Morinaga & Co. Ltd.

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Morinaga & Co. Ltd.

33-1, Shiba 5-chome, Minato-ku
Tokyo 108-8403
Japan
Telephone: +81-3-3456-0134
Fax: +81-3-3456-1809
Web site: http://www.morinaga.co.jp

Public Company
Incorporated: 1899 as Morinaga Western Candy Confectionery
Employees: 3,210
Sales: ¥173.35 billion ($1.44 billion) (2003)
Stock Exchanges: Tokyo
NAIC: 311330 Confectionery Manufacturing from Purchased Chocolate; 311411 Frozen Fruit, Juice, and Vegetable Processing; 311520 Ice Cream and Frozen Dessert Manufacturing; 311821 Cookie and Cracker Manufacturing

One of Japan's leading candy and confectionery manufacturers, Morinaga & Co. Ltd. is also credited with introducing Western-style treats to Japan at the dawn of the 20th century. After more than 100 years, Morinaga has remained at the top of the Japanese candy industry, producing a strong line of candies, chocolates, frozen desserts and snacks, and nutritional products. Entering the new century, Morinaga has developed a new "power brand" strategy emphasizing its core product lines, which include Milk Cocoa, Hotcake Mix, Amazake drinks, frozen desserts, and Weider in Jelly, a line of drinkable, gelatinlike drinks marketed under license from the United States' Weider Nutrition International Inc. The company also produces a number of other licensed candy products, including Pez and Werther's Original. Morinaga operates five manufacturing facilities in the Tokyo region; the company also has launched a manufacturing subsidiary in Taiwan and has begun construction on a new plant in Shanghai, China, expected to be operational by 2004. The company also operates sales subsidiaries in Europe and North America, and sells its products in more than 26 countries. Listed on the Tokyo Stock Exchange, Morinaga is led by Gota Morinaga, grandson of the company's founder.

Candy Missionary in the 20th Century

Born in Kyushu, in the north of Japan, in 1863, Taichiro Morinaga went to work for his uncle, a potter, in exchange for room and board after his father's death when Morinaga was just seven. Morinaga, who had no formal education, became the bookkeeper of the pottery business, and then, at the age of 18, was sent to Tokyo as the company's sales representative. Morinaga later went to work for a wholesale company, rising to become manager of a branch office in Yokohama. Yet, after extending too much credit to customers, the office went into debt. In order to repay his employer, Morinaga decided to try his luck in California.

Morinaga moved to San Francisco in 1887 and opened a hardware store, trading in high-quality, high-priced goods—in a working class neighborhood. The business, which suffered equally from the pervasive anti-Oriental sentiment of the era, soon failed and forced Morinaga to look elsewhere for a livelihood.

Yet Morinaga's stay in the United States led him to an important discovery: candy. Japan had remained closed to outside influences for more than 250 years, finally opening its borders to foreigners only in the late 19th century. If the country's elite class had access to sweets—typically based on boiled beans—the majority of the population had limited access to confectionery products, and sugar consumption in general remained low. Milk and milk products were also absent from the Japanese diet. The opening of the country's borders stimulated interest in all things foreign, and the country's growing foreign population encouraged the import of Western-style confectionery and candy.

Morinaga recognized that the growing foreign influence in Japan, and the country's readiness to adopt attributes of Western culture, would inevitably extend to the country's eating habits. Morinaga became determined to learn the art of candy making, in order to introduce new confectionery products to the Japanese market. Despite the anti-Asian prejudice, Morinaga found a job as a janitor at a candy factory, and there learned how to make candy.

By the end of the century, Morinaga was ready to return to Japan and start his own candy company. Before leaving, Morinaga performed his own bit of market research, questioning members of San Francisco's Japanese community and other Japanese visitors to the city on their candy preferences. Morinaga discovered that the sweet most preferred by the people he questioned was marshmallows, at the time also known as "angel food." The fluffy, egg white-and-sugar-based candy also resembled existing Japanese confections, making it a natural first product.

Morinaga founded his business with partner Hanzaburo Matsuzaki in 1899, opening a small shop in the Akasaka neighborhood of Tokyo. The business, called Morinaga Western Candy Confectionery, developed quickly as the country eagerly greeted the new candy type. Morinaga himself acted as salesman, pushing a cart from which he sold marshmallows, and other Western-styled cakes and candies. Among these were caramels. This product represented even more of a novelty in Japan in that it contained butter—at a time when dairy products still had not penetrated the Japanese diet. Morinaga's caramel sales were at first limited to his foreign customers, as the Japanese shied away from the strange product. In addition, the country's climate made it difficult to produce—and to eat—caramel, which tended to melt and become too sticky to hold in the heat and humidity.

Morinaga set out to develop a new caramel recipe for the Japanese market, and by 1914 had perfected a recipe that both appealed to the Japanese palate and also offered a longer shelf life. The new product debuted in 1914, and was packaged in a pocket-sized yellow box. Known as Hi-Chew, the product became a company flagship and one of its core products into the next century. In the meantime, the company's strong marshmallow sales inspired the adoption of a logo, an angel, in 1905—the angel logo also fit in with Morinaga's work as a Christian missionary. The company adopted the name Morinaga Confectionery Inc. in 1912.

The success of Hi-Chew led Morinaga to seek its own source of dairy products, and in 1917 the company set up a dairy operation, which became Morinaga Dairy Industries. A year later, the company launched a new candy line, becoming the first to introduce the chocolate bar to Japan. Meanwhile, the company began extending its dairy product line, launching its first powdered baby formula in 1920. That launch marked the start of the company's involvement in the nutritional products category as well.

Hitting the Sweet Spot in the 1960s

By the 1920s, Morinaga's sales had been growing steadily. To meet the rising demand, the company installed its first production machinery—previously, production had been by hand—and launched mass production in 1925. Over the next decades, the company continued to add to its production capacity, opening four more plants, and adopting increasingly sophisticated, modernized production techniques. By the 1980s, the company manufacturing operations had become fully automated.

In the meantime, the company continued developing new product lines. Among these were baby biscuits, called Morinaga Manna, which the company began producing in 1930. In 1935, Hanzaburo Matsuzaki became company president. The company took a leaf from its Western counterparts in the 1930s, promoting holidays—such as Mother's Day starting in 1937—as a means of stimulating candy and confectionery sales.

During World War II, Morinaga turned part of its resources toward the production of penicillin, saving a good number of lives. Following the war, the company, now led by Taihei Morinaga, decided to split up its operations, separating its dairy business into a separate company, which became known as Morinaga Dairy Industries in 1949. That company then developed into one of Japan's major dairy groups. The two companies nonetheless remained closely linked, sharing the angel logo and developing common products and marketing campaigns.

The 1950s saw new expansion for the company. In 1954, its production capacity expanded with a new band oven—the first to be brought into Japan. Two years later, Morinaga extended its dessert offerings with the production of ice cream, which quickly developed into one of the company's key product lines. Another strong seller for the company came in 1957, when it introduced its popular Hotcake Mix. That line also became one of Morinaga's flagship brands.

Attempts to introduce Valentine's Day celebrations—and linking that holiday with chocolate—had been made since the 1930s by various Japanese companies. At the beginning of the 1960s, however, Morinaga at last succeeded, launching a "Chocolate for St. Valentine's Day" marketing campaign. The company had other hit products during the decade, such as Hi-Crown Chocolate, launched in 1964, and a new soft, milk-based caramel, Hi Soft, launched in 1969. At the beginning of the 1970s, the company added a new line of Twiggy chocolates as well.

"Power Brand" Focus for the New Century

The early 1980s nearly spelled disaster for the company, however. At the beginning of the decade, a mysterious group that called itself "The Man with 21 Faces" after a popular Japanese character, launched a series of attacks against the Japanese food industry. The crime wave started with the kidnapping of the president of a rival company, Ezaki Glico, in 1984, followed by a demand for ¥1 billion and 100 kilograms of gold bullion—and a threat that the band would place poison in Glico products on supermarket shelves. Ezaki Glico's stock plummeted in the aftermath.

Company Perspectives:

Established in 1899 by Taichiro Morinaga, who had a pioneer spirit and the dream of "offering nutritious and goodtasting confectionery to Japanese children," Morinaga & Co. Ltd. was the first Western-style confectionery manufacturer in Japan.

During the past 100 years, Morinaga has carried out its corporate operations guided by the vision, "We Offer Good Health with Delight & Taste." We now aim to extend our vision to encompass people all over the world.

Yet, after Glico refused to give in to the ransom demands (and after the kidnapped Ezaki had escaped), the band announced that it had declared a truce on Glico. Instead, the group turned its interests toward Morinaga, threatening to poison the company's products. Once again, the threat spread panic among Japanese consumers, and a large number of stores pulled Morinaga's products from their shelves. Morinaga's sales collapsed, as did its share price—which only climbed back after the gang's announcement, more than a year later, that it would no longer target the company. The perpetrators—who had made good on their threat, placing boxes of Morinaga candy laced with cyanide, but clearly labeled as poisoned, on grocery shelves—were never to be caught. After the detective in charge of the investigation committed suicide, the gang announced that it was abandoning its career of crime, stating that it had never had the intention of hurting anyone. Indeed, observers later suspected that the gang's chief purpose was to profit through speculating on the food companies' stock.

With the poisoning scare over, Morinaga's sales rose once again, nearing the equivalent of $1 billion by the end of the decade. The company by then had opened its fifth manufacturing facility and had continued to extend its product range, launching, for example, its brand of Ottoto crackers. The company also had expanded beyond candies and confectionery to some extent, adding production of alcoholic beverages. That business, operated under the name of Fukutokucho, produced primarily sake and shochu.

Closer to the group's core was its drive into the health and nutritional foods market. The company's entry into the sector began in the early 1980s, and a 1983 licensing agreement with the United States' Weider Nutrition International to develop and market Weider-branded products for the Japanese market. The company also entered the soft drinks market, launching a rice-based health drink, Amazake, which became one of its key brands. Tofu represented another fast-growing nutritional product for the company, and formed a strong part of the group's international growth. By the end of the 1980s, the company had entered some 32 countries, backed by sales and marketing subsidiaries in the United States and The Netherlands.

Morinaga's product development continued through the 1990s. Among the most successful company products launched during the decade were its Sold Dazen chocolates, introduced in 1993. The following year marked the debut of a new product line, developed under Morinaga's partnership with Weider. The new snack, called Weider in Jelly, was the first in a range of drinkable, jelly-like snacks touted by the company as nutritional foods. The Weider line, fully launched in 1995, was credited with creating an entirely new product category. The first variations included Weider Energy In, which claimed to provide a sustained, quick energy boost; and Weider Vitamin In, which claimed to provide a full spectrum of vitamins provided by a balanced meal. Targeting a young male market, the Weider line grew steadily into the next decade, and by 2002 represented nearly 20 percent of the company's total sales.

The sustained Japanese recession into the 2000s slowed the confectionery market as well. In response, Morinaga, now led by Gota Morinaga, developed a new "Power Brand" strategy for the new century, with a focus on a limited range of key brands. As part of that effort, the company sold off its liquor operation in 2000. The company then began stepping up development of new products, to be launched under its array of "power" brands—including Milk Cocoa, Weider in Jelly, Hotcake Mix, and Amazake. Meanwhile, the company continued to manufacture and market a number of products under license, such as the popular Pez candies and, since 2002, European favorite Werther's Original.

The 100-year-old company also had begun to look beyond the Japanese market, which remained its chief source of revenues. At the beginning of the 21st century, Morinaga established a manufacturing subsidiary in Taiwan, in an attempt to conquer a share of the island's market. Morinaga also targeted Hong Kong for sales. Yet its main interest lay in the huge potential of the Chinese mainland, with its consumer market of more than 1.2 billion people. The company launched construction of a manufacturing facility in Shanghai, which was expected to be operational by the end of 2004. After more than a century of appealing to the sweet tooth at home, Morinaga's angel looked forward to spreading its wings even further.

Key Dates:

1899:: Taichiro Morinaga returns from San Francisco and founds a candy and confectionery company with partner Hanzaburo Matsuzaki, becoming the first to introduce Western-style snacks to Japan.
1914:: After years of research, Morinaga launches a caramel candy, Hi-chew, designed to appeal to the Japanese market.
1917:: Morinaga founds a dairy operation.
1918:: Morinaga becomes the first company to market chocolate bars in Japan.
1920:: The company begins production of powdered baby formula.
1925:: The company installs machinery and begins mass production of candies and confectionery.
1949:: The dairy operation is spun off as a separate company, Morinaga Dairy Industries.
1956:: Morinaga begins production of ice cream.
1964:: The company has a new hit product with the launch of Hi-Crown Chocolate.
1983:: The company launches a nutritional foods division and begins a product development and marketing agreement with Weider, of the United States.
1995:: The highly popular Weider in Jelly product line is launched.
2000:: The company launches a new corporate "power brand" strategy focusing on core brands and product lines.
2004:: A new manufacturing facility is expected to be completed in Shanghai in order to supply the market in mainland China.

Principal Subsidiaries

Angel Food Systems Co., Ltd.; Morinaga Angel Dessert Co., Ltd.; Morinaga Dessert Co., Ltd.; Morinaga Finance Co., Ltd.; Morinaga Food Service Co., Ltd.; Morinaga Institute of Biological Science; Morinaga Restaurant Dessert Co., Ltd.; Morinaga Service Co., Ltd.; Morinaga Shoji Co., Ltd.; Morinaga Snack Co., Ltd.; Shanghai Morinaga Co., Ltd.; Sunrise Co., Ltd.; Taiwan Morinaga Co., Ltd.