Don’t hold the mayo: Kewpie is investing in new areas instead of amassing cash from product sales
Experimental feature

Listen to this article

Experimental feature

This article is published by the FT as part of a collaboration with Nikkei that started in 2013 to provide added insight to our readerships.


Kewpie mayonnaise can be found in just about every kitchen cupboard in Japan, and the company’s Cupid-inspired logo is familiar to young and old. Investors, however, are more interested in the company’s future right now than its venerable past.

Kewpie was founded in 1919 and, like many longstanding Japanese businesses, it has kept a tight rein on its spending over the years.

As a result, its equity ratio ballooned to more than 50 per cent and investors began asking why the company — which controls about 70 per cent of the domestic market for household-use mayonnaise — was not making better use of the cash that its high-profile brand was making.

In response, Kewpie has begun changing tack. “We will achieve our objectives by investing in new areas, including mergers and acquisitions, instead of just amassing money,” Minesaburo Miyake, the company president, said in a briefing to investors in January.

By making this announcement, Kewpie has vowed to break with tradition. The company’s new direction is part of a broader shift in corporate Japan’s thinking.

Following the bursting of the country’s asset-inflated bubble in the early 1990s and the global financial crisis in 2008, “cash is king” became the motto for many Japanese businesses.

As a result, publicly traded companies amassed reserves of some Y100tn ($828bn). Rather than using this cash to generate more wealth, companies were content to let it sit in their coffers.

Those days appear to be over, however.

For example, Kewpie’s current three-year plan calls for spending of Y100bn to build factories and distribution centres, both at home and abroad. In Japan, it aims to develop lines such as single-serving sliced vegetables to meet demand from elderly and young people living alone, two quickly growing demographics in the country.

“The Y100bn to be spent over three years is double the figure called for in the previous three-year plan and quadruple the figure of the one before that,” says Nobuo Inoue, director at Kewpie. “We are stepping on the gas to spur growth.”

Investors have given the company’s new policy their blessing, and Kewpie’s share price has been surging, also boosted by a share buyback plan announced in January.

While Kewpie has chosen to invest in new plant and equipment, other companies are using their war chests to make large acquisitions.

In February, Canon, the digital camera maker, which has some Y840bn in cash on hand, said it aims to buy out Axis of Sweden, the world’s largest network surveillance video provider, in a tender offer worth Y333.7bn.

Asahi Kasei, a chemical manufacturer, plans to acquire Polypore International, a US maker of lithium-ion battery separators, for some $2.2bn. Acquisition deals in excess of Y100bn are making headlines almost every week as Japanese companies splurge on foreign purchases.

More Japanese companies are also passing some of the bounty on to their stakeholders, either by buying back shares or raising salaries. Workers and management may agree to a wage rise of more than 2 per cent in this year’s springtime labour negotiations.

Since stagnant wages have deepened deflation in Japan, such an increase would be good news, not only for workers, but also for Japan’s overall economy.

Two factors are prompting Japanese companies to loosen their purse strings.

One is demands from investors to stop hoarding cash. Tomohiro Okawa, a strategist with UBS Securities, says: “Besides foreign investors, Japanese life insurance companies, which have tended to be docile shareholders, are becoming more vocal in pressing their demands.

“It might be fair to say that all shareholders are now becoming activists.”

The second factor is the government. Companies had been calling for a weaker yen and a lower corporate tax rate, and under the ruling Liberal Democratic party, they received them.

The Bank of Japan has sharply driven down the value of the yen through its aggressive asset-buying programme, which improved the competitiveness of the nation’s exporters, and the government is set to reduce corporate tax from the current 35 per cent to less than 30 per cent within a few years.

In what might be called a quid pro quo arrangement, the government is now calling on companies to return the favour by raising wages, making better use of their surplus funds and strengthening their corporate governance, for example, by having outsiders sit on their boards.

One could say that the way this transformation is taking place — with companies changing their behaviour at the behest of the government — is typically Japanese in style.

But who is to complain if the changes are to everyone’s satisfaction?

Get alerts on Japan when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.

Follow the topics in this article