Japan Tobacco Exits Drink Market Explores Options In Vending Sector

TOKYO -- Japan Tobacco Inc. said it will stop manufacturing its canned coffee and flavored water as it considers options for its massive fleet of vending machines that once sold them.

The Tokyo-based cigarette manufacturer, which sells the Camel and Winston brands outside the U.S., owns a majority stake in Japan Beverage Holdings Inc., which operates 264,000 beverage vending machines, according to Bloomberg.

Japan Tobacco said it is struggling to make a profit in its 26-year-old drinks business as the market has matured and "the scale of the business has become more important for maintaining and strengthening competitiveness." The beverage manufacturing and sales business made about $426 million in the fiscal year, ended Mar. 31, 2014, the company said.

The cigarette giant plans to cease beverage production by September to focus on investing in its tobacco, pharmaceutical and processed food segments. It will continue to operate its beverage vending machine business through Japan Beverage Group and its JT A-Star Group subsidiary while it explores its options.

The company said it will consider selling the Roots canned coffee and Momono Tennen-sui flavored water brands that it began producing in 1988, but not its manufacturing and sales business.

Analysts told Bloomberg that the company's stake in Japan Beverage could appeal to buyers, as vending represents a sizeable piece of the pie in the Japanese beverage market. They named Suntory Holdings, maker of Orangina and other soft drinks, Asahi Group Holdings Ltd. and Kirin Holdings Co. as possible suitors.

According to the Japan Vending Machine Manufacturers Association, there are 2.5 million soft-drink vending machines in Japan. Japan Beverage machines reportedly make up 11% of the nationwide total.