No.9339   2006. 1. 19

Suntory Beverage and Food Company Policy for Fiscal 2006

The Suntory Group Beverage and Food Company continues its commitment to expanding its businesses, delivering a wide array of products, from soft drinks to health foods and high-end ice creams, that are both loved by our customers and good for their health.
The Beverage and Food Company focus for fiscal 2006 is two-fold: to develop and strengthen brand name recognition of our core product lineup and to integrate with the Research and Development Department to launch new products that deliver new value in meeting consumer needs. The company remains committed to sustainable growth and greater profitability and will continue to focus on these two core aspects of our medium-term management vision.

1. Beverage and Food Business
• Review of Fiscal 2005
The soft drink market in fiscal 2005 was estimated to be 1.59 billion cases in sales, or a 1% growth over that of the previous fiscal year. Against this backdrop, Suntory moved to strengthen brand name recognition in its soft drink business through key brands such as IEMON, BOSS, Oolong Tea, PEPSI, Tennensui (Natural Water), and DAKARA, as well as investing in a variety of new products. Suntory sales far exceeded the overall market figure, reaching 322.4 million cases (up 102% over fiscal 2004).
Building on its existing plants in the Southern Alps and Mt. Aso, Suntory acquired land in June in Tottori Prefecture to build a third Tennensui plant. In another step to enhance its production structure to meet future needs, construction also began in December in Kanagawa Prefecture on a new food production plant that will serve as a production base for the Tokyo metropolitan area. Finally, in a move to introduce new activities in the cold drink market, Suntory launched a full-scale venture in the chilled coffee beverage market by concluding a contract with Starbucks Corporation on joint venture activities.

• Strategy for Fiscal 2006
The scale of the soft drink market is expected to remain at 1.59 billion cases (equal to the previous year’s figure). This lack of expansion will likely further intensify competition with rival companies in the non-sugar tea and coffee markets, particularly in relation to green tea beverages.
Suntory is focused on further increasing sales and expanding market share by actively extending our campaigns to develop and strengthen key brands such as PEPSI, IEMON, Oolong Tea, BOSS, DAKARA, and Tennensui. Further, in February of this year, a universal design was introduced for all Suntory 2-liter PET bottle beverages, including our Oolong Tea, IEMON, and DAKARA products. The sales target for fiscal 2006 has been to set at 330 million cases, a 102% increase over fiscal 2005, and 2% above the overall market level.

2. Health Food Business
• Review of Fiscal 2005
Sesamin E Plus, Maca Cordyceps compound and other Suntory flagship products proved popular among consumers in fiscal 2005, helping boost sales even higher in this sector. New products launched in last fiscal year also sold well. The popularity of this product line resulted in an increase in sales to 23 billion yen (up 123% over fiscal 2004) for the fifth consecutive year of 20%-plus growth.

• Strategy for Fiscal 2006
Suntory will further grow and strengthen its Sesamin series, as well as boost its Shizen No Chikara series, in fiscal 2006. The company will continue to invest in new health food products that meet customer needs. Suntory is focused on highlighting the appeal of its health food products through TV shopping and continued extensive advertising and sampling campaigns. The sales target for fiscal 2006 has been set at 26.5 billion yen (a 115% increase over fiscal 2005).

3. Health Drink Business
• Review of Fiscal 2005
With robust sales at convenience stores and supermarkets of Flavan Tea, a product that is extremely popular with customers for the help it offers in maintaining health, Suntory saw annual sales of 1 million cases.

• Strategy for Fiscal 2006
Suntory will continue to focus on strengthening its Flavan Tea activities, which are the foundation of its business in this sector. Flavan Tea will retain its taste, but a redesigned package that clearly conveys the fact that this health tea contains organic properties (Flavangenol) will be launched in February. Further, we will continue to advertise the unique value of this product to the consumer market through TV commercials and other marketing campaigns. We are also focused on research and development designed to launch new products in special health care food and other categories that are backed by scientific studies.

• 4. Asia/China Food Business
• Review of Fiscal 2005
With an aggressive Oolong Tea marketing campaign and growth in the juice beverage sector, Suntory saw total sales rise to more than 5 million cases, with particularly high growth in sales volume in the Shanghai market (a 25% increase over fiscal 2004). Construction of the new Suntory (Shanghai) Foods plant was completed in June. The Suntory (China) R&D Center and the Suntory (China) Quality Assurance Center is also located on the grounds of this plant as part of our focus on establishing a structure that integrates all aspects of production, from research and development through manufacturing and quality assurance.

• Strategy for Fiscal 2006
The coming year will see an even greater push for brand recognition through aggressive marketing activities focused on the Shanghai area that include reformulation of the taste and repackaging of Suntory Oolong Tea, as well as the introduction of new products. The sales target for fiscal 2006 has been set at 6.36 million cases (a 125% increase over fiscal 2005).

5. Häagen-Dazs Japan, Inc.
• Review of Fiscal 2005
Strategy for Fiscal 2006 Newly introduced Häagen-Dazs products, as well as our core lineup of mini ice cream cups, have proved extremely popular among consumers. This popularity ensured that Häagen-Dazs Japan maintained sales in this sector as high as the previous year despite a 3% drop in the overall ice cream market.

• Strategy for Fiscal 2006
Häagen-Dazs Japan will continue to focus its activities on further boosting brand name recognition, enhancing new product development, and improving product quality. The company will launch new products in its mini ice cream cup, crispy ice cream sandwich, and parfait categories and strengthen its quality assurance structure at every stage of production, from the procurement of materials through delivery to customers.