Suntory: IPO, Soaring Profits and Increasing Penetration of Southeast Asia - What’s Next?

All the signs are that Suntory has ambitions to become a global player and so multinationals like PepsiCo and Coca-Cola may need to watch out. Suntory Beverage & Food Ltd is in the midst of an exciting and eventful year. In April, the company reorganised its management structure and established a Business Planning Department. In July, it started trading on the Tokyo Stock Exchange and saw its share price exceed the offer price. In August, the company reported strong financial results, with all-important overseas profits up by 15%. These good results reportedly reflect  cost-cutting measures and a weaker Japanese yen, which helped to boost overseas trade.

Suntory Holdings, which continues to hold a 60% stake in Suntory Beverage & Food Ltd, said the IPO raised around US$3.9 billion, which will be used to fund overseas acquisitions. While the parent company remains privately-owned, the IPO means that the reporting of the beverage and foods business will have to become more transparent, leading to a change in the culture and mindset of one of Japan’s oldest food and beverage companies.

In terms of retail value sales of soft drinks, Suntory’s overseas operations grew in importance, increasing its share of the company’s overall sales by two percentage points over 2010-2012. Sales at its Australasian subsidiary Frucor outpaced those of its European subsidiary, with both regions largely impacted by local economic conditions. The company is determined to leverage its acquired networks to make its brands international and then global. The successful introduction of Orangina juice-based carbonates in Japan is particularly encouraging, highlighting the fact that opportunities do still exist in the company’s saturated home market.

The North American and Latin American markets remain the company’s weak spots. Given North America’s maturity and crowded marketplace, Suntory has yet to announce any major entry plan. However, this does not necessarily mean that the company intends to avoid the lucrative and still growing US RTD tea category. If it is adventurous enough, Suntory could consider acquiring premium RTD tea brand Arizona, thus assuming category leadership immediately. Suntory also expressed an interest in Latin America when reorganising the company. Euromonitor International believes that Kirin’s expansion in Brazil and the country’s forthcoming sports events will continue to appeal to Japanese companies’ growth ambitions.

Back in Asia, Suntory has not made any significant move in China, unlike its peers Kirin and Asahi. However, it has been fairly active in Indonesia, Singapore and Vietnam. The company reported its new Vietnamese beverage joint venture with PepsiCo has “achieved steady business expansion”. Logically, RTD tea, as its key strength, is a core area for development. The company has
launched two RTD tea brands (MYTEA and Mirai) in Indonesia and Suntory Oolong Tea in Vietnam. Mirai is also sold in Thailand through its joint venture Tipco F&B. The ASEAN region is forecast to see growth of US$1.2 billion in RTD tea over 2012-2017 and these initiatives will help Suntory make its mark in local markets and increase its revenue over the long term.