The nation's food companies are facing increasingly polarized consumption trends, and any firm that fails to meet the needs of such a market faces future downgrading, Moody's Investors Service Inc. said Friday.
In a special report on Japanese food firms, the U.S. credit rating agency said that consumers are increasingly looking for products that are either the right price or have added value.
This trend is being accelerated further by the stagnant retail sector, it said.
"In this environment, some food companies will remain stuck in low-margin commodity businesses reflecting severe price-consciousness, while others will succeed in moving up the value-added chain and thus improve returns," Chieko Matsuda, an analyst at Moody's, said in the report.
Matsuda said most food companies have already made strenuous efforts to cut costs, but the crucial issue in the long term will be how and where the money saved is allocated in order to sustain growth. "The successful differentiation of products of a value-added nature should bring a company surplus margins," Matsuda said.
Moody's said ratings for the companies that can successfully implement a value-added chain for their products will be under upward pressure.
But failure to meet the requirements of a polarized market will leave manufacturers stuck in dangerous middle ground, and their ratings will be under pressure for future downgrading, it said. Moody's currently rates 19 food companies, including beverage and tobacco firms that have some food divisions, with ratings ranging from Aa3 to Ba3.