The Tokyo-based food business and bakery market leader in Japan reported a drop in operating income of ¥30.087bn ($292.9m), down 14% from ¥35.169bn ($333.7m) in 2016.
However, net sales saw a 1.1% increase, rising to ¥1.05tr ($9.96bn), much in line with the 1% sales growth of baked goods in Japan, which reached ¥2.3tr ($2.18bn) in 2017, according to Euromonitor International.
The market researcher noted Japanese consumers were consistently turning towards premium products – especially in bread and pastries – a trend picked up by Yamazaki in an effort to reverse its declining profits.
The company – which started producing bread in 1955 – logged its first net profit in 23 years last year despite leading the baked goods market in Japan with a retail value share of 23% in 2017, mainly due to its wide product portfolio, said Euromonitor.
Baked goods in Japan
Euromonitor forecasts the baked goods in Japan will grow at a CAGR of 1% to reach ¥2.4tr ($2.2bn) in 2022, as consumers continue to shift away from the traditional staples of rice in preference to the more convenient sources of breads, pastries and breakfast cereals.
New premium products and rising demand for products made with Japanese wheat will support growth, it added.
However, its financials were repeatedly hammered by poor profitability at its Daily Yamazaki convenience store operations.
The company managed a turnaround last year by introducing “key control” convenience stores – directly-run outlets equipped to bake bread on-site from frozen dough.
According to Nobuhiro Iijima, Yamazaki’s president, Daily Yamazaki helps the company gauge trends and is a “source of growth” for Yamazaki products.
The Japanese bread giant also enjoyed sales growth from its premium products, including Royal Bread Premium, the Yamazaki Gold series (which offers small pack sizes, such as three slices of loaf brad to suit smaller households) and healthier bread options, said Euromonitor.
Last year, Yamazaki launched 12 Koku Bread, which contains 12 different types of grains including rye, barley, spelt, sesame, millet, quinoa and pumpkin seeds, and enhanced with folic acid.
Bread sales on the rise
For fiscal 2017, Yamazaki reported sales of processed bread, prepared rice and processed noodles rose 4.7% in the year to ¥155.298bn ($1.47bn).
Gross profit ¥380,507m
Operating income ¥30,088m
Net income ¥25,107m
Diluted EPS ¥114.41
Bread sales increased 2.5% to ¥96.493bn ($915m), while sweet buns – which make up the largest portion of the company’s food business sales – increased 0.9% to ¥359.571bn ($3.41bn).
Western-style confectionery sales increased 0.7% to ¥134.907bn ($1.28bn), while Japanese-style confectionery experienced a decline, falling by 0.3% to ¥70,991bn ($674m).
Similarly, biscuits, crackers, sembei (Japanese rice crackers) and other merchandise, experienced a year-over-sales decline by 0.7% to ¥164,854bn ($1.56bn).
Yamazaki said it expects operating income to grow by 20% in 2018 versus 2017, forecasting ¥36bn ($341m). It projected net sales will climb 1.8% to ¥1.07tr ($101.5bn).
Yamazaki - founded by Tojuro Iijimi in 1948 – manufactures bread, sweet buns, Japanese- and Western-style confectionery, processed bread, prepared rice and side dishes, and sells other products procured from other companies. It also operates over 10,000 instore baking and convenience stores, and employs almost 20,000 people.