, Sapporo's total revenues inched up by only 3% for the nine months ending September 2010. Kirin posted a meagre growth of 1.9% in its consolidated beer sales for the nine months ending September 2010, while its profits nosedived, falling by more than 40% to JPY24.4bn (US$296mn) for the nine months ending September.
Key Risks to Outlook US or Eurozone Recession – The downside risks of a US or indeed eurozone recession cannot be completely discounted, nor can a further rise in protectionism, which would hurt global trade volumes. Japanese corporates have a high degree of operational leverage and rely heavily on external demand. In our view, with the Japanese yen at historic highs on an effective basis, a weakening global economy would be a hammer blow to Japanese corporate spending plans.
Unemployment Woes
– Despite persistent deflationary pressures, we continue to observe barely positive real growth rates in wages, signifying a drain on the Japanese consumer's purchasing power. It should also be noted that despite Japan's recent economic rebound, there has been no meaningful recovery in employment. Japanese employment numbers are not only 2.8% off the cyclical peak of 6.4mn hit in August 2007, but also - as a result of a structural decline in the country's labour force - are back at 1990 levels.'
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