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Food Product Industry Overview

11, 01. 2004

Current State

The Biggest Issue is Recovery of Consumer Confidence

Varieties of instant food are good sellers in Japan
Varieties of instant food are good sellers in Japan
 

 The outbreak of the mad cow disease (BSE) in the United States and the avian flu in Japan and abroad have hit home with Japanese consumers on the fragility of food safety. This is an issue that the Japanese public cannot avoid, especially because Japan is dependant on the import of many food products from abroad. If the opening of the Japanese agricultural products market advances through further trade deregulations, such as the conclusion of free-trade agreements with Asian nations, the capabilities of the Japanese government and companies in the management of food safety will come into critical question.

 To make things worse, a flurry of misconduct by Japanese food manufacturers have surfaced since 2002. Companies such as Snow Brand Food Co., Ltd. and Nippon Meat Packers, Inc. abused the Japanese government measure to rescue domestic livestock farmers upon an outbreak of BSE in Japan. While the government was to buy up domestic beef under this measure, these companies conducted fraudulent and criminal acts of selling, to the government, imported beef purchased at a low price as "domestic beef." Furthermore, there was a food poisoning scandal at Snow Brand Milk Products Co., Ltd., the parent company of Snow Brand Food, caused by sloppy sanitary management. There has been an unending stream of misconduct by other food manufactures and retail shops, such as the sale of imported food under the pretense of being a domestically-produced product, or the false indication of the area in which they produced. Agricultural produce from China has lost consumer confidence due to the detection of above-standard amounts of residual pesticides from frozen spinach and other items.
 The Japanese of Ministry of Agriculture, Forestry and Fisheries, which presides over the food industry, had been placing focus on the protection of producers. As a result of such food industry scandals, the opinion that the ministry should be paying more attention to the protection of consumers is becoming a more mainstream attitude. Recovery of consumer confidence is becoming a major issue for Japanese food industry.

History

Growth Accompanying the Westernization of the Diet

   Food is the second largest manufacturing industry in Japan following the machine industry. It accounts for 10 percent of the manufacturing industry in terms of the number of offices and employees as well as market scale. However, if you look at details regarding the industry, it becomes apparent that the food industry is divided into an extremely large number of categories, and there are a very large number of small and medium-sized enterprises.
   Another feature of the Japanese food industry is that it contains many companies with long histories and traditions. Kikkoman Corporation, Japan's largest soy sauce manufacturer that has a 30 percent share of the market, was founded in 1917. Ajinomoto Co., Inc., the largest domestic producer of seasonings, was established in 1925. Morinaga & Co., Ltd., one of the Japanese majors in the snacks sector, was founded in 1910. Kirin Brewery Company, Limited, which has the second largest share of the Japanese beer market, was established in 1907.
  These companies were originally founded as family businesses that produced soy sauce, snacks, etc. They later expanded together with the growth of the Japanese economy and the improvement and Westernization of the Japanese diet. For this reason, they basically remain dependent on a single product line and compare poorly to American and European food manufacturers in terms of globalization and diversification. Even in the case of Ajinomoto, which is currently the top general food manufacturer (founded as a maker of the monosodium glutamate or MSG seasoning) in Japan, sales are still under 10 billion dollars (slightly over 1 trillion yen). One cannot help but feel that companies in the food industry in Japan have gotten a late start over global leaders such as Nestle S.A. (54.2 billion dollars in sales), Kraft Foods Inc. (29.7 billion dollars in sales) and Unilever PLC (25.7 billion dollars in sales).

Three Key Points towards the Future

Point 1
Food Sanitation Management Capabilities

In the milk industry, Snow Brand Milk Products was split up as a result of the food-poisoning incident, and its milk division became a new company called Nippon Milk Community Co., Ltd. through a merger with two companies; one affiliated with the National Federation of Agricultural Cooperative Associations and the other a National Federation of Dairy Cooperative Associations affiliate. Because there is a high likelihood that negligence in food safety management will prove fatal to a food company, there is a possibility that similar reorganizations within the industry may take place.

Point 2
Development Capabilities that Reflect Customer Needs

Although not restricted to the food industry, the ability to capture consumer needs in a timely manner and reflect such needs is important for product development. Kao Corporation, a major company in the toiletries sector, made a brilliant entry into the food industry through a cooking-oil sold under the Econa brand name. The success was made possible because Kao had captured the consumer needs and trends toward healthy products. The ability to capture consumer needs becomes an important and decisive factor in the food industry where it is not easy to develop revolutionary new products.

Point 3
How Far can the Food Industry Advance Overseas?

 While interest in Japanese food increases in the West and Asia, a key element for success is how a company can draw upon such trends to its favor. Kikkoman was able to make soy sauce, a traditional Japanese seasoning, into an international brand. Although sales overseas account for only about 20 percent of Kikkoman's consolidated sales, it is said that on a profit-contribution basis, overseas sales account for nearly 50 percent. Japanese manufacturers are making frantic efforts to sell instant-cup noodles and beer to Chinese consumers. With Japan's overall population said to begin declining around 2010 and negative growth of the market in Japan, Japanese food manufacturers will most likely be spurring exports as they search for new opportunities of growth.

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