Opportunity In Japan's Soft Drinks Market

Buoyed by Prime Minister Shinzo Abe's proactive economic policies, the outlook for Japan's soft drinks sector appears bright. BMI recently revised its forecast for the country's 2013 real GDP growth to 1.8%, up from previous projections of 1.4%. With this in mind, we believe that the soft drinks sector will deliver a compound annual growth rate of 3.5% for the years between 2012 and 2017. Though industry leaders have turned their attention to expansion in the rest of the world, in our view there is continued incentive to deliver innovative new products to Japan's wealthy population.

Suntory's recent acquisition of Lucozade and Ribena for US$2.1bn demonstrates how Japanese beverage suppliers are looking to diversify their business away from the aging Japanese market. Indeed, the overseas sales of the two largest domestic soft drinks manufacturers, Kirin and Suntory, account for 30% and 21% of their total sales respectively. With almost half of the population forecast to be older than 65 by 2025, it is understandable why many believe the Japanese soft drinks sector has little growth potential. That said, this aging and wealthy population offers some key opportunities from which producers can benefit in the domestic market.

Health drinks represent one of these opportunities. Ito En, the largest provider of ready-to-drink tea in Japan, promotes the concepts of 'natural' and 'healthy' as fundamental to its product base. With tea remaining as the most popular Japanese staple, The Coca-Cola Company last year recorded 33.1% sales growth for its healthy, sugar-free Ayataka tea. PepsiCo also released a cola described, controversially, as 'fat blocking'. Companies are also developing new carbonated beverages with added 'healthier' extracts of ingredients such as ginger and black bean.

Soft Drink Sales Growth To Outperform
Japan - Soft Drink Sales & Nominal GDP

Opportunity In Japan's Soft Drinks Market

Buoyed by Prime Minister Shinzo Abe's proactive economic policies, the outlook for Japan's soft drinks sector appears bright. BMI recently revised its forecast for the country's 2013 real GDP growth to 1.8%, up from previous projections of 1.4%. With this in mind, we believe that the soft drinks sector will deliver a compound annual growth rate of 3.5% for the years between 2012 and 2017. Though industry leaders have turned their attention to expansion in the rest of the world, in our view there is continued incentive to deliver innovative new products to Japan's wealthy population.

Soft Drink Sales Growth To Outperform
Japan - Soft Drink Sales & Nominal GDP

Suntory's recent acquisition of Lucozade and Ribena for US$2.1bn demonstrates how Japanese beverage suppliers are looking to diversify their business away from the aging Japanese market. Indeed, the overseas sales of the two largest domestic soft drinks manufacturers, Kirin and Suntory, account for 30% and 21% of their total sales respectively. With almost half of the population forecast to be older than 65 by 2025, it is understandable why many believe the Japanese soft drinks sector has little growth potential. That said, this aging and wealthy population offers some key opportunities from which producers can benefit in the domestic market.

Health drinks represent one of these opportunities. Ito En, the largest provider of ready-to-drink tea in Japan, promotes the concepts of 'natural' and 'healthy' as fundamental to its product base. With tea remaining as the most popular Japanese staple, The Coca-Cola Company last year recorded 33.1% sales growth for its healthy, sugar-free Ayataka tea. PepsiCo also released a cola described, controversially, as 'fat blocking'. Companies are also developing new carbonated beverages with added 'healthier' extracts of ingredients such as ginger and black bean.

The Japanese population's acceptance of new products also offers an ongoing opportunity for drinks companies. This month, Coca Cola will release the world's first hot carbonated ginger ale, to be sold from vending machines. Similarly, Kirin aims to release its own hot fizzy drink, the Hot Hojun Apple & Hot. Ito En has just begun distribution of a new drink designed to act as a breakfast substitute called the Vege Smoothie. Such new products exhibit the dynamism and potential in the soft drinks market, which exists due to Japan's high-spending population.

The Japanese soft drinks market does not offer the long-term potential that is present in many other Asian countries. However, in the short-to-medium term, the unique traits offered by Japanese consumers give companies greater opportunity than could otherwise be expected. While it is sensible for market leaders to diversify in other countries, Japan presents chances that, if intelligently executed, could prove to be very profitable.

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