The Japanese shrinking population is forcing its big corporations to look into other markets via JVs with established brands, in this case SE Asian established brands, to continue to bring revenue and fatten the bottom line.
The next one is that we might be looking into a resurgence of the Japanese food industry via outside growth. We’ll follow some of these JVs closely and try to report on their successes and failures.
Here is a copy of the article, you can also access it via this link:
Japanese food companies are increasing investment in Southeast Asia in a bid to capture strong demand from a rising middle class that is willing to pay for more-expensive foods such as cheese and bread.
The emergence of a freer-spending consumers in countries such as Indonesia and Malaysia is one of the backdrops to the tie-up announced Thursday between Japanese trading company Itochu Corp. and Thai conglomerate CP Group. The deal includes an $854 million investment by Itochu into a Hong Kong-listed CP Group unit that is a leading feed producer.
It is just one of many deals in the past few years in which Japanese companies sought a closer connection to Southeast Asian consumers.
“There are roughly 600 million people in the region. The economies are growing and middle class population is exploding,” said Ryoichi Kitagawa, who heads business development at beer and beverage maker Asahi Group Holdings Ltd. “Southeast Asia is the last big thing in the Asia-Pacific.”
In April, Asahi said it would pay $240 million to acquire Etika International Holdings Ltd. ‘s dairy food operations in Southeast Asia, following the $200 million purchase of a Malaysian beverage maker in 2011. Asahi plans to produce and sell canned coffee containing sweet condensed milk, similar to a brew that is popular in the region.
Japan’s shrinking population has forced many companies to look overseas for growth, especially industries prone to demographic changes like food and beverages. Southeast Asia is relatively nearby and seen as more receptive to Japan than China, which has been facing off with Japan over wartime history and a territorial dispute.
“Southeast Asia is no longer a place to buy raw materials,” said Hiroaki Nakayama, general manager of global consumer business development at Mitsubishi Corp. “We really want to serve them.”
Mitsubishi, Japan’s biggest trading company by revenue, said in late June it bought an 80% stake in Olam Grains Australia Pty. for $63 million to secure sufficient wheat to supply Southeast Asia. The acquisition is part of Mitsubishi’s project with Alfa Group, the largest retailer in Indonesia, to produce and sell baked foods such as pastries and cookies at Alfa’s 8,000 retail shops across the country. Also involved is Yamazaki Baking Co., which has opened a baking factory near Jakarta using wheat and other raw materials sourced from Mitsubishi’s global supply chain.
The other top Japanese trading companies are all making deals of varied flavors:Sumitomo Corp. and Cheil Jedang Corp. of South Korea are building a $44 million wheat flour factory in Vietnam, set to open in March 2015, while Mitsui & Co. is building a facility near Yangon in Myanmar to thresh and clean rice.
For the Japanese investors, the main risk is heavy competition, since global food makers such as Kellogg Co. and Nestlé SA are also stepping up investment in the 10 nations that make up the Association of Southeast Asian Nations.
“Asean looks promising, but it means a lot of other people look to them too,” said Hiroshi Saji, an analyst at Mizuho Securities Co.. “You have to be superior in one or two areas. You also have to be quick to move, or things will change in a moment.”
Besides its tie-up with CP Group, which is strong in the food business in Thailand, Vietnam and China, Japan’s Itochu is already in a venture with dairy producer Megmilk Snow Brand Co. and Indonesia’s PT Rodamas to produce and sell processed cheese that can be kept at room temperature when unpacked. Under the alliance, Itochu buys powdered milk from Australia and New Zealand, Megmilk manages production at a new factory in the Western Java province and Rodamas sells it in the local market.
Itochu’s Kenmei Yamanaka said the trading company was also looking at possible exports if the business takes off. Cheese is still considered a high-end food in Southeast Asia, but people are picking up the habit of eating it, he said.
Hani Rochyati, a homemaker, was shopping for cheese at a suburban Jakarta supermarket recently and bought a pack of MegCheddar cheese produced by the joint venture. “I just recently discovered MegCheddar through a friend who told me that you don’t have to keep the cheese in the fridge when unopened. I usually use this to cook pasta, or just slice it as the filling for toast for breakfast,” Mrs. Rochyati said.