Nichirei takes hit on seafood segment, still boosts profit
Tokyo, Japan-based Nichirei Corporation’s second-quarter results show that the while the company did well overall, the company’s seafood segment took a hit from COVID-19.
For the six months ending 30 September, 2020, Nichirei’s overall sales were off by 3 percent, while operating profit rose by 12 percent. However the firm's marine products segment saw a sales drop of 11 percent – the largest in the company – due to slow restaurant demand amid the COVID-19 pandemic. The segment suffered an operating loss of JPY 28 million (USD 270,377, EUR 221,339). In the same period last year, it eked out an operating profit of JPY 49 million (USD 472,891, EUR 387,404).
In Nicherei's processed foods segment, sales of commercial-use products – such as those for the restaurant, hospitality, and institutional (HRI) markets – were sluggish, while sales of retail-sized home-use products grew. In its meat and poultry segment, handling volume for imported goods declined, but earnings rose on firm demand for chicken domestically. Overall, sales in both the processed foods and meat and poultry segments declined by 5 percent.
The company’s logistics segment saw a 2 percent increase in sales as volumes at transfer centers — which offer integrated regional storage and trucking for supermarkets — has been strong. The company said that the ability to provide services that combine storage locations with transport is one of Nichirei’s strengths, and will continue to drive positive results in Japanese operations in the next fiscal year.
Cost cuts in the logistics segment resulted in a 22 percent increase in profits. As logistics (trucking and cold storage) is Nichirei’s core activity, this segment was mainly responsible for the company’s profit, which was 14 percent higher than in the first half of the previous fiscal year.
The company said it is responding to the COVID-19 pandemic by emphasizing sales to retail locations and supermarkets, rather than for foodservice.
“The household-use market grew by 13 percent overall on the expansion in stay-at-home consumption demand,” the company said in its briefing on the results. “Sales of commercial-use prepared foods declined 15 percent, due mainly to slow recovery in sales to restaurants and major HMR [home meal replacement] users.”
In a Q&A during the results presentation, company leaders said the shift from restaurants to HMR and takeout presents opportunities to increase sales.
“We think it’s an opportunity. We’ve always imagined that the working styles of consumers would change eventually, and has just been pushed forward. The key is how quickly we are able to adapt to change,” Nichirei said. “We don’t think things will simply return to the way they were after the coronavirus crisis has passed. Takeout and delivery demand will likely continue going forward.”
The company said it is focused on packaged sales items, as customers may have concerns about safety with items that are not offered in sealed packaging. It said foodservice for hospitals and nursing homes has been stable during the pandemic, and the company is developing products specifically for these categories.
Looking forward, the company lowered its sales forecast for the processed foods and meat and poultry segments, expecting difficulties due to lower restaurant demand. However, the overall operating profit forecast was revised upward, on an expectation of continued strong earnings in logistics.
The company is also cutting costs across segments by reducing advertising and travel. Last year, the company ran major ad campaigns in the fourth quarter, but it will forego the expense of a major campaign this year.
The marine products division is forecast to be slightly in the black for the year as whole, despite a predicted 42 percent drop in profit in the second half of the fiscal year, as compared with the same period a year earlier. The briefing said that there has been some recovery in demand from sushi chains and other major users.
In order to raise the low margins in the marine products business, the company will try to create more synergy with its processed food segment.
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