Market analysis of investment area.

Huxley <7561> has announced that it will spend 17.8 billion yen on growth investments (M&A 12 billion yen, facility investment 5.8 billion yen) as part of its growth strategy. The target area is the existing business segment, which is the logistics and food processing business. M&A targets companies and industries that contribute to the enhancement and expansion of business foundations through synergy with the company, such as food manufacturing, frozen food manufacturing, confectionery manufacturing, and agricultural, aquatic, and livestock production and processing. We have researched and analyzed the main target market size, growth potential, and players. The total potential market size for the four target areas exceeds 6 trillion yen.

1. Market analysis on vendor for food service, PB product.

The Kamissary business in the logistics and food processing business is the most promising investment area. The business model of outsourcing the production of side dishes such as fried chicken from food supermarkets and drugstores is growing remarkably, and full-scale operation continues with rotating shifts at the company. At the retail site, it is becoming difficult to make side dishes in-house due to severe labor shortages, and it is expected that inquiries to Asahi L&C, a subsidiary that handles everything from ingredient procurement to manufacturing and logistics, will increase. Since Asahi L&C's Kamissary factory is only located in the Kansai region, companies with processing functions in the Kanto, Tokai, and Kyushu regions are expected to be targeted for M&A.

According to the "2024 Soudan Hakusho Kakudai Henshu-ban - Digest version-" by the Japanese Delicatessen Association, the market size of delicatessen by business type in 2023 is 3.2 trillion yen for food supermarkets, second only to convenience stores at 3.4 trillion yen. In terms of growth (market value in 2023 / market value in 2019), food supermarkets are the highest among business types at 18.9%.

Looking at it from a different perspective, the PB product of major retailers is also a target market. Consumer needs are high from price-sensitive consumers against the background of continued inflationary pressures, and major retailers are focusing on development and sales. According to the Ministry of Economy, Trade and Industry's "Commercial Trends Survey," the annual market size of food supermarkets in FY2022 is approximately 15 trillion yen. Assuming that processed foods and side dishes account for 50% (excluding perishable products and non-food items), the market size of PB food products can be estimated to be approximately 1 trillion yen (assuming a PB ratio of 16.8%).

Players in the industry include many food manufacturers, such as Warabeya Nichiro Holdings <2918> and Musashino Co., Ltd., which produce and deliver products to convenience stores, as well as capital-affiliated companies of major retailers and affiliate companies of major food manufacturers nationwide.

2. Frozen food market.

At subsidiary Asahi L&C, frozen food processing is also handled at the Hanshin Kamissary factory, making it a field with high affinity with the frozen food industry. For example, many side dishes such as gratin are suitable for frozen logistics that can maintain quality. According to the "Preliminary Report on the Production and Consumption of Frozen Foods 2023 (January-December)" by the Japan Frozen Food Association, the domestic production value of frozen food in 2023 increased by 2.1% compared to the previous period to approximately 780 billion yen. In recent years, the expansion of the frozen food section at supermarkets and the handling of frozen foods at drugstores have increased, and the demand is firm due to the increasing number of working couples, singles, and senior citizens who have higher needs for time-saving and convenience.

Players in the industry include major manufacturers such as Nichirei <2871>, Ajinomoto <2802>, Japan Tobacco (JT) <2914>, and Nissui <1332>, but there are also many medium and small-sized companies. The number of regular member companies in the Japan Frozen Food Association is 109.

3. Confectionery market.

In 2022, the company grouped Inaba peanuts and entered the confectionery industry. Generally, it can be classified into various categories such as chocolate/candy/chewing gum/biscuits/snacks/rice cakes. It is characterized by diverse product classifications such as Japanese and Western/room temperature/chilled/frozen/regionality. According to the estimated production quantity and production amount of confectionery in 2023 by the All Japan Confectionery Association, the domestic production amount of confectionery was approximately 2.67 trillion yen, an increase of 5.6% compared to the previous year. The large categories of the market are chocolate and Japanese sweets, and the increase rate from the previous year is high in candy and snack confectionery. Currently, the company is entering into the field of bean confectionery and nuts in the confectionery market.

As players in the industry, there are many major companies such as Meiji Holdings <2269>, Morinaga Confectionery <2201>, Ezaki Glico <2206>, Calbee <2229>, Bourbon <2208>, and Kameda Seika <2220>, as well as medium-sized and small companies that focus on specialized fields and limit their activities to certain regions.

4. Production and processing market for agricultural products, aquatic products and livestock.

The production and processing market for agricultural products, aquatic products and livestock belongs to the upstream of the company's current business area and has been related to procurement and sourcing in the past. As the company owns the entire supply chain from downstream (retail) to manufacturing and logistics, if the companies producing and processing agricultural products, aquatic products and livestock are grouped, they can optimize a longer supply chain. For example, in recent years, the impact of climate change on crop yields and the timing of the harvest has become greater. However, if companies have downstream functions like the company, it becomes possible to reduce procurement costs and maintain quality by adjusting the amount of procurement upstream and selecting appropriate processing and storage methods. According to the Comprehensive Survey of the 6th Industry Promotion of the Ministry of Agriculture, Forestry and Fisheries for the fiscal year 2022, the annual sales amount of agricultural and aquatic product processing was approximately 1.19 trillion yen (approximately 1.01 trillion yen for agricultural product processing and approximately 180 billion yen for aquatic product processing), which increased by 6.3% compared to the previous year.

As players in the industry, there are various companies such as Hokuto <1379>, Tokyo NS Foods Co., Ltd., Maruha Nichiro <1333>, Nissui <1332>, Nippon Ham <2282>, and Itoham Yonekyu Holdings <2296>.

(Written by FISCO Guest Analyst, Hideo Kakuta)