Market Analysis of the Investment Area.

Huxley <7561> has announced that it will spend 17.8 billion yen on growth investment as part of its growth strategy (M&A 12 billion yen, capital investment 5.8 billion yen) in the logistics and food processing business, which is an existing business segment. M&A targets companies and industries that contribute to strengthening and expanding the business foundation through synergies with the company, such as food production, frozen food production, confectionery production, and production and processing industries for farm products, aquatic products, and livestock products. We have investigated and analyzed the main target market size, growth potential, and players.

1. Vendors of processed foods and PB food markets.

The kamissary business in the logistics and food processing business is likely to be the most promising investment target area. The business model of outsourcing the production of prepared foods such as fried chicken from food supermarkets and drugstores is growing rapidly, and the company is continuing to operate at full capacity through shift work. At the retail site, it is becoming difficult to make prepared foods in-house due to severe labor shortages, which is expected to increase demand for Asahi L&C, a subsidiary that handles everything from procuring ingredients to manufacturing and logistics. Asahi L&C's kamissary factory is located only in Kansai, so companies with processing functions in areas such as Kanto, Tokai, and Kyushu are expected to be M&A targets.

According to the Digest Edition of the Annual Cooked Food White Paper 2024 edition published by the Japan Cooked Food Association, the market size of cooked food by type of business in 2023 is ranked second at 3.2 trillion yen for food supermarkets after 3.4 trillion yen for convenience stores. The growth rate (market value in 2023/market value in 2019) is the highest among business types at 18.9% for food supermarkets.

From a different perspective, PB products of major retailers are also a target market. In the midst of continued inflationary trends, demand from consumers with high sensitivity to price is high, and major retailers are focusing on development and sales. According to the Ministry of Economy, Trade and Industry's "Commercial Movement Statistics," the annual market size of food supermarkets in FY2022 is approximately 15 trillion yen, and assuming that processed foods and cooked foods account for 50% (excluding three fresh food items and non-food items), the market size of PB foods can be estimated to be approximately 1 trillion yen (assuming a PB ratio of 16.8%).

As industry players, numerous food manufacturers nationwide, including Warabeya Nichiyo Holdings <2918>, Musashino Kogyo Co. Ltd., manufacturing and delivery companies for convenience stores, capital-affiliated subsidiaries of major retailers, and affiliation subsidiaries of major food manufacturers, play a role.

2. Frozen food market.

At Asahi L&C, a subsidiary, frozen food processing is also carried out at the Hanshin Kamissary factory, making it a field with a high affinity for the frozen food industry. For example, many prepared foods such as gratin are suitable for frozen logistics that maintain product quality. According to the "Report on the Production and Consumption of Frozen Foods for FY5 (January-December)" by the Japan Frozen Food Association, domestic production of frozen foods in 2023 increased by 2.1% over the previous year to approximately 780 billion yen. In recent years, demand has remained strong due to the increase in working couples, singles, and elderly people, and the demand for time-saving and convenient products, as well as the expansion of frozen food sales areas in supermarkets, has increased, and they are now available at drugstores.

As for industry players, there is a significant presence of major manufacturers such as Nichirei <2871>, Ajinomoto <2802>, JT <2914>, and Nissui <1332>, as well as numerous minor and medium-sized enterprises. Also, there are 109 member companies of the Japan Frozen Food Association.

In 2022, the company grouped Inaba peanuts and entered the confectionery industry. It can generally be classified into various product categories such as chocolate/candy/gum/biscuits/snack foods/rice cakes, etc., and is characterized by its diverse product classification such as Japanese/Western/room temperature/chilled/frozen/regional. According to the All Japan Confectionery Association's "Estimated Production Quantity and Production Value of Confectionery in Reiwa 5", the domestic production value of confectionery in 2023 was approximately 2.67 trillion yen, a 5.6% increase from the previous period. The categories with large market sizes are chocolate and Japanese-style sweets, and the categories with high growth rates from the previous year are candy and snack foods. Currently, the company has entered the field of bean confectionery and nuts in the confectionery market.

As industry players, there are major companies such as Meiji Holdings <2269>, Morinaga & Co. <2201>, Ezaki Glico <2206>, Calbee <2229>, Bourbon <2208>, and Kameda Seika <2220>, as well as many medium and small companies that specialize in certain areas and operate within limited regions.

4. Farm products, aquatic products, and livestock products production and processing market

The production and processing market for farm products, aquatic products, and livestock products corresponds to the upstream of the current business area of the same company, and has been an area related to procurement and sourcing. Since the company owns the entire supply chain from downstream (retail) to manufacturing and logistics, if the production and processing companies of farm products, aquatic products, and livestock products are grouped, they can optimize a longer supply chain. For example, in recent years, the impact of climate change on the yield and timing of agricultural crops has become significant, but with downstream functions like those of the same company, it is possible to reduce procurement costs and maintain quality by adjusting the procurement volume upstream or selecting appropriate processing or storage methods. According to the Comprehensive Survey of Six Industrializations in Reiwa 4 by the Ministry of Agriculture, Forestry, and Fisheries, the annual sales of farm products and aquatic products processing in 2022 were approximately 1.19 trillion yen (farm product processing approximately 1.01 trillion yen, aquatic product processing approximately 180 billion yen), a 6.3% increase from the previous period.

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

(Written by FISCO Guest Analyst, Hideo Kakuta)