Japan Tobacco Says to End Beverage Business Due to Lack of Scale

Source from:  Reuters 02/05/2015

Japan Tobacco Inc (JT) is pulling out of the beverage business after failing to gain scale in a mature domestic soft drinks market, and as the former state monopoly focuses on its overseas tobacco operations.

JT, known for its "Roots" canned coffee and "Momono Tennen-sui" flavoured bottled water in Japan, said on Wednesday it will terminate production and sales of beverages by the end of September.

The decision by JT could trigger moves toward consolidation in the Japanese beverage market, where industry officials say too many players vie for shelf space and vending machine slots.

Noriaki Okubo, JT's executive deputy president, told a news conference that retailers favoured only the top products in each beverage category and that competition was intensifying due to the aggressive promotional efforts of firms in pursuit of scale. "We are not in top market positions," he said.

JT's beverage business is the 10th largest in terms of domestic sales volume, accounting for only 1.6 percent of the Japanese beverage market, according to data by trade magazine publisher Inryosouken.

It has been overshadowed by much bigger rivals such as Coca-Cola Co and Suntory Beverage & Food Ltd, which in 2014 had domestic market shares of 27.6 percent and 20.5 percent share, respectively.

JT's beverage production and sales garnered about 50 billion yen ($425.68 million) of revenues for the financial year that ended in March last year, just a fraction of its overall revenues. Most of the around 200 employees of the operation will be reassigned to other jobs in the company, JT said.

JT started its beverage business in 1988 to diversify its revenue sources in the wake of a government decision to open Japan's tobacco market to foreign companies in the 1980s.

The seller of 'Mevius', 'Winston' and other cigarettes is now betting on growth in emerging markets to make up for a constant decline in Japan's smoker population.

JT's Okubo said the company has not decided on whether to keep its beverage vending machine business or sell it to rivals, adding "we would like to consider various possibilities".

Rivals are now likely to crave its vending machine business. JT said it owns about 264,000 vending machines, a big number in a country where vending machines have an ubiquitous presence and where soft drinks makers say prime spots have already been exhausted, leaving acquisitions of existing machines as the only option for growth. Enditem