Has Calbee’s profit slump put PepsiCo partnership in balance?

Under the reigns of chairman and CEO Akira Matsumoto, Calbee has consistently posted double-digit profit growth since going public in 2011. However, according to CFO Koichi Kikuchi, those days are over and Calbee’s North American unit “cannot plan for high growth like in the past”. The Tokyo-based company reported a 1.2% decrease in net sales for the nine-month period under review to ¥186,691m ($1.74m) from ¥188,944m ($1.76m). Net profit dropped 7% to ¥13,067m ($122,093) in Q3 2018 versus ¥14,407m ($134,606) in the year ago period. Operating income dropped 13.7% to ¥19,190m ($179,289) from ¥22,244m ($207,822), due to diminished sales in cereals and potato-based snacks in both its domestic and North American markets. North American decline Historically, North America – Calbee’s key region – has demonstrated strong growth. The company even planned to accelerate growth by expanding local production as its pea-based Harvest Snaps became a hit. However, increasing output was time consuming and Calbee lost orders from retailers like Walmart. Marketing and advertising costs also grew as competition in the region intensified. As such, the North America unit reported a ¥231m ($2.15m) operating loss in the October-December quarter compared to a ¥227m ($2.12m) profit a year earlier. Slump in domestic market Sales of domestic snack foods were relatively flat with a 0.4% drop to ¥129,374m ($1.20m) from ¥129,870m ($1.21m). The potato shortage caused by last year’s typhoon had a significant impact on product adjustments in the company’s first quarter, but this was offset by the resumption of sales of Pizza potato chips and other products with the Hokkaido potato harvest, and the launch of local speciality flavor potato chips of Japan’s 47 prefectures. Sales of its breakfast cereal Frugra also slumped in North America and other markets – including Thailand, Hong Kong, Philippines, Singapore, Indonesia, China and Australia, as well as North America – despite shifting to online sales in China and pushing promotions for China’s big Double Eleven sales day. PepsiCo partnership The decline in North America has put Calbee’s business partnership with its largest shareholder PepsiCo in the spotlight. Calbee entered the partnership with PepsiCo in 2012 to expand its product sales and market share in the North American market. The Frito-Lay maker was also given exclusive distribution rights of Calbee’s popular snack, Jagabee, as well as a 20% shareholding. In the agreement, Calbee forecast to achieve ¥50bn ($47m) in net sales in North America by fiscal year ending March 31, 2019, however, this is now in question. PepsiCo will be able to review this agreement when it ends next year.

Has Calbee’s profit slump put PepsiCo partnership in balance?

Japanese snack giant Calbee posted a profit decline for its third quarter results for fiscal year ending March 31, 2018 due to sharp slowdown in North America, possibly putting its business partnership with PepsiCo on the line.

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