EUR 850.00 For Business Accounts Only

Morningstar | Growth in lucrative overseas soy sauce is priced in; restructuring required to lift domestic margin.

Kikkoman aims to bring soy sauce to every food culture worldwide. In overseas markets, it reaps the rewards from its endeavors to promote soy sauce and Oriental foods in Western markets. At home, in contrast, it battles shrinking demand and low profitability. The key to margin enhancement hinges on restructuring measures for turnaround or divesture of its domestic noncore food businesses.Soy sauce and wholesale of Oriental foods are growth pillars for the overseas business. Rising demand for Japanese food ingredients, including seasonings, fueled by the unprecedented popularity of Japanese cuisines globally, has been a key driver behind robust overseas growth. The firm deems this trend to be evidence of Japanese food gaining greater appreciation, rather than a mere cyclical boom.Apart from increasing soy sauce sales by expanding its application to local food cultures and promoting the health aspects of its natural brewing process, Kikkoman will take advantage of a rapidly growing number of Japanese restaurants around the world in order to expand its wholesale business. The number of Japanese restaurants, having more than tripled over the past decade, experienced a further 30% increase between 2015 and 2017. Kikkoman intends to distinguish its services by offering consultations regarding restaurant operations, on top of supplying a wide array of high-quality products to counter Korean and Chinese wholesalers’ low prices.At home, products perceived as value-added (such as “raw” soy sauce) or health-related (such as soy milk) will remain the key drivers. The successful launch of Always Fresh soy sauce proves that investing in premium offerings through product innovations is the most effective way to defend margins and tackle the adverse demographic impacts of shrinking demand.The low profitability of noncore foods has dragged on domestic margins and requires more drastic measures, which management has yet to deliver. On top of product innovations, we think portfolio restructuring--including a sizable cut in unprofitable stock-keeping units, or SKUs, and the exit of categories struggling to find their niche--is vital to lifting operating efficiency and thus profits.