Calbee Inc (Stock Code; TSE:2229)

Calbee Inc, whose stock code is 2229, is listed on Tokyo Stock Exchange. I bought 2229 at 3,650 yen on 31 August 2011. Calbee elected to 4 for 1 stock split on 14 January 2013 when its share price went beyond 10,000 yen per share. This implied that our effective purchase price per share is 912.50 yen. On 31 October 2019, I sold at 3,670 yen. Taking account of our dividend collection and transaction costs, our absolute return is 323%.

About 2229

Calbee’s business origin is to produce and sell potato chips. Once it has strong market share in Japan consistently for many decades, it began to sell the selected variants of its potato chips overseas.

Rationale of Investing in Calbee Stock

I loved eating Calbee chips than its competitors. Its hot and spicy flavor is so good that I can never find its competitors’ chilli/spicy flavor that good at all.

Its financials is in very good condition. You can see that it can produce high gross profit margin consistently.

Putting them together, I bought Calbee with a lot of confidence. By the way, it is way before I started to learn what compounder stock is about.  The concept of compounder was first known to me in 2014. Little wonder it was small compounder stock for me with 3 bagger gain.

Happenings During Our Holding Period

I was not aware that Calbee began producing and selling granola in Japan since 1991.  I only discovered it in 2013 when the niche store imported Calbee granola. Interestingly, at the time of reading Calbee’s annual report 2011 before I bought the stock, I mentally forgot about its granola product due to the limited commentary about granola on its first annual report - I wonder why I did that!

Calbee was not able to make significant profit on its granola products. One day, after 2011, Yumiko Aboshi, returning back from a year maternity leave, transformed the marketing target of granola products. The new focus was on working mothers. The rationale of her marketing proposal is to tell that its granola products are time-saving breakfast with nutritious value. Because of that, sales over five years jumped more than sevenfold! I have to thank this Yumiko Aboshi. It is the reason why I am able to make 3 bagger profit!

By the way, Calbee is slightly different from Japanese companies. Calbee has more women employees than Japanese companies. It is no surprise that Calbee won award for that.

Then-CEO Akira Matsumoto was one of the biggest factors to public-list Calbee in March 2011! He made Calbee to be very disciplined to control its production cost, and maintain its profit margin consistently. He wants Calbee to achieve 15% operating margin during his presence over few years. He also championed the strategy of increasing overseas sales. I also have to be thankful to him because I am able to buy Calbee shares!

Calbee was making inroad to sell its potato chips in Asia countries. Honey Butter flavoured chips in South Korea was so popular that demand exceeded supply. Unfortunately, Calbee and its Korea partner couldn’t cope the size of unexpected demand. Because of this, its competitors have its spare capacity to produce different variant chips with honey butter flavor. The additional sales opportunity was missed!

In mid March 2016, I went Japan for a 1 month holiday (before I went to Omaha, USA for second time). While holiday-ing, I make sure to check how Calbee is sold. To my surprise, I could not find Calbee's hot and spicy potato chip in Japan. Apparently, it is limited to be sold in South East Asia. I am not sure why - one possible reason is Japanese taste bud is different from us. But I am not convinced with my reasoning because there is a Japanese competitor, Koike-ya, selling small package of spicy-flavour potato chips in Japan! I began to notice that Calbee began to sell spicy package in Japanese version in circa 2019 - Don Don Donki imported them in Singapore; that is why I noticed it.

I also learnt that Calbee did a lot of R&D and sell potato chips with unique flavour for a limited time. Unfortunately, I never had a chance to try potato chip with KFC chicken flavour at all!

With granola and growing overseas sales, it saw its 10 years high at 5,570 yen. Unfortunately, earthquake at Hokkaido, uncooperative Philippines partner (Universal Robina Corp) not giving equal treatment both its product and Calbee-Robina products, and poor China sales are affecting its Calbee’s revenue.

In January 2018, I went to Indonesia for a short business trip. I often shop around to study potato chips anywhere. I spotted two potato chips packages from Calbee - It seems it is for Indonesia version as they are not sold in Singapore. After trying them out, they are damn tasty!

Sadly, the retirement of Akira Matsumoto was reported in news article in Japanese. I didn’t know it until I bother to read Japanese news. That explains why its share price dropped below 4,000 yen. Shuji Ito, then-COO, who was with Akira Matsumoto for many years, took over his position in June 2018.

Shuji Ito is doing fine job keeping things status quo and bringing more Calbee products overseas. I am seeing many new Calbee products in NTUC Fairprice supermarkets (biggest market share in supermarket industry) in Singapore. Thanks to Don Don Donki, we can buy Japanese-produced potato chips in Singapore.

Rationale of Selling Calbee Stock

It is great for dividend portfolio just like CFR and Suntory. Again, I prioritize capital gain more than dividend. 

Calbee releases its new medium-term and long-term business plans in 29 October 2019. It has plan to introduce potato-based ingredients to restaurants. I don’t know what it will be. I do advocate new product, something different from its main product because it tends to increase sales in the long run and its share prices as long as costs are managed.

I am not convinced with its new product sale plan. It is still prone to the supply of potato from Hokkaido for domestic sales. I wonder why they won’t import potato overseas – I am no food expert after all.

Most people in my current generation in the world have no problem to use hands/fingers to pick potato chips out of the package for consumption. With the strong penetration of smartphone, the younger generation don’t want to do this. They want chopstick equivalent to pick potato chips. It was a shocking revelation to me. Seeing Kraft and Heinz, I have no doubt that there is a major shift in eating habits in the future.

I sold Calbee simply because I didn’t see any growth driver, convincing one in my opinion, from new business plan.