Japan’s Toy and Game Industry (Part 2) – Toys-with-Sweets Industry – Japanese Economy Division The toys-with-sweets1genre refers to products consisting of toys packaged in combination with candy or snacks, and merchandised mainly on the confectionary shelves of supermarkets, convenience stores and other retailers. In addition to figurines and other conventional toys, items packaged with sweets include CDs, musical instruments, mobile phone straps and other items that cannot be defined as true toys. This report includes these types of products as well. I. Market Overview A. Market history The roots of the market date back to the “Nutritious Glico Sweets with Premium Toy” introduced by Ezaki Glico in 1927. From that point on, the sweets-with-premiums field rose to popularity, focusing on the children’s market. The toys-with-sweets category was triggered by the “Choco-Egg” marketed by Furuta Confectionery in 1999. This was an innovative product featuring a prize-like premium packaged inside an egg-shaped chocolate, which became a big hit with children and adults alike. This prompted the full-fledged development of toys-with-sweets by confectioners and toymakers as well, resulting in heated competition. B. Product positioning To most purchasers, the attraction of toys-with-sweets is the toy, with the perceived value of the sweet being quite low. This had led to the view that if consumers are mainly interested in the toy, then why not sell it without the sweet? It has been found, however, that merchandising the toy as the premium actually leads to far greater sales. While toymakers consider the sweets to be little more than premiums, the combination of toys and sweets has broadly opened up sales routes for the toys. Figurines, for example, were originally sold as standalone products targeted at fans of these animation/comic book characters, so they offered little interest to general consumers. Once they were combined with sweets, however, their sales channels expanded to include convenience stores and supermarkets. The figurines became familiar to general consumers and the result was a brisk expansion in the customer base, adding, for example, collectors as the products became runaway hits. C. Customer segments Children and adult males account for the broad majority of customers. While children are fond of the conventional sweets-with-premiums, the boom in toys-with-sweets over the past few years has spurred more elaborate premiums and resulted in a customer segment comprised of adult males who purchase the products as 1 Toys-with-sweets are also known as “candy-toys.” collectibles. Interior decor goods targeting adult women have also appeared on the market. D. Market scale Powered by the toys-with-sweets boom kicked Fig. 1 Toys-with-Sweets Retail Sales off by “Choco-Egg” in 1999, (billion yen) the market expanded rapidly, 120 peaked in 2002 and leveled off 100 in 2003 (Fig. 1). Once the market had matured, 80 manufacturers began devising 60 different approaches, such as 40 offering premiums beyond the realm of figurines and simple 20 toys. According to the Yano 0 FY2001 FY2002 FY2003 FY2004 Research Institute, retail sales (estimate) in 2003 came to 99.1 billion yen, down slightly from the previous year, and sales in （Unit: billion yen） 2004 were forecast to be about FY2001 FY2002 FY2003 FY2004 (estimate) the same at 98.6 billion yen. Toys with sweets 88.1 102.7 99.1 98.6 Source: Yano Research Institute E. Trends Sales of “Choco-Egg” (Furuta Confectionery), “Choco Q” (Takara) and other products targeting children and adult males have fallen off slightly, mainly due to a backlash after the initial boom. Items targeting new customer segments, such as female office workers and other adult women, include the “Petite Sample” series of food samples developed by toys-with-sweets manufacturer RE-MENT. Product lifecycles are short, with items either being modified or discontinued at a rapid pace. The number of products and packaged figurines circulating in the market is extremely large. As a result, it appears that market players are running short on themes. Likewise, while the quality of the figurines has improved, the demands of consumers have expanded beyond that level; it is no longer enough for a figurine to simply be realistic. To win consumer acceptance from here on, products will have to offer more value than before. In addition, it has become extremely difficult to generate high earnings because consumers appear to expect to pay no more than a few hundred yen, despite the fact that the premiums have grown more elaborate, so manufacturers face the additional challenge of having to develop and sell low-cost products. II. Industry Structure A. Manufacturing and distribution Fig. 2 shows the manufacturing and distribution structure that generally applies to toys-with-sweets. Companies that manufacture either toys or sweets play the focal role in the production and distribution of toys-with-sweets. Fig. 2 Toys-with-Sweets Production/Distribution Structure Contracted Toys with sweets Wholesalers Retailer outlets production at manufacturer Figurine domestic/overseas manufacturer Contracted collaborating Toymaker affiliated Food wholesaler production factories (Final item Joint Confection production Confectionery （Prototype production） Supermarkets, production) planning partnership wholesaler convenience stores, Confectioner affiliated sweets shops, toy stores In-house production Esports (local production） Confectioner Confections supplied to toymaker The figurines packaged as premiums are either produced in-house or outsourced to figurine makers. Product development is usually handled jointly by toys-with-sweets producers and figurine makers. The figurine makers produce prototypes with molds and final items are produced in China and other countries. Recent years have witnessed the emergence of other types of premiums, such as CDs and mini-magazines, which has involved collaboration with content producers and other subcontractors. The major sales outlet is convenience stores and supermarkets. Intermediate distribution is handled by foods and confectionery wholesalers. Toymakers also use confectionery wholesalers for distribution through sweets sales channels. Leading manufacturers include Bandai, Tomy, Takara, Konami, Furuta Confectionery, Ezaki Glico and Kabaya Foods. Kaiyodo, which is globally renowned for its elaborate figurines, teamed up with Furuta Confectionery to produce the animal figurines for “Choco-Egg,” which triggered the toys-with-sweets boom (the partnership was later dissolved). B. Types of companies Companies in toys-with-sweets are generally toymakers or confectioners (Fig. 3). Bandai, Japan’s largest general toy manufacturer, holds the top share of the market, approximately 30%. The company’s fiscal 2003 toys-with-sweets business sales came to 16.6 billion yen (wholesale, including overseas sales). Bandai entered the market early and established its Candy-Toy Business Department to exclusively manage and expand its toys-with-sweets business from 1981. Tomy, Takara, Konami and other major toymakers are also in the market. Fig. 3 Major Toys-with-Sweets Manufacturers Company Head office Main Business Comments Largest general toymaker, holding top share in toys with sweets business, too. Strong in “Gundam” and other character toys, with characters providing main power in toys with sweets as well. FY2003 Bandai Co. Tokyo General toymaker toys with sweets sales were16.6 billion yen. Equity participation in confectioner Tohato in 2003, moving to bolster confectionery business. Major general toymaker. For “toys with sweets,” develops “Disney,” “Pokemon” and other character series. Toys with sweets products Tomy Corp. Tokyo General toymaker packaged with “Tomica,” “Plarail” and other staple-seller products also doing well. Major general toymaker. Focus of “toys with sweets” business is Takara Co. Tokyo General toymaker “Choco Q” egg-shaped chocolate candy series. Uses animal figurine premiums produced by Kaiyodo. Toymaker with main strength in video games. “Toys with sweets” Konami Corp. Tokyo General toymaker focused on “Thunderbirds,” “Alien” and other TV and movie character series. Major general toymaker. “Choco-Egg” egg-shaped chocolate sweet became smash hit in 1999, kicking off “toys with sweets” boom. Furuta Osaka Confectionery producer Though “Chocolate Egg” is focused on animals, vehicles and other Confectionery Co. series, also sells unique toys with sweet series such as “Historical Adventures,” etc. General food manufacturer famed as the originator of “toys with sweets” genre though “Glico with Premium.” Among major recent General food products, “Time Slip Glico <Nostalgic 20th Century>” a major hit, Ezaki Glico Co. Osaka manufacturer with cumulative series sales over 40 million products. Uses figurine components produced by Kaiyodo. Also offers unique series packaged with CDs, mini-magazines, other offbeat premiums. Principal trade is general confectioner, but has traditionally committed Kabaya Foods Okayama Confectionery producer itself to “toys with sweets” business too (owns in-house factory to Corp. build toy component premiums packaged in toys with sweets, etc.). Entered “toys with sweets” market in April 2002. Enjoys strong sales Toys-with-sweets of toys with sweets products packaged with plastic samples of foods, RE-MENT Co. Tokyo maker sweets, etc. Narrows product development target to adult women, maintaining unique market position. Other major market players include UHA Mikakuto, Meiji Seika, Lotte,