Although, Meiji’s overall operating income grew 9.1% to $81.4m (JPY 6.4bn) in Q1 thanks to its performance in its largest business area, dairy, operating income in its second largest segment, confectionery, nosedived 113%.
Meiji is Japan’s second largest confectioner behind South Korean firm Lotte, according to sales data from Euromonitor International, which puts the Japanese firm in the top 15 confectionery companies worldwide in term of retail value sales.
Net sales for Meiji's confectionery segment fell 1.7% in Q1 to $869.8 (JPY 68.4bn) and its operating income dropped 113% to -$2.5m (JPY -0.2bn).
Deflation hurts chocolate
Meiji said in its financial release: “The Japanese economy, despite showing a gradual recovery from the Great East Japan Earthquake, has been impacted by deflation, the prolonged depreciation of the yen, and concerns of a global economic recession resulting from the European debt crisis.”
The company said that its confectionery sales had enjoyed sales gains shortly after the Japanese Earthquake last year, but had declined during the quarter just ended.
In chocolate, the firm’s Galbo brand and nut products, such as “Almond Chocolate” sold well, however these positives were not enough to offset an overall decline in one of Meiji leading product lines called “Milk Chocolate”.
‘Shrinking’ gum market
The company added that the chewing gum market had been “shrinking” and it had experienced sales declines as a result.
The diminishing gum market was noted by Kraft in its recent Q2 results (See HERE).
Meiji said that it had already taken steps to combat the faltering gum market by renewing its “Xylish” gum series in June this year.
Confectionery outlook
The firm expects its confectionery fortunes to pick up in the next quarter and for the full year.
It has forecast full year confectionery sales of $3.8bn (JPY 297.4bn) up 1.4% and operating income of $70m (JPY5.5bn), a 7.7% rise.