JIN-216 -- Boozing Japan -- Government to Deregulate Licensing

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J@pan Inc Magazine Presents:
T H E J @ P A N I N C N E W S L E T T E R
Commentary on the Week's Business and Technology News
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Issue No. 216
Thursday, February 27, 2003
Tokyo

CONTENTS

++ Viewpoint: Boozing Japan -- Government to Deregulate Licensing

++ Noteworthy News
- Mars to Enter Japanese Vending-Machine Market
- Kanto Bank Eyes Public-Money Injection
- Sotec Teams with PC Depot to Offer "Japan's Cheapest" PCs

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++ Viewpoint: Boozing Japan -- Government to Deregulate Licensing

Japan is one of the few countries where you can buy booze 24 hours a
day -- and it is about to become boozier. Many non-alcohol retailers
are entering the market, anticipating the deregulation of population
quotas for liquor licensing in September.

Pizza-la, a pizza-delivery chain operated by Four Seeds, is a prime
example. Between February 26 and March 4, Asahi Breweries is offering
a free beer to customers who order a medium or large pizza from
Pizza-la's roughly 500 stores nationwide.

An Asahi Breweries' spokesperson says that the free-beer-for-pizza
campaign is designed to market its new low-malt beer, Sparks. This is
only a limited opportunity, but the Japanese media reported that Four
Seeds recently obtained a liquor license for one of its shops here in
Tokyo. Beginning this spring, the company will take orders for beer,
wine and other alcoholic beverages together with pizza orders.

Many companies have entered the liquor market over the past decade,
since the first deregulation in 1993 allowed retailers with a certain
floor space to sell alcoholic beverages. Other regulations were lifted
when the government decided to deregulate licensing further in 1998.
According to a major weekly, Sunday Mainichi, about 50 percent of
liquor is sold through large-scale retailers, including convenience
stores, super markets and discount stores. The September deregulation
will ease population quotas for licensing. Currently, Japan allows
only a limited number of licenses contingent upon the population of a
target area.

Seven-Eleven already has a major foothold in the market. Over 70
percent of over 9,000 Seven-Eleven stores now sell alcohol, according
to Sunday Mainichi.

New entrants this year include a retailer, Ryohin Keikaku, commonly
known by its "Mujirushi Ryohin" brand, and a major drugstore chain,
Matsumotokiyoshi. Ryohin Kaikaku already sells wine and other liquor
at some of its outlets, but the company expects an increase of sales
after September, when Matsumotokiyoshi is expected to debut in the
market, according to the Nihon Keizai Shimbun.

Already, there are over 177,000 stores licensed as liquor retailers,
and a drastic increase in the number is expected after September.

However, as is often the case in Japan, market "liberalization"
doesn't mean that everyone can obtain a license upon request. The
tricky part is that the National Tax Agency will remain as the license
issuer. An advisory panel to the agency is discussing the possibility
of retaining certain key regulations to protect weaker players. Small
stores, for example, already suffering from the sluggish economy, are
aggressively resisting complete liberalization.

Obtaining booze will be easier for consumers, but competition among
retailers is bound to be severe.

-- Sumie Kawakami

Sources:
Sunday Mainichi, October, 13, 2002 (in Japanese )
http://www.mainichi.co.jp/life/hobby/sake/reray/nagai/18.html

The Nikkei Shimbun Newspaper, February 14, 2003 (in Japanese)
http://www3.nikkei.co.jp/kensaku/kekka.cfm?id=2003021400770

The National Tax Agency, November 27, 2003 (in Japanese)
http://www.nta.go.jp/category/kenkyu/syurui/07/01.htm

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++ NOTEWORTHY NEWS
(Long URLs may break across two lines, so copy to your browser.)

** Mars to Enter Japanese Vending-Machine Market

In Brief: Mars, a major US manufacturer of food and pet-care products,
is acquiring Nippon Conlux, one of Japan's leading producers of coin
mechanisms and note validators.

The acquirer is MF Holdings YK, a wholly-owned subsidiary of Master
Foods Japan and an indirect subsidiary of Mars. Master Foods is a
wholly owned subsidiary of Mars.

Mars manufactures and sells transaction electronics and money changers
under the business name of MEI, which conducts its business mainly in
North America and Europe.

Commentary: Although less known than its famous chocolate bars, Mars
or Milky Way, the MEI division of Mars is focused on the vending
machine business. The tender offer for Nippon Conlux is a way for the
company to solidify its footing in Japan. Nippon Conlux has developed
Japan's first general-purpose note validator and the world's first
LSI-mounted coin mechanism.

As a result of the acquisition, Nippon Conlux announced that "both
companies can cooperate in expanding their business to increase
competitiveness in the transaction electronics industry."

Source:
Press Release from Nippon Conlux
http://www.conlux.co.jp/news/news_020e.pdf

Link
"Veni, Vedi, Vended" from the January 2001 issue of J@pan Inc
http://www.japaninc.com/article.php?articleID=171

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** Kanto Bank Eyes Public-Money Injection

In Brief: Just ahead of merging with another regional bank, Kanto Bank
is considering asking the government for a public money injection
totaling 3 to 5 billion yen, the Japanese media says.

The move was triggered by the bank's concern that its capital-adequacy
ratio would drop as a result of the scheduled merger. The
Ibaraki-based regional bank is schedule to merge with fellow regional
institution Tsukuba Bank in April. Kanto Bank's capital ratio was
about 6.5 percent in last September, while Tsukuba's was 4.8 percent.
The capital ratio of the merged bank will drop into the 5-percent
range.

Commentary: The financial soundness of Japanese regional financial
institutions has been a source of headaches for the Financial Services
Agency. According to the Asahi Shimbun newspaper, regional financial
institutions -- including cooperative financial institutions and
shinkin banks -- hold more than half of the nation's bad loans.

The Diet in 2002 passed a new law to encourage regional financial
institutions to merge; under the law, financial institutions whose
capital ratios are to decline as a result of a planned merger can
request public money.

If the bank goes ahead with the plan, it would be the first regional
bank to ask for a public-money injection under the law.

Sources:
Asahi Shimbun, February 21, 2003
http://www.asahi.com/business/update/0221/100.html

Asahi Shimbun, January 16, 2003
http://www.asahi.com/business/news/K2003011600164.html

** Sotec Teams with PC Depot to Offer "Japan's Cheapest" PCs

In Brief: Computer maker Sotec and major PC chain PC Depot will form
a business alliance to develop a joint brand, Valueup, which they
claim will be Japan's cheapest PC. The Valueup series, consisting of
three types, is priced between 49,700 yen and 79,700 yen. Valueup PCs
will sell at PC Depot's stores as well as over the Net in March.

Commentary: Sotec was once a rising star on Nasdaq Japan, with an
image of low prices and pretty good quality. But its balance sheets
deteriorated; the company simply expanded too fast.

Now, troubled Sotec looks like it's really trying to revive its
businesses under the leadership of a private-equity fund. Active
Investment Partners (AIP) last year acquired a 17.7 percent share of
Sotec to become the largest shareholder. The Sotec Revival Plan
released at the end of last year attributed the company's troubles to
its inability to move quickly from desktops to notebooks and to
develop large-scale sales channels. It also said its target customers
were too scattered.

According to the plan, the company will focus on price tags of 129,800
yen, 99,800 yen and 69,800 yen, and get rid of products priced higher
than 150,000 yen. The firm also plans to create a new market for
low-priced notebooks, it said.

Sources:
PC Depot (in Japanese)
http://www.pcdepot.co.jp/company/ir/press/pdf/030224hanbaiteikei.PDF
http://www.pcdepot.co.jp/company/ir/press/pdf/030224ValueUP.pdf

Sotec Revival Plan (in Japanese)
http://www.sotec.co.jp/ir/data/20021206a.pdf

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STAFF
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