ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailMenu BurgerPositive ArrowIcon PrintIcon SearchSite TitleTitle ChevronIcon Twitter
Japan-Update

Japan beverage companies enjoying flow of wider profit margins

Price war quiets down as market leader shifts focus

Suntory C.C. Lemon beverage's price has fallen more than 30% over two decades amid intense price competition.

TOKYO -- Major beverage companies in Japan are improving their profit margins by focusing less on price competition, stepping up efforts to cut costs and offering products carrying higher added value.

The average operating margin of four major industry players -- Kirin Holdings, Asahi Group Holdings, Suntory Beverage & Food and Coca-Cola Bottlers Japan -- is expected to hit 6.7% for 2017, the highest since the 2008 financial crisis.

The industry has suffered low margins due to intense price competition and other factors, but products with higher added value, like those recognized by authorities to offer specific health benefits, are helping buoy price per unit. Cost-cutting efforts such as producing plastic bottles in-house are also contributing.

Kirin Holdings' margin is likely to rise 4.5 percentage points from 2008 to 5.8% this year. The company has increased sales of such high-margin products as the Namacha green tea and the Gogo-no-Kocha black tea offerings. The company will report earnings under international accounting standards starting with full-year results for the current year ending December. This shift also pushes up its profit.

Kirin Holdings is considering joint procurement and joint transportation of products with other companies. Over the medium term, a margin in the 10% range would be in sight, President Yoshinori Isozaki said.

Cost reductions have also helped improve margins. Asahi Group Holdings has gradually added production lines at plants under Calpis, a company acquired in 2012, to make products other than the signature Calpis yogurt-based drinks, marketed abroad as Calpico.

At Suntory Beverage & Food, a production line that began operating at a plant in Tottori Prefecture earlier this year has boosted the company's overall productivity.

Market leader Coca-Cola group merged its eastern and western Japan units in April. The newly formed Coca-Cola Bottlers Japan has switched gears to sharpen its focus on profit by rebalancing price and sales volume, said President Tamio Yoshimatsu.

The Coca-Cola group's market share in shipment volume came to 26.7% for the January-September period, down 0.4 percentage point from the end of 2016, according to Tokyo beverage market research company Inryo Soken. Meanwhile, the average store price of Coca-Cola's beverages in large plastic bottles has risen to beat the overall industry figure by 16.7 yen (15 cents).

The market leader's shift in business focus toward profit has cooled the price competition, said an executive of a mid-tier beverage company.

The beverage makers would be able to lift their profit margins further if they manage to cut back on the hefty sales incentives they pay to retailers.

(Nikkei)

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Get Unlimited access

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends June 30th

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media