Author: He Danlin (original)
Due to fierce market competition, changes in consumption power trends, and even the impact of sea exclusion factors, a number of Japanese packaged food giants are trying to revive their business in China.
From last Friday to today, Calbee, Meiji and Nissin have successively handed over their report cards for the first three months of this year and for the fiscal year ending March 31. Xiaoshidai noticed that the key indicators of the business of these three well-known Japanese food companies in China have all declined to varying degrees.
For example, Nissin, which released its earnings today, noted that in the first three months of this year, Chinese mainland business revenue fell by 9.1%. Meiji said that the profit of the Chinese subsidiary fell sharply in the fiscal year. Calbee pointed out that Greater China's fiscal year revenue fell by more than 20%.
Nevertheless, all three companies expressed confidence in the subsequent growth of their business in China and are optimistic about their medium- and long-term prospects in the Chinese market. Meiji has put in place reforms to boost its performance, while Calbee and Nissin have said they will continue to invest in China in key overseas markets.
Meiji dairy products on convenience store shelves
Next, Xiaoshidai will take everyone to "watch".
Meiji: Significant impairment loss
In the fiscal year ending March 31, 2024, the net sales of Meiji's food business in the Chinese market were 24.3 billion yen (FY2022: 21.4 billion yen), a year-on-year increase of 13.5%; Operating profit decreased by 3.7% year-on-year.
As of now, Meiji operates four major businesses in the Chinese market, including milk and yogurt, chocolate/biscuits, ice cream, and nutritional food.
"In overseas markets, we are striving to achieve sales growth for high value-added products in China by strengthening our production and sales capabilities and expanding our sales area. Confectionery, B2B milk and cream businesses performed well. However, the impact of the economic situation has put the B2C milk and yoghurt business in a difficult position. Meiji said.
As a non-recurring gain or loss, Meiji recorded an impairment loss on non-current assets of 14.3 billion yen related to the B2C milk and yogurt business operated by its subsidiaries in China. The company explained that there had been significant changes in the sales environment for the related milk and yoghurt businesses, with increased price competition in the market, resulting in a decline in profitability.
The highly competitive Chinese dairy market
"The profits of the Chinese subsidiary have fallen sharply. Promotional expenses in the B2C milk and yoghurt business increased. In addition, with the commencement of operations at the Tianjin plant in January 2023, business development costs and depreciation costs in North China have increased. Meiji said that this led to a significant year-on-year decline in the operating profit of Meiji's food business (as of March 31, 2024) in overseas markets in fiscal 2023.
Meiji's other impairment loss is also related to China.
"As we have disclosed, we recorded an impairment loss of JPY6.2 billion in relation to our shareholding in AustAsia Group Ltd. ("AustAsia"). Its profitability declined due to soaring feed prices and falling raw milk prices in the Chinese market. The company said.
According to the latest disclosure, Meiji currently holds a 22.19% stake in Australasia. Xiaoshidai once introduced that the Meiji Group acquired part of the shares of Australasia for about 28 billion yen in 2020, which was also the largest acquisition in the history of Meiji at that time. Australasia primarily operates farms in China, and its shareholders also include Jane Eyre Yogurt's parent company, Pucheng Dairy, and Beihai Ranch, an independent yogurt brand owned by Genki Forest.
Looking ahead to fiscal 2024, Meiji believes that its China business will continue to "grow in revenue but not in profit."
Meiji expects net sales of the food business in the Chinese market to reach 31 billion yen in fiscal 2024, which ends March 31, 2025, a year-on-year increase of 27.3%; Operating profit is expected to decline by 5.6% year-on-year.
"Overseas, we will promote the 'structural reform' of our business in China. For the troubled B2C milk and yoghurt business, we will expand the proportion of high value-added products by launching products with unique value. The company said.
Meiji also pointed out that the B2B milk and cream business is performing well, so it will cultivate new customers to further expand the business. In addition, new chocolate and ice cream factories in China will also begin operations, which will use these production capacities to expand their sales territory.
In the more medium to long-term planning of the Japanese food company, the Chinese market has always been the focus of overseas operations.
Entering fiscal year 2024, Meiji has officially launched its 2026 medium-term business plan (fiscal 2024-2026). For the food business, the company has proposed to accelerate the growth of its overseas business, and the revival of the Chinese market is the focus.
There are two key initiatives in the program: First, actively expand products and businesses with competitive advantages. Meiji mentioned two major product directions, including products that are competitive in technology and intellectual property (such as baby formula in cubes) and products that are differentiated through taste and manufacturing technology (chocolate snacks, etc.).
In terms of expansion, Meiji mentioned that it will enter more national markets, build and strengthen its business base through mergers and acquisitions and alliances, and at the same time expand production capacity and establish a global production system.
The second is to steadily implement the "Revival Plan" for our China business. Meiji said that it would work on the following three fronts: 1) Steadily promote structural reforms. This includes reviewing regions and stores with lower profitability, reducing costs across the supply chain, optimizing production lines, and more. 2) Review the business and product portfolio. This includes expanding the proportion of high value-added products, developing retail products that are suitable for local needs in China, and driving sustainable growth in B2B business. 3) Reform the management system. This includes strengthening the management structure and focusing on profitability.
Meiji expects net sales of food in China to reach 60.3 billion yen by fiscal 2026; Operating profit reached 300 million yen, turning losses into profits.
Calbee: Local production
On May 9, Calbee, another Japanese food giant, released its annual results for the year ending March 2024. During the period, revenue from Greater China business was 18.586 billion yen, down 20.7% year-on-year and down 23.3% in RMB terms.
"In the Greater China market, sales in retail stores and e-commerce channels weakened due to weaker sales in retail stores and e-commerce channels due to increasingly frugal consumers, declining business confidence, and tighter customs regulations on major snacks due to sea discharge issues." Calbee noted.
Calbee potato chips on convenience store shelves
Notably, this has also prompted the snack company to start localizing production in the Chinese market. "To this end, we started to outsource our production locally and import products from our production sites in the surrounding areas." Calbee said.
Today, Xiaoshidai saw in convenience stores and retail stores in Guangzhou that Calbee's strategy has been implemented. For example, on the shelves of convenience stores, the words "Made in Hong Kong" are conspicuous on the packaging of some French fries on sale. At the snack shop, cereals imported from the Kyoto factory in Japan are placed on the shelves along with cereals commissioned by a local food company in Shanghai.
Despite the challenges, Calbee, which is changing its supply structure, clearly does not intend to "shrink" in the Chinese market and is willing to continue to invest in the Chinese market.
Under the "Next Calbee & Beyond" vision 2030, Calbee Group has formulated a "Change 2025" growth strategy (from the fiscal year ending March 2024 to the fiscal year ending March 2026), positioning it as a period of structural reform.
Among them, looking forward to fiscal year 2024 (ending March 31, 2025), the company said that in terms of overseas business, it will invest in various regions and expand its business in various regions, including the key markets of North America and Greater China, according to changes in the business environment.
Calbee cereal in a snack shop
As a result, Calbee expects consolidated net sales of 320 billion yen (up 5.6%) and operating profit of 28.9 billion yen (up 5.8%) for the year ending March 31, 2025. It added that the main exchange rates on which the forecast is based are 1 US dollar = 142 yen and 1 yuan = 19.9 yen.
Nissin: Demand is falling
Today, Nissin Foods Co., Ltd., a subsidiary of Nissin Holdings, announced its results for the three months and fiscal year ended March 31, 2024.
According to the information, Nissin Foods is mainly engaged in the production and sale of noodles, steamed foods, frozen foods, beverage products, snacks and vegetable products, operating in Chinese mainland, Hong Kong and other Asian markets, and its well-known brands include Hewei and Izuzen Yiding.
Nissin Foods pointed out in its financial report that in the first three months of this year, the revenue of the China division (note: the changed Vietnam business is also included in the company's China division) was 963 million Hong Kong dollars, a year-on-year decrease of 7.1%. Chinese mainland revenue decreased by 9.1% (-5.7% in local currency) due to the slower pace of consumption growth in Chinese mainland and the negative impact of foreign currency translation.
For fiscal year 2024 (note: April 1, 2023 to March 31, 2024), the revenue of the China segment was 66.452 billion yen, down 0.8% year-on-year, core operating profit was 8.053 billion yen, up 3.6% year-on-year, and operating profit was 8.129 billion yen, down 2.8% year-on-year. Excluding currency effects, revenue decreased by 4.4% year-on-year to 64.027 billion yen, and core operating profit increased by 0.8% year-on-year to 7.839 billion yen.
Instant noodles (file photo)
"In China, the Group has actively expanded its sales territory, strengthened its Hewei brand, and promoted high-end bagged instant noodles. In Chinese mainland, sales recovered slightly in the fourth quarter, but consumption remained weak throughout the financial year. In Hong Kong, sales increased in the fourth quarter due to higher sales of instant noodles in the catering industry, further growth in exports and sales of high-end bagged instant noodles (e.g. Hokkaido out of Hokkaido), and an increase in the number of inbound tourists from Chinese mainland. Nissin Foods said.
"For the whole financial year, sales growth declined due to changes in the spending patterns of Hong Kong residents, including outbound visitors to Shenzhen." Nissin Foods noted that "sales volumes for the year declined slightly year-on-year, as higher sales in the fourth quarter could not offset the decline in sales until the third quarter." ”
The company said that as there was no one-off government subsidy received in the previous financial year, the profit was lower compared with the previous financial year. On the other hand, the year-on-year increase in core benchmark profit and the increase in profit margin were mainly due to lower raw material prices, lower selling expenses and the impact of currency translation.
"Within the instant noodle industry, the demand that grew during the pandemic has retreated, which has led to a decline in consumption in some countries, including China, compared to the previous year." Japan's Nissin added in its earnings report released today.
Like Meiji, Nissin expects its China business to "grow without profit" in the coming fiscal year.
Looking ahead to fiscal year 2025 (April 1, 2024 to March 31, 2025), Nissin expects revenue from its China segment to reach 74 billion yen, up 11.4% year-over-year. Core operating profit was 7.7 billion yen, down 4.4% year-on-year.
In the eyes of the Japanese instant noodle giant, the Chinese market remains an important part of its future overseas growth strategy.
"Our next milestone is net sales of 1 trillion yen, core operating profit of 100 billion yen, and market capitalization of 2 trillion yen." Nissin is presented in the performance materials.
When listing the "main growth drivers", China was identified as one of the key markets for its overseas operations. "In the Chinese market, we want to promote the development of our pillar brand Hewei, and at the same time drive the revenue growth of high value-added bagged instant noodles." Nissin said.
"With future revenue increases, the demand for high value-added cup instant noodle products in Chinese mainland, the world's largest market, will increase." The company said.
From the perspective of brand, Hewei is one of the key businesses of Nissin's overseas expansion. Xiaoshidai noticed that at present, the overseas business of Hewei accounts for 69% of the sales. Among them, in Greater China, Hewei has a CAGR of 2.9% from FY2016 to FY2023.
Looking ahead to its mid- to long-term 2030 plan, Nissin outlined four major initiatives in Greater China: 1) further revenue growth in high-priced markets; 2) Improve the product portfolio, strengthen the sales of the main brand Hewei, and expand the sales of high-priced bagged instant noodles; 3) Expand into a diverse range of categories through aggressive business investments and alliances; 4) Pursue cost competitiveness through in-house production of raw materials.