Suntory Beverage & Food Limited
2017 Strategies for Core Brands in Japan

[Review of 2016]
The overall domestic beverage market during 2016 is estimated to have been 103% year on year compared to 2015. This is mainly attributable to the impact of 2016 having been a leap year and hot weather during the peak sales season in August and September.

Suntory Beverage & Food Limited (SBF) positioned 2016 as a launching point for innovation. Grounded in the core strategies of brand value improvement and new market and new demand creation, we proactively engaged in activities related to proposing new added value. As a result, sales volume for the SBF domestic business was 101% year on year.

SBF conducted aggressive marketing for Suntory Tennensui, the core brand of our domestic business, promoting “clear and delicious water” and “natural and healthy” as values unique to the Tennensui brand. Sales were particularly strong for Yogurina & Minami-Alps Tennensui as total annual sales for the Tennensui brand exceeded 100 million cases (106% YoY), a first for a SBF brand.
For mainstay products in the BOSS lineup, we focused on further developing and enhancing the brand by strengthening the bond with frequent consumers. For the PREMIUM BOSS series, we focused on promoting brand innovation and quality. In addition to promoting 185g cans for our mainstay products, we greatly improved on sales of bottle-cans, a product medium that continues to grow in popularity. Combined, this performance helped propel overall brand sales. In September, we launched sales of the new PREMIUM BOSS Limited to expand the brand lineup. As a result of these efforts, overall sales for the BOSS brand were 93.2 million cases (102% YoY), representing 24 consecutive years of year-on-year growth.
Among Foods for Specified Health Use (FOSHU), sales of Iyemon Tokucha, the No. 1 selling FOSHU beverage^*1, remained favorable and in August we launched sales of Iyemon Tokucha Caffeine Zero. The new added value of being caffeine free has been well-received by many customers.

As a result of these activities, SBF domestic sales volume reached 430.4 million cases, marking our 24^th consecutive year^*2 of year-on-year growth.

*1: Intage SRI on the FOSHU beverage market in January-December 2016
Cumulative sales amount for the Iyemon Tokucha brand
Retail channels:  supermarkets, convenience stores, drug stores

*2: Results for Suntory’s soft drink sales volume in Japan

[2017 strategies for brands in Japan]
The consumer market influencing the beverage industry in 2017 is expected to see even greater change, including increased health-consciousness and emphasis on quality among customers.

In 2017, SBF will use brand enhancements and innovation to advance initiatives that ensure we respond to the changing environment and achieve further growth.
As brand enhancements, we will develop a stronger, forward-looking lineup to build a core brand for the next generation of consumers.
To achieve innovation, we will continue with new product development aimed at future growth as we further promote our strategy of offering high added value.

■ Continuing evolution of a long-seller beloved by all generations
This year we will conduct aggressive brand investments with a particular focus on Suntory Tennensui, BOSS, Iyemon, and Suntory Oolong Tea to promote brand enhancements. Together with aggressive activities aimed at increasing the value of long-selling brands loved across all generations, we will promote brand creation that ensures we continue to be loved by future generations. We will challenge ourselves to create new value and continue the evolution of our mainstay brands.

■ Further promote our high added value strategy
As we have achieved with Iyemon Tokucha, Iyemon Tokucha Caffeine Zero, and Yogurina & Minami-Alps Tennensui, we will continue to introduce products that feature new added value unique to SBF. And through industry-leading, consumer-oriented innovation, we will generate new demand among our customers. We will develop innovative products that transcend the conventional coffee, water, tea, etc. categories of the beverage industry to introduce new products that drive future growth. Additionally, we will enhance activities focused on containers and sizes in order to satisfy consumer needs.

■ Accelerating growth of the vending machine business
Suntory Beverage Solution Limited, which began operations in April of last year, is leading our efforts to enhance our total beverage services. In addition to vending machines offering cans and PET bottle products, we will enhance sales activities by offering dynamic proposals to address office beverage demand, including cup coffee machines (smart café) and tea servers. Last autumn, we developed Suntory GREEN+, the first point service in the vending machine industry to link vending machines with a smart phone app to support corporate health management. We have begun the gradual roll-out of the Suntory GREEN+ service. This year, we will further advance the development of unique devices offering value unique to SBF and exclusive vending machine products boasting features that transcend conventional thinking as we aim to achieve dramatic growth for the vending machine business.

We will achieve further growth in 2017 through activities focused on brand enhancements and innovation.

The following table outlines the major details of core brand performance in 2016 and plans for 2017.

(Million cases)

■ Suntory Tennensui
For Suntory Tennensui, which last year recorded sales exceeding 100 million cases, we will continue to improve the brand’s unique values of being “clear and delicious water” and “natural and healthy”. On the growing flavored water market, in addition to the continued development of Yogurina & Minami-Alps Tennensui, we will challenge ourselves to create new genre products offering innovative value.
To further strengthen the production system for our growing mineral water business, in addition to the Minami Alps Hakushu Water Plant, two other plants will work to meet the production demands of the Suntory Tennensui brand. The Suntory Okudaisen Buna no Mori Water Plant, which begin operating a new line in the spring of this year, and the Suntory Kyushu Kumamoto Plant, where we are upgrading production facilities in order to begin manufacturing in May, will support the Tennensui brand.
Through these initiatives, we will further solidify our position as No. 1 on the mineral water market^*3.

*3: Intage SRI on the mineral water market in January-December 2016
Cumulative sales amount for the Suntory Tennensui brand
Retail channels: supermarkets, convenience stores, drugstores

■ BOSS
BOSS will celebrate the 25^th anniversary of its launch in autumn of this year. We will focus on further developing and enhancing the brand by strengthening the bond with frequent consumers of 185g cans and promoting innovation for the increasingly popular bottle-can products.
In February of this year, we will launch sales of PREMIUM BOSS Limited <Koku & Fukami> (refer to Press Release No.0486), the second limited release product from the PREMIUM BOSS series. And from the BOSS Rainbow Mountain Blend series, every other month we will release a product sold exclusively through CVS and public transportation channels that features a varied blend of seven types of beans (refer to Press Release No.0488). We will use these and other proposals to invigorate the coffee market. As we look to future generations, we will capture new BOSS consumers by introducing products offering new value based on creative thinking as well as region-specific products that offer tastes unique to each region.

■ Iyemon
Since its launch in 2004, Iyemon has been a favored product among consumers as a green tea with depth and a rich taste made from domestically-produced tea leaves selected by the tea masters of Fukujuen, the legendary tea house in Kyoto. Marking the first major revamping since product launch, Iyemon will be re-released to an evolved taste and new packaging (see Press Release No.0485). Featuring the color, aroma, and taste of high-quality tea prepared in a teapot that our customers desire, will we conduct various marketing activities promoting a refined Iyemon.
We also will enhance the brand strength of our No. 1^*1 selling FOSHU beverage, Iyemon Tokucha and Iyemon Tokucha Caffeine Zero products. In addition to the popular taste, we will address the needs of our customers as it relates to packaging. In February, we will begin offering Iyemon Tokucha Caffeine Zero in a 1L PET bottle (see Press Release No.0483) as we expand product lineup and further strengthen our market position.

■ Suntory Oolong Tea
Since beginning sales in 1981, for over 35 years Suntory Oolong Tea has been a long-selling brand that is loved by generations of consumers. To enhance the product’s appeal as a healthy tea to drink with meals and convey this unique brand value to our customers, we will aim for further flavor and packaging innovation. And to increase consumer familiarity with Suntory Oolong Tea, we will conduct large-scale sampling, enhance our communication activities, and expand product exposure at dining establishments in order to maximize opportunities to promote the value of Suntory Oolong Tea to consumers. Furthermore, we will enhance storefront and communication activities related to Suntory Black Oolong Tea in order to enhance the product’s position as the go-to brand for FOSHU beverages targeting body fat.

■ GREEN DAKARA, PEPSI and Orangina
We will conduct aggressive marketing activities in line with the unique characteristics of each brand.

・GREEN DAKARA
For GREEN DAKARA, we will continue to promote the value of the product as a rehydration drink for daily consumption made from familiar ingredients. To solidify the position of GREEN DAKARA Yasashii Mugicha on the growing caffeine free, unsweetened tea market, we will conduct large-scale promotional activities aimed at achieving further growth.
・PEPSI
We will focus on brand enhancements for Pepsi Strong 5.0GV, which was released last June to a favorable response among consumers.
・Orangina
To further appeal the unique value of Orangina as a carbonated fruit-flavored beverage for adults, we will conduct various storefront and other promotions to strengthen the Orangina brand. We also will offer unique products with new value to increase consumer numbers.

Dekavita C, which celebrates its 25^th anniversary this year, has also been a popular long-selling brand since its release in 1992 and is popular across generations. We will further promote brand appeal by strengthening our marketing activities.

Through these activities, we will aim for sales of 433.0 million cases (101% YoY) during 2017 for our business in Japan.

Reference: Suntory Group’s environmental activities
Based on the Suntory Group’s corporate philosophy of “In Harmony with People and Nature,” we are promoting environmental management in line with our responsibilities as a corporation that benefits from nature’s gifts. We will continue to conduct various activities aimed at reducing environmental impact to ensure that we leave a sustainable global environment to future generations. Along with container and packaging initiatives based on Suntory’s unique 2R+B strategy, we conduct numerous other activities including the Suntory Natural Water Sanctuary project that develops highly functional forests that serve as water resource recharging forests.

●2R+B Strategy for containers and packaging
Reduce/Recycle + Bio is a an approach that promotes reductions in volumes of resin used and the effective use of resources through material recycling as well as the aggressive use of renewable alternatives to petroleum-based raw materials. The Reduce aspect of this approach is applied not only to bottles, but also to labels and caps in order to promote volume reduction. The Recycle aspect involves creating a mechanical bottle-to-bottle recycling system, the first of its kind in Japan. The Bio aspect has already been implemented through the use of 30%plant-based materials for Suntory Tennensui (550ml). Also, in spring of last year SBF became the first company in the world^*4 to introduce a cap made from 30% plant-based materials.
The Suntory Group will conduct needs-based product development and implement proactive measures related to product containers.

*4: As of January 2016, based on SBF research

●15th Year of Natural Water Sanctuary Activities
Since 2003, the Suntory Group has conducted its Natural Water Sanctuary project. This project involves developing forests that create groundwater in water resource cultivation areas with the aim of creating groundwater exceeding the volume used by Suntory in its plants. This project covers a total land area of 9,000ha with 19 locations in 13 prefectures in Japan. Our goal for 2020 is to expand this project to 12,000ha, which would produce water volume that is twice that used by Suntory in its plants. Also, we are conducting the Suntory “Mizuiku” - Natural Water Education Program that teaches the importance of water to children, not only in Japan but also in Vietnam.

●Selection as CDP Water 2016 A List Company
Suntory was named a CDP Water 2016 A List Company by CDP in recognition of our water resource cultivation activities and water reduction activities at plants.
We believe Suntory was recognized by CDP2016 for our efforts related to preserving and regenerating the natural environment, including water resource cultivation activities grounded in scientific evidence from the Suntory Institute for Water Science as well as universities and other expert institutions with which we collaborate, and our environmental impact reduction efforts promoting the effective use of water resources, including the use of water cascade systems^*5 at plants to reduce water use.

*5: Technology that classifies cooling water, washing water, etc. used at manufacturing plants by grades (cleanliness level) and then reuses water gradually beginning from processes requiring high grade water on down to lower grades.