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Business Trends

Southeast Asia places more Japanese bread in its basket

In Indonesia, Salim Group faces competition from fluffy offerings

Sari Roti, a brand of Japanese-style bread, appears in over 15,000 Indonesia convenience stores. (Photo by Yohei Muramatsu)

TOKYO -- Japanese businesses look to feed the growing hunger for baked goods in Southeast Asia, where the style of soft and spongy bread made in Japan is winning a bigger helping of followers.

"These days, I rotate what I eat for lunch: bread, rice and pasta," said a 15-year-old girl from a Jakarta suburb. "This bread is particularly soft and easy to eat." The girl smiled, looking at a bun with chocolate filling that she bought at a school cafeteria.

The bun is part of the offerings from Yamazaki Baking, which began selling Japanese-style bread in Indonesia four years ago through a joint venture with trading house Mitsubishi Corp. and the operator of local convenience store chain Alfamart. Yamazaki's products have become popular lunch and snack items.

The secret to success lies in Japanese baking technology that produces a soft, springy texture. Indonesians like softer foods, and the joint venture improved through trial and error to cater to the national palate.

Ultra-fluffy shokupan, Japanese white sandwich bread that is spongy even in the crust, offers the best example. The baker even set its price at 12,000 Indonesian rupiah (84 cents), nearly 50% less than competing products. The shokupan grew into a cash cow, generating one-quarter of the Yamazaki venture's annual revenue of around 1.5 billion yen ($13.2 million).

The company also rolled out tuna-flavored sandwiches last year, betting that savory offerings also will win the hearts of Indonesians, who traditionally love sweet baked goods. Yamazaki's venture is quickly developing sales channels in the country, now selling its breads at 5,600 stores -- triple the network at the time of its 2014 entry.

Local conglomerate Salim Group takes a leading slice of Indonesia's bread market, offering its Sari Roti brand at more than 15,000 of the group's convenience stores and other outlets. Sari Roti accounts for 90% of breads sold to retailers.

This dominance was fueled by a partnership involving Japanese companies. Salim formed a joint venture in 1995 with Pasco Shikishima and the predecessor of trading company Sojitz, tapping the baker's bread-making technology.

But the emergence of the Yamazaki camp has led to changes by the Salim team. Previously, Pasco staffers took occasional business trips to the Salim venture to provide technology guidance. Today, three Pasco instructors are based in Indonesia full time, overseeing product development, production management and equipment maintenance.

To fight Yamazaki's fluffy white bread, Sari Roti has debuted Double Soft Bread -- featuring pillowy crusts and priced at 18,000 rupiah.

"The market has evolved drastically to the point that we feel the need to improve our quality," a development manager said.

The head of Yamazaki's joint venture cited a similar focus on such standards.

"We don't have [Salim's] name recognition, so we need to compete on quality," Ichiro Saito said.

Japanese breads are gaining fans across Southeast Asia, including Malaysian Prime Minister Mahathir Mohamad. The aficionado, who even ran a Japanese-inspired bakery chain in Malaysia for some time, has said he thinks Japanese breads are the softest.

Japanese companies also are targeting the Philippines, where bread has long remained a staple. Sojitz is preparing to crack the market there next year, joining hands with Ryoyu, a baker based in western Japan.

They will open a factory in a Manila suburb, supplying bread to supermarkets and convenience stores. The foray means Sojitz will compete with Salim, a partner in Indonesia.

The growing appetite for bread feeds increasing demand for flour, sparking investments in flour mills. Nisshin Seifun Group acquired a Thai milling plant in March, more than doubling its flour capacity, and looks to build a new mill in Vietnam. Earlier this year, trading house Mitsui & Co. took a stake in a Singapore importer of grains that also engages in milling operations.

Southeast Asia's fast-rising bread market has topped $5 billion. Consumption in the Asia-Pacific region increased an average of 5% yearly between 2010 and 2015, driven by Indonesia, Vietnam and Thailand, market research firm Euromonitor International says. That growth compares with a 1.6% decline in western Europe.

Asia's economic development has spurred increasingly diverse food choices.

"Bread consumption tends to increase in tandem with a rise in income," said Ryuzo Tadokoro, the Southeast Asia operation manager at Yamazaki.

The region has more room on its plate. In 2015, Indonesians ate an average of 4.6 kg of bread, one-fifth the amount of their Japanese counterparts. But demand could grow tenfold if bread becomes a major component of the daily diet in Indonesia as in Japan, given that Indonesia's population is twice as large.

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