Suntory Beverage & Food Limited 2019 Business Strategies in Japan

[Review of 2018]
The overall domestic beverage market during 2018 is estimated to have exceeded the previous year at 102% year on year with, for example, a record high monthly shipping volume in July for the second consecutive year. This was despite a partial disruption to logistics due to the impact of the repeated disasters and fierce heat in the summer.
Under these circumstances, the sales volume of our domestic business exceeded the market at 104% year on year. This was thanks to efforts to strengthen our mega brands and create new demand.

Above all, Suntory Tennensui performed well. This was because we aimed to further improve its unique brand value in terms of its cool and pure clear tastiness generated by its water sources. In addition, sales of the Suntory Minami-Alps Sparkling series also increased significantly. The overall sales volume of the brand increased 9.3 million cases year on year (up 9%). This meant its sales volume in 2018 was the number one*¹ in the domestic soft drink market.

*1: Survey by Inryo Soken

We undertook various marketing activities throughout the year for BOSS with two themes – “deepening” to deepen bonds with heavy users and “evolution” to create new customers. We did this under the brand concept of the “coffee of the working people.”
We deployed marketing activities of BOSS for the 185g canned coffee market. We did this toward heavy users who prefer a drinking style of “taking a break and a change of pace” in rest periods during work.
We responded to the expansion in the taste needs of our customers for a style of drinking little by little with a focus on deskwork in offices for PET bottles and metal bottles that can be re-capped. In particular, our Craft BOSS series has been extremely well-received by the younger generation and women who previously were not so familiar with canned coffee. This meant sales exceeded 27 million cases in its second year since release.
As a result of this, the overall sales volume of the BOSS brand increased significantly to 107.9 million cases – up 9% year on year. This meant the brand achieved an annual sales volume exceeding 100 million cases for the first time since its release in 1992. This was against a slight year on year decline in the coffee beverage market according to our estimate.

The sales volume in the non-sugar tea category(e.g.,Iyemon,Suntory Oolong tea and GREEN DAKARA Yasashii Mugicha) increased. We focused our efforts on strengthening the lyemon brand. For example, we ran a “TokuchaProgram Starts!” lifestyle support service campaign for our lyemon Tokucha FOSHU. This was in addition to a renewal of lyemon in the spring and undertaking proactive marketing activities including TV commercials. Nevertheless the overall sales volume of the brand fell to 53.7 million cases at 95% year on year.

We also deployed area exclusive products in Hiroshima and Tohoku for our long-selling brand of Suntory Oolong Tea. This meant its sales volume was 26.5 million cases at 101% year on year.

As a result of these efforts, the sales volume of our domestic business reached 462.2 million cases at 104% year on year. Accordingly, we increased our sales volume compared to the previous year for the 26^th consecutive year.

[2019 Business Strategies]
We believe that the diversification of values and health consciousness will advance in terms of consumption trends surrounding the beverage industry in 2019. We also think that the pace of change of the business environment will become ever faster.

●Manifestation of Diversifying Values
The values of customers are also diversifying together with changes to work styles and lifestyles due to the evolution of technology (e.g., AI and the IoT). Consequently, preferences and needs in regards to beverages are changing at an extremely high pace. There is also an increasingly high awareness to mutually accept diversifying values.

●Increasingly High Health-consciousness and Environmental Awareness
It is said that we are approaching an age when people can expect to live to 100 years old. “Self-medication,” in which people manage their own health, and “health tech,” which is a method for that, are gradually becoming popular. In addition, there is a growing importance to efforts on sustainability against a background of spreading awareness toward a healthy life expectancy and increasing environmental awareness.

●Many Uncertain Factors in the World
The severity of the business environment surrounding us is increasing. Against this background, there are many uncertain factors. These include abnormal weather in countries around the world, the advance of deflation, the intensification of price competition, and the sudden jump in the cost of raw materials and distribution.

While capturing such trends in society, we are promoting product development, service development and marketing measures from the point of view of our customers. We are doing this by observing changes in the external environment and enhancing our perception abilities. The overall beverage market in domestic business in 2019 is estimated to slightly decrease. Against this backdrop, we are aiming for an annual sales volume of 462.2 million cases (100% year on year).

Overview of Our Specific Activities
(1) Product Development & Communication from the Point of View of Our Customers Closer to Their Diversifying Values
We will again continue activities this year focused on Suntory Tennensui, BOSS and the unsweetened tea category (e.g., lyemon and Suntory Oolong Tea).
We will proactively work on attractive product development and new marketing communication from the point of view of our customers closer to their diversifying values with the aim of contributing to work style proposals that match the times and solving solutions for the social problems. This is like we did with Craft BOSS and Suntory Minami-Alps Sparkling that were extremely well-received last year.

(2) Expansion of Products and Services to Support the Healthy Habits of Our Customers
We are looking to expand portfolio that provide new value to respond to increasing health consciousness with a focus on the coming age when people can expect to live to 100 years old. In addition, we will solve the anxieties and worries of our customers – “I don’t know what I should do” and “Even when I start to do something, I cannot keep on doing it” – to have daily healthy life. We are deploying a variety of campaigns and services to support their healthy habits on a daily basis toward that.

We will also aim to promote health and solve problems in society in our vending machine business. We will look to further improve added value and convenience. We will do this through the Green Plus IoT vending machines we are introducing and our Takuben service for corporations.
The trend in the vending machine market is flat to slightly decreasing. However, we will continue to focus our efforts on comprehensive beverage services. At the same time, we will forge ahead with an added value strategy to aim for continuous growth.

(3) Enhancement of Preparations for Uncertain Factors and Promotion of Further Sustainability through Our Business Activities
We will face new challenges in which there is an impact on logistics from unknown factors (e.g., the various unexpected natural disasters that occurred last year). We will strengthen measures to deliver our products safely to our customers. For example, we will start operation of a new system to automatically devise optimal production plans utilizing AI and we will rebuild our internal and external SCM structure. We will also focus our efforts more than ever before on sustainability activities to pass on a sustainable society to the next generation through our business activities – including the strengthening of efforts to effectively utilize used PET bottles. This is in addition to the activities we have tackled over many years throughout the entire Suntory Group (e.g., environmental and societal contribution activities).

The key category and brand activity guidelines for this fiscal year are as follow.

■Suntory Tennensui
We will aim to continue further improving the unique brand value of Suntory Tennensui – “clear tastiness committed to its water sources.” At the same time, we will focus on the unsweetened category based on its unique brand value. We will take on the challenge of new market creation through added value products.
We will also aim to further grow the Suntory Tennensui brand. We will establish a new production base in Omachi, Nagano by 2020 as a new water source to follow on from the Minami-Alps (Yamanashi), Aso (Kumamoto) and Okudaisen (Tottori). Omachi is a town surrounded by abundant nature and is blessed with good quality water. While being a production base, we will build a new experience-style facility in the area. This facility will allow visitors to experience the clear tastiness of Suntory Tennensui with their five senses through various contents.
Suntory Tennensui delivers clear and tasty natural water nurtured by carefully selected water sources under thorough quality control for safety and security. Together with this, the brand proposes the creation of new value to further solidify our position as number one*¹ in the soft drink market.

■BOSS
We are undertaking new product and marketing distinctive of BOSS as the “coffee of the working people.”
We are proactively deploying measures toward heavy users who prefer a drinking style of “taking a break and a change of pace” in the 185g canned coffee market. We will aim to stimulate the canned coffee market. We will launch the new BOSS THE CAN COFFEE Ore-no Bito on February 5. This is a product made with new beans roasted in the Ebina Factory of Suntory Coffee Roastery Co., Ltd. which started full-scale operation in July last year. We will also deploy campaigns at the same time as simultaneously updating key short canned coffees.
Craft BOSS is also proposing a new work style worthy of the brand. This will be done together with the deployment to a new category in addition to further growth of BLACK, LATTE and BROWN.
We will also focus our efforts more than ever before on the development of the BOSS LATTE BASE concentrated beverage this year. We will deploy ways to enjoy it in the home, new products and marketing measures throughout the year.
We will further strengthen each category and deliver the value distinctive of BOSS. With this, we are aiming to make it into a brand loved by all styles of working beyond generations as the “coffee of the working people.”

■Non-sugar tea category
Since its launch in 2004, Iyemon has been a favored product among consumers as a green tea with depth and a rich taste made from domestically-produced tea leaves selected by the tea masters of Fukujuen, the legendary tea house in Kyoto. We will deploy new product development and communication this year.
We will also continue to focus our efforts on lyemon Tokucha – the FOSHU tea with the number one sales volume*². We plan to deploy marketing measures closer to lifestyles to form the impetus to boost the healthy habits of our customers.
We will further strengthen our marketing activities this year to establish a firm position in the market. We will achieve this by providing Suntory Oolong Tea as a drink during meals and by enhancing the value of GREEN DAKARA Yasashii Mugicha as a hydration supplement beverage that can continue to be enjoyed by the family.

*2: Intage SRI on the mineral water market in January-December 2017; cumulative sales amount for the Suntory Tennensui brand
Retail channels: supermarkets, convenience stores, drugstores

■Suntory Group’s Environmental Activities
Based on the Suntory Group’s corporate philosophy of “In Harmony with People and Nature,” we are promoting environmental management in line with our responsibilities as a corporation that benefits from nature’s gifts. We will continue to conduct various activities aimed at reducing environmental impact to ensure that we leave a sustainable global environment to future generations. Along with container and packaging initiatives based on Suntory’s unique 2R+B strategy, we conduct numerous other activities including the Suntory Natural Water Sanctuary project that develops highly functional forests that serve as water resource recharging forests.

●Overview of Containers and Packaging
・2R+B Strategy
Reduce/Recycle + Bio is an approach that promotes reductions in volumes of resin used and the effective use of resources through material recycling, as well as the aggressive use of renewable alternatives to petroleum-based raw materials. The Reduce aspect of this approach is applied not only to bottles, but also to labels and caps in order to promote volume reduction. The Recycle aspect involves developing a mechanical bottle-to-bottle recycling system, the first of its kind in Japan. The Bio aspect has already been implemented through the use of 30% plant-based materials for Suntory Tennensui (550ml), and efforts are underway to develop PET bottles using 100% plant-based materials.

・Efforts Aimed at Effective Utilization of Used PET Bottles
We are cooperating with recycling operators to further proactively introduce recycled PET bottles aimed at the promotion of bottle to bottle (B to B). We have been further strengthening our global environment conservation activities toward the realization of a recycling-oriented society. First, we will aim to use recycled PET materials more than half the weight of all our used PET bottles in our domestic soft drink business by 2025 as our mid-term goal. We will achieve this by utilizing the F to P direct recycling technology that we put into operation last year after developing it in cooperation with Kyoei Sangyo Co., Ltd.

●Water Efforts:
・Natural Water Sanctuary Project and “Mizuiku”
Since 2003, the Suntory Group has conducted its Natural Water Sanctuary project. This project involves developing forests that create groundwater in water resource cultivation areas with the aim of creating groundwater exceeding the volume used by Suntory in its plants. The project covers a total land area of approximately 9,000 ha with 20 locations in 14 prefectures in Japan. However, our goal for 2020 is to expand this project to 12,000 ha to widen it to a size that produces twice the amount of groundwater used in our plants.
Also, we are conducting the Suntory “Mizuiku” - Natural Water Education Program that teaches the importance of water to children, not only in Japan but also in Vietnam, which is one example of various water-related initiatives in overseas groups.

・AWS Certification and CDP Water
Suntory Beverage & Food Limited has stated that “Mizu To Ikiru”(living with water) is its promise to society. It has been deploying various activities related to water like the above over many years. Suntory Okudaisen Bunanomori Water Plant became the first plant in Japan to receive the Alliance for Water Stewardship (AWS) certification with regard to its sustainable use of water in the base around the plant in January 2018. The company was also awarded a position on the CDP Water Security A List Company for the third year in a row in January 2018.