(As of September 2017)
We will maintain a balance between sales in Japan and overseas while increasing sales of core products that enjoy competitive advantages.
In fiscal 2016, ended March 31, 2017, we achieved favorable results, posting year-on-year increases of 2.0% in net sales to ¥1,082.1 billion and 21.5% in operating income to ¥82.9 billion.
Earnings grew significantly due to product mix improvement that resulted from allocating our resources to core products, reduction of logistics costs, and decreases in raw material costs.
The fresh and fermented dairy business continued to perform well. Plain yogurt sales were up 4.1% year on year thanks to successful marketing to create demand by proposing a variety of eating styles. Functional yogurt sales grew a significant 12.1% year on year, to approximately ¥120 billion, reflecting continuing strong demand.
Japan’s Yogurt Market Size* and the Meiji Group’s Sales of Yogurt Products
* Market size based on Meiji Holdings’ research
Sales of Functional Yogurts
Sales of Meiji Bulgaria Yogurt
Despite sales remaining at the same level as in the previous fiscal year, the confectionery business achieved an impressive 44.4% year-on-year increase in operating income and an 11.5% profit margin. The main contributors to earnings were marked growth of chocolate products—for which we focused on Health and Premium as key words—and enhanced productivity that stemmed from reducing SKUs(stock keeping units).
Japan's Chocolate Market Size and the Meiji Group's Sale of Chocolate Products
Source (Market size):e-okashi net (organization jointly established by Japan Confectionery Wholesalers Association and All Nippon Kashi Association)
In the sports nutrition business, sales of the protein supplement SAVAS rose 10.9% year on year. This was thanks to marketing that highlighted the benefits of SAVAS, which attracted customers taking up light to moderate exercise. Enteral formula sales grew steadily, as the rising number of people aged 75 or above continued to enlarge the market.
Sales of Nutritional Products*
* Nutritional products: Infant formula, food for the elderly, enteral formula, etc.
Overseas, the milk and yogurt businesses in China boosted sales and improved earnings by expanding sales areas in Shanghai, Guangzhou, Beijing, and seven other cities. The confectionery business grew sales of Meltykiss for wedding gifts, while the ice cream business increased sales steadily. In the United States, overall sales were solid. Following on from Hello Panda chocolate snacks, we began local production of Yan Yan chocolate snacks and established flexible supply capabilities. Consequently, we look forward to higher sales of Meiji brand products in the country.
As part of an ongoing effort, we reduced the number of newly introduced confectionery products to 190 SKUs in 2016. Newly launched confectionery products in 2011 accounted for approximately 380 SKUs. This progress led to high production efficiency and has improved the profit margin in the confectionery business.
Although the pace of reduction in promotional expenses has gradually decreased, we will steadily enjoy the benefits of reduced logistics costs. Following the reorganization of logistics bases in the Nagoya area, we are now progressing in the Kanto area. These efforts promise to produce major cost reduction benefits from next year. We are raising logistical efficiency nationwide and realizing benefits every year.
In fiscal 2017, ending March 31, 2018, the basic strategy will remain unchanged: allocate our resources to core products and promote structural reform. However, we expect earnings growth to soften given projections of a hike in raw material costs due to raw material market conditions and exchange rates.
The vitality of consumer spending has been diminishing since the end of last year. Further, we are concerned about signs of lower pricing. For example, some major convenience stores and supermarkets announced price reductions in April 2017. We will not reduce the price of our products. Our strategy is to emphasize Value of our products rather than price because lower pricing will damage our products’ brand equity. Once the brand equity is damaged, it is very hard to recover.
Mainstay product sales trends in the fiscal year ending March 31, 2018 will be as follows. Sales of functional yogurts are transitioning from a rapid growth phase to one of stable growth. We are aiming for annual growth between 3% and 5%. We will increase sales of plain yogurt steadily to ¥100 billion, the target we set previously. Since September last year, we started selling Meiji Oishii Gyunyu 900 mL in Kyushu areas and plan to expand the product’s sales area. Meiji Oishii Gyunyu 900 mL is our mainstay milk brand with new packaging. Thus we will improve profitability of the milk business. As for chocolate, we will continue marketing aimed at further increasing sales of premium chocolate and chocolate for health-conscious customers. Because we are forecasting sales growth, we need to raise chocolate production capacity in the near future; we will consider the timing of capital investment.With the approach of the Tokyo 2020 Olympic and Paralympic Games, the protein supplement market is likely to expand. Therefore, we will increase production capacity for SAVAS to cater to market demand.
Launched five years ago, the milk and yogurt businesses in China are close to profitability in the fiscal year ending March 31, 2018. Consequently, we look forward to becoming profitable in China overall. The fact that the milk and yogurt businesses are on the cusp of profitability in only five years gives us great confidence in the potential of China’s market.
In the United States, the profitability of the confectionery business will improve significantly through full-fledged local production of high-value-added Meiji brand products, Hello Panda and Yan Yan.
In Southeast Asia, we purchased shares of respective joint venture partners in Indonesia and Thailand, thereby making them wholly owned subsidiaries. We will boost confectionery buisiness futher in Southeast Asia. In the fiscal year ending March 31, 2018, we are planning to launch new product lineups and accelerate business growth in both countries. In Taiwan, infant formula sales have been surging since we changed the local office into our subsidiary and switched to direct sales. We believe this business has a promising future.
In these ways, the strategies for our overseas businesses are steadily bearing fruit. Once overseas businesses move into the black and contribute earnings in the fiscal year ending March 31, 2018, we will grow rapidly in the future.
We focus on core products and streamline product lineup through the selection and concentration strategy. After completing reorganization of logistics bases in the Kanto area, we will examine reorganization in the Kansai area. As the sales of some core products grow, we will need to increase their production capacity quickly. We will increase production efficiency and develop stable supply systems to establish optimal production capabilities. This will be a management task for the medium-to-long term rather than for a single year.
In Japan and overseas, business and economic conditions are not wholly favorable. However, we believe our approach can sustain growth. Specifically, we will maintain a balance between sales in Japan and overseas while increasing sales of core products that enjoy competitive advantages. Currently, we are preparing the next medium-term management plan, covering the period through the fiscal year ending March 31, 2021. By then, we aim to realize operating income of ¥110 billion. In May next year, we will announce a detailed plan.