In BMI’s Food and Drink Business Environment Ratings, which ranks 14 key markets in the Asia Pacific region, Japan is placed joint fourth (alongside Thailand). While the high disposable income continues to ensure strong food and beverage consumption, the longer-term growth potential is stifled by the market’s maturity as well as a generally difficult operating environment for foreign players. More recently, rising commodity prices have been passed onto consumers, with the overall effect being higher value, but lower volume sales.

Nevertheless, companies investing in innovation and marketing will have room for growth. In the light of the difficult business condition in the home market, many companies are looking elsewhere for expansion opportunities. In April 2008, Japanese dairy giant Yakult Honsha Co confirmed that international expansion will remain its primary focus in FY09, with global interest in Yakult's health and well-being portfolio soaring. Similarly, Japanese food flavourings specialist Ajinomoto Co confirmed the construction of two new manufacturing facilities in Thailand, while Meiji Dairies Corp – Japan's leading dairy company – revealed its intention to expand its market share in Taiwan.

This situation is also reflected in the beverages industry, with major brewers attempting to boost their involvement in other segments, as well as regions. Japanese beer major Asahi Breweries Ltd recently signed a deal with Russian Baltika Breweries, which will pave the way for the manufacture of its Super Dry beer brand in Russia. Similarly, leading local brewer Kirin Holdings is seeking partnerships in India, Thailand and Vietnam, in a bid to increase its brewing operations in the region and capitalise on rising beer consumption in those countries.

In late 2007, Kirin Holdings announced a partnership with Australian Lion Nathan – in which it holds a 46% stake – to purchase raw materials, having successfully trialled the scheme in the course of 2007. In the meantime, domestic shipments of beer and beer-like products dropped by 2.6% year-on-year (y-o-y), in the first three months of 2008, disadvantaged by rising prices and despite new launches of carbohydrate-free beverage and similar beverages. In the wider retail environment, organic growth is becoming less and less viable, with retail operators seeking new avenues of expansion.

To this end, Japan's second-largest convenience store chain Lawson reported is considering domestic acquisitions, in tandem with amending the product mix and layout of many of its existing stores in order to cater to Japan's changing population demographics. Those issues are also relevant to food and drinks manufacturers, which are forced to innovate or relinquish their market shares.