Tuesday, May 8, 2012

No. 21: Selection and concentration for higher profit rates to get ready for global competition (May 9, 2012)

Business trend
Asahi group officially announced that it would take over Calpis that is Japan’s leading maker of lactic fermented milk drinks from Ajinomoto that is Japan’s leading maker and developer of seasonings and amino acids. Calpis will officially be a company in Asahi group on October 1. This deal seems to indicate the beginning of a series of reorganization of the food industry that is basically a domestic industry.

Coca-Cola group is the leader in the Japanese soft drink market with 28.4% share, followed by Suntory with 21.9% share. Asahi that acquired Calpis will have a share of 12.4%. The fourth position goes to Ito En with 11.2%, and the fifth largest is Kirin Beverage with 9.7%. According to the industrial source, a soft drink brand needs to achieve annual sales of 30 million cases to stay on the supermarket shelf. Asahi group has only two brands that clear the standard. As a matter of fact, lots of new soft drinks are launched in succession, but best selling products are long sellers that have a history of longer than 20 years. In this sense, owning No. 1 and No. 2 brands in a highly segmented market is crucial for every company to survive in the increasingly competitive soft drink market.

In addition, Japanese soft drink makers generally do not achieve a high operating profit rate as compared with leading western food companies. In the world food market, the leader is unquestionably Nestle of Switzerland. Nestle enjoys an operating profit rate of 15% on sales of 1,080 billion yen, and it is followed by Unilever with 14% on sales of 670 billion yen and Craft with 12% on sales of 540 billion yen. Asahi got an operating profit rate of 7% on sales of 110 billion yen and Ajinomoto obtained an operating profit rate of 6% on sales of 73 billion yen. As global competition develops, it is increasingly important to improve profitability and capital efficiency. The deal between Asahi Group and Ajinomoto satisfies the business strategy of the two companies. The former needs to increase the presence in the world market, while the latter wishes to focus on marketing and development of seasonings and amino acids.

Reorganization of Japanese companies to make them ready for global competition will supposedly grow widespread, although long overdue. 

The lineup of Calpis water products that are favorite of Japanese children

The traditional and favorite gift of Japanese in the summer and winter gift exchange seasons

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