Kameda Seika 2220
亀田製菓
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2021-11-01
2021-11-01
2021-09-14
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Summary
Kameda Seika’s main business is making and selling snacks. In the rice cracker industry, it is the largest player, with a circa 30% market share. The company embraced mass production ahead of rivals, and in 1975—18 years after its founding—it became the largest rice cracker company in Japan, by sales. Over the next 40 years, it held its place at the top. Most manufacturing is done in-house.
Food Products
Key dates
2015-07-30
Coverage initiation
Executive summary
Japan’s biggest rice cracker company—over 35% market share
Kameda Seika’s main business is making and selling snacks. In the rice cracker industry, it is the largest player, with over 35% market share. The company embraced mass production ahead of rivals, and in 1975—18 years after its founding—it became the largest rice cracker company in Japan, by sales. Over the more than 40 years since then, it has held its place at the top. Most manufacturing is done in-house.
The Kameda Seika group consists of the parent, 16 subsidiaries, and three affiliates. Segments: the Domestic Rice Cracker business, which produces and sells rice crackers in Japan; the Overseas business, which produces and sells rice crackers overseas; the Domestic Food business, which handles extended shelf life foods, plant lactic acid bacteria, brown-rice bread, and vegetarian meat; and the other business, which handles transportation and other miscellaneous services.
The Domestic Rice Cracker business has been with the company since its inception, and accounted for 79.1% of sales and 90.4% of operating profit in FY03/21. Mainstay products are Kameda no Kaki no Tane and Happy Turn, and these two products account for approximately 40% of Domestic Rice Cracker business sales. The company produces rice cracker products at its own domestic plants for sale to supermarkets, convenience stores, and drugstores either directly or via wholesalers.
In FY03/21, the Overseas business accounted for 8.2% of sales and recorded an operating loss of JPY376mn. Segment sales are growing, and the proportion of total sales accounted for by the segment is on an uptrend. The company is expanding its business in the US and Asian regions. The main subsidiary in the Overseas business is Mary’s Gone Crackers, Inc., which manufactures and sells rice crackers.
In FY03/21, the Domestic Food business accounted for 6.0% of sales and 9.5% of operating profit. The main subsidiary in the Domestic Food business is Onishi Foods, which has the top market share in extended shelf life rice products. Kameda Seika aims to leverage the technology and expertise built up over many years of rice cracker production to develop ancillary businesses. The company is engaged in R&D into new functional foods made from rice, with a focus on health.
Trends and outlook
In FY03/21, the company recorded sales of JPY103.3bn (-0.5% YoY), operating profit of JPY5.6bn (-3.3% YoY), recurring profit of JPY6.9bn (-0.3% YoY), and net income attributable to owners of the parent of JPY4.8bn (+6.6% YoY).
The company revised its full-year forecast for FY03/22 in November 2021. The revised forecast calls for sales of JPY86.0bn (versus JPY103.3bn in FY03/21), operating profit of JPY6.0bn (+6.8% YoY), recurring profit of JPY6.9bn (+0.2% YoY), and net income attributable to owners of the parent of JPY5.4bn (+13.5% YoY). These figures reflect an upward revision of JPY1.3bn to the company's full-year estimate for sales and an upward revision of JPY700mn to its estimate for net income attributable to owners of the parent, both of which resulted from the addition of Thien Ha Kameda JSC to consolidated results starting in October 2021. Prior to this, Thien Ha Kameda JSC had been accounted for as an equity-method affiliate. In FY03/22, the company adopted Accounting Standard for Revenue Recognition (Accounting Standards Board of Japan [ASBJ] Statement No. 29). Under the previously used accounting standard, its sales forecast was JPY106.0bn (+2.6% YoY). The change in accounting standards has no effect on profit line items.
Kameda Seika announced a medium-term management plan titled Changing Gears 2023 in May 2018. At the time of its FY03/20 results announcement, the company revised the plan’s targets in light of various strategies it has employed so far and adjusted initiatives, but there was no change in terms of what the company wants to become or the direction of strategies aimed at achieving this end. The key strategies of the plan are as follows: expansion of business area centered on overseas and domestic food businesses, transformation of cost and earnings structure through brand consolidation in the Domestic Rice Cracker business, strengthening business portfolios, and improving manufacturing costs. Under the revised medium-term plan, FY03/24 targets are sales of JPY115bn (CAGR of 2.6%), operating profit of JPY8bn (CAGR of 8.3%), and ROE of 9.4% (+0.8pp versus FY03/20).
Strengths and weaknesses
Kameda’s strengths lie in its core products—long-time favorites among consumers—advantages as an industry pioneer, and scale economies plus in-house logistics. Weaknesses include the time required for success in overseas development, limited track record in acquisitions and new businesses, and a lack of bargaining power when dealing with major retailers.
Key financial data
Notes: Figures may differ from company materials due to differences in rounding methods.
Net income refers to net income attributable to owners of the parent.
In FY03/22, the company adopted Accounting Standard for Revenue Recognition (Accounting Standards Board of Japan [ASBJ] Statement No. 29). FY03/22 forecast figures are based on the new standard. The change in accounting standards has minimal effect on profit line items.
Recent updates
1H FY03/22 flash update; revisions to full-year earnings forecast
Kameda Seika Co., Ltd. announced earnings results for 1H FY03/22; see results section for further details.
On the same day, the company also revised its guidance for the full year, as shown below.
Revised company forecast for full-year consolidated results for FY03/22
Explanation
Explaining the upward revision to its full-year estimates, the company said the increase in its estimate for sales was mainly the product of the inclusion of Tainai Co., Ltd. and Thien Ha Kameda, JSC. in consolidated results. The rise in its estimate for net income attributable to owners of the parent was also connected with this as the company booked an extraordinary gain (gain on step acquisitions) in 1H.
Q1 FY03/22 report update
Shared Research updated the report following interviews with Kameda Seika Co., Ltd.
Trends and outlook
Quarterly trends and results
Notes: Figures may differ from company materials due to differences in rounding methods.
Net income refers to net income attributable to owners of the parent.
In FY03/22, the company adopted Accounting Standard for Revenue Recognition (ASBJ Statement No. 29). Q1 FY03/22 results and FY03/22 company forecasts above are based on this standard. As the impact on sales and SG&A expenses is significant, YoY comparison for sales, gross profit, and SG&A expenses is not shown.
Notes: Figures may differ from company materials due to differences in rounding methods.
The company had one reportable business segment (snack production and sales), but changed to three-segment reporting (Domestic Rice Cracker business, Overseas business, and Food business) from Q1 FY03/21. Results for FY03/20 are broken down by segment for reference purposes only.
In FY03/22, the company adopted Accounting Standard for Revenue Recognition (ASBJ Statement No. 29). Q1 FY03/22 results and FY03/22 company forecasts above are based on this standard. As the impact on sales and SG&A expenses is significant, YoY comparison for sales is not shown.
Notes: Figures may differ from company materials due to differences in rounding methods.
TH Food, Inc., is an equity-method affiliate.
Notes: Figures may differ from company materials due to differences in rounding methods.
Thien Ha Kameda, JSC. is an equity-method affiliate.
Yen equivalents calculated by Shared Research based on exchange rate.
1H FY03/22 results
Sales were up YoY. Sales in the Food business and other businesses finished down but these shortfalls were offset by higher sales in the Domestic Rice Cracker business and the Overseas business.
Operating profit finished down YoY. Profit grew in the Domestic Rice Crackers business and other businesses, but losses expanded in the Overseas business and the Food business sank into operating losses.
Recurring profit declined as a result of a decrease in equity in earnings of affiliates of TH Foods, Inc. (an equity-method affiliate). The rise in net income attributable to owners of the parent was driven by the extraordinary gain booked in connection with the change of the status of Thien Ha Kameda, JSC., which was made a consolidated subsidiary.
Domestic Rice Cracker business
Sales and profit rose YoY in the Domestic Rice Cracker business. The top-line gains were driven by a combination of firm underlying demand from the stay-at-home crowd amid the pandemic, strong sales of its newly launched Mugen Ebi snacks, and enhanced promotional activities including campaigns for core brands such as Happy Turn and Kameda no Kaki no Tane. The company had to deal with soaring raw material prices but still managed to deliver higher earnings thanks to changes in product formulations, onsite improvements, and tight control of fixed costs at subsidiaries.
The company is implementing structural reforms from a medium- to long-term perspective, and is working to expand environmentally friendly product offerings. On the sales front, the company is concentrating its management resources on growth channels and promoting the use of digital data such as through MotionBoard.
Sales of core brands were mixed, with Happy Turn, Tsumami Tane, Usuyaki, Waza no Kodawari, Soft Salad, and Haihain reporting higher sales YoY, and Kameda no Kaki no Tane, Kameda no Magari Senbei, Pota Pota Yaki, Teshioya, Age Ichiban, and Katabutsu reporting lower sales YoY.
Overseas business
Sales were up YoY but operating losses expanded.
At Mary’s Gone Crackers, Inc.—Kameda Seika’s main operating base in North America—performance deteriorated due to the absence of special demand caused by the spread of COVID-19 in 1H FY03/21. However, sales in the Overseas business increased YoY (excluding the impact from adopting the new accounting standard) as sales contribution from Singha Kameda Co., Ltd. (consolidated in FY03/21) from the start of the fiscal year and an increase in exports to the US offset sales decline in the US business.
The larger losses in the Overseas business reflected the drop in sales at Mary's Gone Crackers and double operations due to the launch of Singha Kameda Co., Ltd. and the transfer of the business of Thai Kameda Co., Ltd., which is scheduled to be liquidated, as a result of business realignment in Thailand.
Food business
While corporate stockpiling demand for extended shelf-life foods was strong, sales of extended shelf-life products such as alpha rice declined in the absence of prior-year stockpiling demand mainly among general consumers. As a result, sales in the Food business fell YoY. The business swung into operating losses due to lower sales and higher R&D expenses.
In July 2021, the company acquired Tainai Co., Ltd., which manufactures and sells allergen-free rice flour bread that does not contain 28 items identified as allergens. Currently only a few companies operate in this market, which is worth several hundred million yen, but inquiries are increasing rapidly. The company plans to expand this business into a key pillar of its Food business.
Company forecast for FY03/22
Notes: Figures may differ from company materials due to differences in rounding methods.
In FY03/22, the company adopted Accounting Standard for Revenue Recognition (ASBJ Statement No. 29). Q1 FY03/22 results and FY03/22 company forecasts above are based on this standard. As the impact on sales and SG&A expenses is significant, YoY comparison for sales is not shown.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: FY03/21 sales revised to reflect new accounting standard.
Full-year company forecast for FY03/22
Full-year company forecast for FY03/22
The company revised its full-year forecast for FY03/22 in November 2021. The revised forecast calls for sales of JPY86.0bn (versus JPY103.3bn in FY03/21), operating profit of JPY6.0bn (+6.8% YoY), recurring profit of JPY6.9bn (+0.2% YoY), and net income attributable to owners of the parent of JPY5.4bn (+13.5% YoY). These figures reflect an upward revision of JPY1.3bn to the company's full-year estimate for sales and an upward revision of JPY700mn to its estimate for net income attributable to owners of the parent, both of which resulted from the addition of Thien Ha Kameda JSC to consolidated results starting in October 2021. Prior to this, Thien Ha Kameda JSC had been accounted for as an equity-method affiliate.
The company looks for operating profit growth of JPY380mn YoY. Positive factors include JPY1.1bn from sales growth and JPY640mn from better CoS, which the company expects will outweigh the negative impact of JPY300mn from higher raw material prices, JPY780mn from higher sales promotion and advertising expenses, and a JPY500mn increase in depreciation.
The company forecasts a positive impact of JPY1.1bn from sales growth. In the Domestic Rice Cracker business, it expects sales to recover at subsidiaries (Ajicul and Toyosu) that sell products to department stores and souvenir shops. In the Overseas business, it expects a full-year contribution from Singha Kameda Thailand, which was established and started operating during FY03/21.
Positive operating profit impact of JPY640mn from better CoS. The company plans to consolidate upstream rice cracker production processes at its four factories in Niigata Prefecture, and reduce the number of SKUs (from 423 in FY03/21 to 372 in FY03/22), which it hopes will cut costs by reducing downtime. It also plans to start operating new equipment to shorten the drying process for rice crackers in 2H.
It expects a drag on operating profit of JPY300mn from higher raw material prices.
The company forecasts a drag of JPY780mn from higher sales promotion and advertising expenses. It curtailed TV commercials in FY03/21, but in FY03/22 it plans to increase sales promotion and advertising expenses to mark the 55th anniversary of Kameda no Kaki no Tane and 45th anniversary of Happy Turn.
The company expects higher depreciation expenses following aggressive capex since FY03/17. In FY03/21, appreciation was JPY4.6bn. It has spent from JPY5.0–9.0bn annually on capex since FY03/17, and plans to spend another JPY8.8bn in FY03/22. The company plans to spend mainly on production and packaging equipment at the parent rice cracker business, Mary's Gone Crackers, and Onishi Foods.
The remarks below reflect the company's thinking prior to the recent revision of its full-year forecast and will be updated following our upcoming interviews with the company.
Company segment forecasts
The company forecasts higher sales and profit in the Domestic Rice Cracker business and Overseas business and lower sales and profit in the Food business.
Domestic Rice Cracker business
The company forecasts sales of JPY63.0bn (+1.1% YoY) and operating profit of JPY5.9bn (+15.4% YoY).
Although sales and profit rose at the parent rice cracker business in FY03/21 due to stay-at-home demand, sales were sluggish at subsidiaries (Ajicul and Toyosu) that sell products to department stores and souvenir shops during the pandemic, and sales and profit fell.
The company forecasts higher sales and profit in FY03/22 on a recovery in sales at subsidiaries (Ajicul and Toyosu) that sell to department stores and souvenir shops and the closure of unprofitable stores in FY03/21. It expects low single-digit sales and profit growth in the parent rice cracker business.
On the product front, Mugen Ebi (launched in February 2021) sold strongly to consumers aged 30–40. This year, the company expects a full-year contribution from Mugen Ebi and plans to boost distribution. In 2H, the company plans to launch products that combine rice crackers with potatoes and corn targeting the youth demographic. Among existing products, the company plans to boost the product appeal of rice crackers that go well with alcoholic drinks such as Tsumami Tane and Kameda no Kaki no Tane by boosting the frequency of flavor changes in Tsumami Tane, for example.
As part of its sales strategy, Kameda Seika plans to compare wholesale shipment data and POS data from retail stores and use a mechanism (MotionBoard) to accurately track retailer inventories and sales to standardize and digitize results of superior salespersons’ proposals to retailers. It aims to roll this out to all salespersons to enhance their proposals.
On the production front, the company plans to consolidate upstream rice cracker production processes at its four factories in Niigata Prefecture, and reduce the number of SKUs (from 423 in FY03/21 to 372 in FY03/22), which it hopes will cut costs by reducing downtime. It also plans to start operating new equipment to shorten the drying process for rice crackers in 2H. According to the company, this will reduce production processes by 40% and enable cost savings in the areas of labor expenses and utilities. It expects the impact of new facilities to flow through from 2H FY03/22 through FY03/23.
Subsidiary Ajicul produces and sells gift products to retailers and theme parks, in addition to novelty snacks. In FY03/21, sales of gift products declined due to the pandemic. The company said that since 2H FY03/21, it had broadened its sales channels from its traditional souvenir shops to discount stores and general food supermarkets, which are an increasing share of the sales mix. The company expects sales and profit to increase in FY03/22 as it expands sales to these new channels.
Subsidiary Toyosu produces and sells luxury rice crackers to department stores. In FY03/21, it was affected by temporary department store closures due to the pandemic. The company expects lower costs including the closure of unprofitable stores to be a factor in profit growth in FY03/22.
The company forecasts double-digit profit growth for the Domestic Rice Cracker segment. It expects low single-digit sales and profit growth in the parent rice cracker business. It looks for the positive impact of sales growth and improved CoS to outweigh higher raw material prices, higher sales promotion and advertising expenses, and increased depreciation accompanying capex growth. At subsidiaries Ajicul and Toyosu it expects profit to recover, primarily on higher sales.
Overseas business
The company forecasts sales of JPY8.8bn (+16.4% YoY) and operating loss of JPY250mn (operating loss of JPY376mn in FY03/21).
In the Overseas business, it expects a full-year contribution from Singha Kameda Thailand, which was established and started operating during FY03/21. It expects lower fixed expenses due to the transfer of production from Thai Kameda to Singha Kameda Thailand. In May 2021, the company decided to acquire additional shares in equity-method affiliate Thien Ha Kameda, JSC., with the aim of making it a consolidated subsidiary, but did not incorporate any impact into its FY03/22 forecast.
Mary’s Gone Crackers: The company expects continued sales growth for its main overseas subsidiary, Mary’s Gone Crackers. It plans to invest sales promotion expenses to secure shelf space, and does not anticipate a major profit contribution.
Singha Kameda: In June 2020, Kameda Seika and Singha Corporation established a joint venture, Singha Kameda Thailand (Kameda Seika has 50% stake), to produce and sell rice crackers for export. Thai Kameda is working to transfer its functions to the joint venture due to the deterioration of its own buildings and production facilities. In FY03/21, the business transfer was held up due to delays in engineers entering the country during the pandemic. In FY03/22, the company forecasts lower fixed costs as it plans to complete the transfer of production functions and wind down production at Thai Kameda.
Food business
The company forecasts sales of JPY5.9bn (-3.9% YoY) and operating profit of JPY50mn (-90.6% YoY).
Consolidated subsidiary Onishi Food is the main company in the Food business. Onishi Food has a high market share in emergency rations, and produces and sells alpha rice, which can be stored for five years. In Q1 FY03/21, there was increased stockpiling demand, primarily from retail consumers, and the company expects a reactionary fall in FY03/22. It also expects higher R&D spending.
Company forecasts versus results
Note: Figures may differ from company materials due to differences in rounding methods.
Strategy and long-term outlook
Medium-term management plan, Changing Gear 2023
In May 2018, Kameda Seika announced a new medium-term management plan, Changing Gears 2023. At the time of its FY03/20 results announcement, the company had revised targets under the plan in light of various strategies it had employed so far and adjustments to initiatives, but there was no change in terms of what the company wanted to become or the direction of strategies aimed at achieving that goal.
Ideas behind the medium-term management plan, Changing Gears 2023
In its new medium-term management plan, Kameda Seika identifies social changes—such as diversification of tastes and a decline in the domestic population—that present a threat, risking longer-term loss of competitiveness in the market for traditional rice crackers. However, the company also identifies social changes—for example, increased health awareness and growth in the global population—that present opportunities for Kameda Seika to leverage its knowledge of raw rice and whole grains and its existing business base in the US and Asia, in pursuing sustained earnings growth. In response to this changing environment surrounding the food industry, Kameda Seika plans to deliver customer value from the point of view of “Better for you”—contributing to a heathy lifestyle of choosing, eating, and enjoying delicious and nutritious food.
To evolve its business from one focused on production and sale of rice crackers to another that broadly offers food items under the concept of “Better for you” by FY03/31, the company intends to undertake structural reforms by FY03/24 to accelerate growth.
Key strategies of the medium-term management plan, Changing Gears 2023
The three key strategies of the medium-term plan are as follows: expansion of business area centered on overseas and domestic food businesses; transformation of cost and earnings structure through brand consolidation in the domestic rice cracker business, strengthening business portfolios, and improving manufacturing costs; and strengthening of management base to support the other initiatives.
Expansion of business area
Transform cost and earnings structure
Strengthen management base
structure and accelerate global human resources development
Management metrics
Under the revised medium-term management plan, FY03/24 targets include sales of JPY115bn (CAGR of 2.6%) and operating profit of JPY8bn (CAGR of 8.3%). In its pre-revision medium-term plan, Kameda Seika targeted FY03/24 sales of JPY130bn (CAGR of 4.6%) and operating profit of JPY13bn (17.2%), so the revision lowered the targets for sales by JPY15bn and operating profit by JPY5bn.
The company plans for the domestic rice cracker business and the overseas business to drive sales growth. It also aims to achieve profit growth through the strength of improved margins in the domestic rice cracker business and a shift to profit in the overseas business.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: YoY/CAGR are YoY company forecast for FY03/22 and CAGR vs F03/21 for FY03/24.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: YoY/CAGR are YoY company forecast for FY03/22 and CAGR vs F03/21 for FY03/24.
Direction of medium-term strategies by segment
Kameda Seika aims to secure a solid top market position for the domestic rice cracker business. It also aims to raise the ratio of sales from the overseas and domestic food businesses to 50% in the long term (in FY03/20, they together accounted for just 12.7% of sales).
The company believes the scale and growth potential of the domestic rice cracker market are limited. Rather than moving into confectionery other than rice crackers, it plans to test niche food and overseas rice cracker markets in which there is growth potential and relatively little competition.
Domestic rice cracker business
For the domestic rice cracker business, under its revised medium-term plan, Kameda Seika targets FY03/24 sales of JPY89.0bn (CAGR of 1.7%) and operating profit of JPY7.4bn (CAGR of 5.9%).
Based on family income and expenditure survey data and population movement, the company expects the domestic rice cracker market to be 6% smaller in FY03/24, relative to FY03/17. Over the six years through FY03/18 the business achieved a sales CAGR of around 2%, and the company sees sales growth continuing over the period of the medium-term management plan. As many small companies have gone out of business and some major players have integrated their operations, the top five companies have gone from a 71.4% share of the domestic rice cracker market in 2015 to 74.6% in 2019. Over the same period, Kameda Seika’s own share rose from 35.0% to 35.7% (refer to the “Market and value chain” section). While the medium-term plan calls for flat growth in the domestic rice cracker market, Kameda Seika projects a sales CAGR of 1.7% (FY03/20–FY03/24) for its domestic rice cracker business, as it sees major rice cracker makers growing sales slightly at the expense of small and midsized suppliers.
The company seeks to bolster margins by reducing the cost of manufacturing ratio from 53% in FY03/20 to 45% in the medium term. Starting in FY03/20, it is investing in its production lines with the aim of shortening the drying process for rice crackers, thereby reducing overall lead time. However, it only expects this shortening of production lead time to bear fruit from FY03/22 onward, when it expects to see reductions in labor and utility costs and in overall CoS.
Overseas business
For the overseas business, under its revised medium-term plan, Kameda Seika targets FY03/24 sales of JPY12.0bn (CAGR of 11.0%) and operating profit of JPY200mn (versus FY03/20 operating loss of JPY534mn).
North America: Mary’s Gone Crackers, Inc.
The North American operation consists primarily of US-based consolidated subsidiary Mary’s Gone Crackers, which mostly offers organic and gluten-free crackers, differentiating itself from competitors with the ingredients it uses in its products. Sales have been growing in the long term against a backdrop of increasing health awareness in the US.
Kameda Seika added Mary’s Gone Crackers, Inc., to consolidated accounts in December 2012, and between FY03/14 and FY03/17 the subsidiary reported average annual sales growth of 13.5%.
In FY03/18, though, Mary’s Gone Crackers was unable to supply sufficient stock owing to a natural disaster and relocation of production to a new factory. As a consequence, sales fell 8.8% YoY. In FY03/19, production volume temporarily declined again as Mary’s Gone Crackers worked to consolidate production bases. This factor and the rise of competing products caused FY03/19 sales to decline 7.7% YoY.
At Mary’s Gone Crackers, FY03/20 sales rose 6.8% YoY. Whole Foods Market, which sells natural and organic foods, was originally the main carrier of Mary’s Gone Crackers products, but the subsidiary expanded its sales network to include general supermarkets, so sales are back on a growth track, and Mary’s Gone Crackers moved back into the black in FY03/20 after repeated operating losses. Mary’s Gone Crackers plans to continue its sales growth from FY03/21 onward, with a strategy involving sales channel expansion and production of distinct products.
North America: TH Foods, Inc.
As of May 2021, US-based TH Foods is an equity-method affiliate of Kameda Seika. It was established in 1984, and in 1989, became the starting point for the Kameda Seika group’s overseas expansion. Kameda Seika and the other major shareholder, Mitsubishi Corporation, are both investing in the company in stages. TH Foods, using rice cracker production technology provided by Kameda Seika, has produced and sold Usuyaki-type rice crackers for more than 20 years.
In March 2020, Kameda Seika acquired an additional 3.16% of issued shares in TH Foods, raising its share of voting rights from 46.8% to 50.0%. The company says that, after this increase in voting rights, it will provide even more production technology and rice cracker-related expertise to TH Foods with the goal of improving the subsidiary’s new product development capacity and its productivity. For the time being, Kameda Seika will not include TH Foods in consolidation, but intends to do so eventually.
Asia
As of FY03/18, the Asian operation consisted mostly of businesses in China and Thailand. Over the medium term, though, the company anticipates contributions from sales growth at Cambodian unit LyLy Kameda, in which it has a 51% stake. LyLy Kameda makes rice crackers for export, and also plans to take on OEM production for major manufacturers.
Thai Kameda Co., Ltd., has sustained operating losses for some time, but in FY03/19, pared down its product selection to improve profitability. In FY03/20, it shrank its operating loss YoY, despite lower sales YoY.
Also in Thailand, in June 2020, Kameda Seika and Singha Corporation Co., Ltd., established a joint venture, Singha Kameda Thailand Co., Ltd. (Kameda Seika has a 50% stake), which will produce and sell rice crackers for export. Thai Kameda plans to transfer its functions to the joint venture during FY03/22 due to the deterioration of its own buildings and production facilities.
M&A
In North America and Europe, the company says it is also looking at acquiring manufacturers of “Better for You” healthy snacks. It plans to invest up to JPY30bn over the course of the medium-term management plan (FY03/20–FY03/24).
Domestic food business
For the domestic food business, under its revised medium-term plan, Kameda Seika targets FY03/24 sales of JPY6.7bn (CAGR of 5.8%) and operating profit of JPY400mn (CAGR of 19.2%). Its pre-revision plan called for FY03/24 sales of JPY10.8bn (CAGR of 13.7%) and operating profit of JPY1.8bn (17.8%), so the revision lowered the targets for sales by JPY4.1bn and operating profit by JPY1.4bn.
The company expects sales growth to be propelled by increasing sales at consolidated subsidiary Onishi Foods, and expanding sales of “Better for You” foods.
Onishi Foods manufactures and sells extended shelf-life food products. As part of its medium-term management plan, Kameda Seika seeks to grow sales at this subsidiary by expanding sales of emergency provisions in Japan, and through the development and launch of new products.
In February 2019, Kameda Seika made Maisen Co., Ltd., and its subsidiary Maisen Fine Food Co., Ltd., subsidiaries as a step to lay the foundation for further growth in the domestic food business. Maisen operates factories free of specific raw materials that cause allergic reactions (other than soybeans) and manufactures gluten-free foods such as brown-rice bread and vegetarian meat, which it says are both healthy and tasty.
Business
Summary
Largest domestic rice cracker company, aiming for growth overseas
Kameda Seika’s main business is the production and sale of snack products. In the rice cracker industry, it is the largest player with a market share of approximately 30%. Mass production initiatives were implemented ahead of its rivals, and in 1975—18 years after its founding—it became the largest rice cracker company (by sales) in Japan. Over the following 50 or so years, it has held its place at the top.
The group consists of the parent, 16 subsidiaries, and three affiliates. Segments: the domestic rice cracker business, the overseas business, the domestic food business (formerly new business), and the other business.
In FY03/21, most of the company’s sales and profits came from the domestic rice cracker business, with the overseas business posting an operating loss. In its medium-term management plan, Kameda Seika is targeting FY03/24 sales of JPY130.0bn (CAGR of 4.6%) and operating profit of JPY13.0bn (17.2%). It anticipates limited sales growth in the domestic rice cracker business, but expects double-digit growth to continue in the domestic food business and overseas business. The company is also targeting double-digit growth in operating profit, mainly on the strength of improved margins at the domestic rice cracker business and a shift to profits and subsequent widening of margins at the overseas business.
In the rice cracker industry, difficult business conditions (like higher raw material costs) have pushed many smaller firms into bankruptcy. The few remaining big players are becoming dominant. Among the company’s rivals, Sanko Seika Co., Ltd. (unlisted) has gained significant market share through a low price strategy. Sanko Seika’s share of the domestic rice cracker market increased from 10.9% in 2005 to 20.5% in FY03/21.
For a time, Kameda Seika’s market share declined as a result of Sanko Seika’s initiatives. The company’s share of the domestic rice cracker market declined from 29.5% in 2005 to 26.3% in 2007, but recovered to 36.4% in FY03/21. Through eliminating unprofitable product lines and instead focusing on creating variety within its successful product lines, market share is recovering.
Segment summary
Note: Figures may differ from company materials due to differences in rounding methods.
Note: R&D expenses, which had been included in the domestic rice cracker business, were reclassified into the domestic food business from FY03/18. Comparing FY03/18 to previous recorded levels, operating profit in the domestic rice cracker business increased by JPY248mn in FY03/18, and operating profit in the domestic food business decreased by the same amount.
Domestic rice cracker business: optimizing classic methods to attain growth
Note: Figures may differ from company materials due to differences in rounding methods.
This business has been part of the company since inception. In FY03/21 it accounted for about 80% of sales and the bulk of the company’s profits.
Key operations in domestic rice cracker business are the production and sale of rice crackers to domestic supermarkets, convenience stores, and drugstores. By sales channel, supermarkets account for 70%, convenience stores for 20%, and drugstores for 10%. The company does not generally sell directly to consumers. In this segment, sales are primarily collected through wholesalers, but in terms of delivery, over 50% of products are delivered to retailers via wholesale distributors, and a little over 40% are delivered directly to retailers.
The manufacture of key products that are popular with consumers is managed by the parent, and other products are produced and sold by subsidiaries Ajicul Co., Ltd., Toyosu Co., Ltd., Nisshin Seika Co., Ltd., Qingdao Kameda Foods Co., Ltd., and Thai Kameda Co., Ltd. (formerly Kameda-STC Co., Ltd.). The parent receives and sells products and semi-finished products from these subsidiaries.
Aside from sales to the parent, Ajicul produces and sells gift products to retailers and theme parks, in addition to novelty snacks.
Toyosu primarily produces and sells luxury rice crackers to department stores.
Nisshin Seika also produces and sells rice crackers to supermarkets and convenience stores under its own brand (Nisshin Seika), in addition to selling to the parent.
Introducing mass production techniques for rice crackers ahead of rivals
Kameda Seika traces its roots back to its founding as Kamedago Nomin Kumiai Itaku Kakojo in 1946 by Eiji Koizumi, producing and selling starch syrup. According to the company, after suffering issues with starch syrup production, it began to manufacture rice crackers to make use of an excess inventory of rice. Afterward, Koizumi stopped producing starch syrup and devoted all resources to the production of baked snacks such as Kaki no Tane and mocha rice crackers, eventually establishing Kameda Seika in 1957.
Eiji Koizumi stated, “The true purpose of corporate management is to produce the best product at a low cost, and in addition to giving back to society, the consumer must be able to enjoy these products with peace of mind.” This way of thinking led him to be a forerunner in the introduction of mass production and expansion across Japan in an industry where hand-crafted techniques were common.
Through research into the composition of rice, Kameda Seika internally developed a rotating dryer device in 1960, which allowed for consistent quality and lower energy costs by maintaining a constant temperature. In 1963, the company developed a band dryer for rice cracker dough, and ahead of its rivals, began full-scale mass production. Its products, with consistent quality and low prices, were popular with consumers, and became a cornerstone of growth.
Mainstay products form the product lineup’s core
In the 1960s, Salad Usuyaki was a hit product, followed by Happy Turn in the 1970s, and Pota Pota Yaki and Kameda no Magari Senbei in the 1980s. These products continued to be popular for a long period of time. Kaki no Tane with peanuts began sales in 1966. Fresh Pack Kaki no Tane went on sale in 1977, preserving freshness and preventing oxidation from the peanut oil by dividing up the package into smaller sizes. This caused sales of Kaki no Tane to rise significantly, and it remains a favorite among consumers.
The current top eight mainstay products are Kaki no Tane, Happy Turn, Magari Senbei, Teshioya, Tsumami Tane, Usuyaki, Waza no Kodawari, and Pota Pota Yaki, and many of these products have been on sale for an extended period of time. Consumer appetite for Kaki no Tane and Happy Turn is particularly high, and these two products account for approximately 40% of the company’s domestic sales. Retail prices for regular sizes of these mainstay products are between JPY200 and JPY300. Kaki no Tane, which includes six bags (190g) sells for JPY268 (tax inclusive), and Happy Turn (108g) retails for JPY198 (as of end-May 2021; prices from the company’s online store).
190g, JPY268 (including tax)
108g, JPY198 (including tax)
18 units, JPY188 (including tax)
9 units, JPY188 (including tax)
120g, JPY258 (including tax)
85g, JPY131 (including tax)
120g, JPY298 (including tax)
20 units, JPY188 (including tax)
Note: * denotes top eight products
Strengths in main eight brands, continued product development, and production and sales
The company’s strengths lie in the ability of its top eight products to chalk up stable sales and profits and its ability to continuously develop, product, and sell new products. Of its main eight brands, Kameda no Kaki no Tane and Happy Turn, with their high name recognition among Japanese consumers, form the core. The top eight products together enjoy stable shelf placement at retailers to produce consistent sales and profits. The company also differentiates itself from competitors through convenient new technologies—mass production and fresh packaging.
It has implemented new measures ahead of its competitors, from mass production, new technologies, online systems, acquiring funds via its IPO in 1984, to overseas expansion. In an industry where companies are struggling to find gains domestically, these initiatives have allowed the company to attain growth. By looking to expand nationwide at an early stage, the company moved to establish sales and logistics networks and reduced lead times and product shortages, yielding high satisfaction from both retailers and consumers.
Balanced product strategy for various consumers
The company has a balanced product strategy that targets a wide range of consumers. This is key to its success. For instance, the top three rice cracker companies buy rice from an array of sources. The company buys rice from Japan, the US, and Thailand. Sanko Seika sources its rice from China, Japan, and the US, while Iwatsuka Confectionery Co., Ltd. (JASDAQ: 2221) purchases all of its rice from contracted domestic farms. For quality, it may seem that 100% domestic rice would be the winner, but high raw material costs lead to these costs being passed on to the consumer. Conversely, cutting costs too much would hit product quality, harming demand. Based on these costs and benefits, the company uses overseas rice, but in an effort to balance costs and quality, it goes for California rice.
In the 1990s, the company aimed to increase sales in Japan by introducing many new products. However, this led to inefficiencies in its production lines, ultimately resulting in the company recording a net loss in FY03/00. To combat this issue, Kameda Seika implemented a new strategy from FY03/13, with a focus on producing variations on its most successful products. Specifically, the company has developed varieties of its products, such as Kameda no Kaki no Tane (including ume zarame [ume and coarse sugar], reduced salt, wasabi, and ume-shiso) and Happy Turn (including edamame and grilled corn flavor) (from the company’s online store, as of end-May 2021). This strategy has met with success, and sales of its mainstay brands have posted results that beat industry averages.
Note: Figures for domestic snack production and rice cracker production are based on All Nippon Kashi Association (ANKA)’s data; sales figures at the company’s domestic rice cracker business are based on company data.
Overseas business: investment resulting in losses, foundations for growth
Note: Figures may differ from company materials due to differences in rounding methods.
This business will play a key role in the company’s future. Sales are growing YoY, and its share of total sales continues to rise in the long term. However, it is still in the early phase of development and its contribution to profits is currently negative. Nevertheless, in FY03/20, US-based consolidated subsidiary Mary’s Gone Crackers, Inc. moved into the black, and Kameda Seika increased its holding in US-based equity-method affiliate TH Foods, Inc. to 50% in preparation for eventually adding it to consolidation. In this way, the company is conducting various initiatives aimed at improving the profitability of the overseas business.
According to the company, the global rice cracker market size is around JPY622.0bn (FY2014), and of this, the Japan market is JPY330bn and the market outside of Japan is just under JPY292.0bn. Key areas include Asia (excluding Japan), with a market size of JPY172.0bn (of this, China is JPY160.0bn), North America, with a market size of JPY60.0bn, and other markets, with a market size of JPY60.0bn. Although the overseas market size is not large, there are few large-scale competitors, and the company sees this as an opportunity for expansion.
We note that many small companies compose the rice cracker market, and most companies are focused solely on the domestic market. Among the company’s rivals, Iwatsuka Confectionery provides technology to the Wan Group, a large-scale food manufacturer in Shanghai. Iwatsuka Confectionery aims to cooperate closely with the Wan Group to expand into the Southeast Asian market.
In the company’s overseas business, Kameda Seika is promoting expansion into the US and Asia, with seven consolidated subsidiaries and three equity-method affiliates. Mary’s Gone Crackers, Inc., has the largest impact on overseas business sales and profit.
Note: Mary’s Gone Crackers, Inc., Kameda USA, Inc., and Qingdao Kameda Foods Co., Ltd., have financial years ending in December.
North America
In the US, consolidated subsidiaries Kameda USA, Inc., and Mary’s Gone Crackers, Inc., produce and sell rice crackers. In FY03/21, Kameda USA and Mary’s Gone Crackers had sales of around JPY5.5bn converted to yen, accounting for 64% of sales in the overseas business.
Kameda Seika’s first entrance in overseas markets was in 1989, in the US state of Illinois. Through an investment in Sesmark Foods, Inc. (now TH Foods, Inc.), the company began production and sales of rice crackers. Due to healthy eating trends and the popularity of Japanese foods overseas, TH Foods has seen strong growth via marketing of its rice crackers as low calorie, low fat, low allergen foods.
In 2008, the company established subsidiary Kameda USA, Inc., in California, beginning sales of Kameda Crisps, the local name for Kameda no Kaki no Tane.
In December 2012, the company consolidated Mary’s Gone Crackers, Inc., a leading company in the manufacture and sale of organic and gluten-free* rice crackers.