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Discount Supermarkets Could Cash in on Japan’s Sales Tax Hike

Kurt Schussler

(Bloomberg) -- A supermarket operator that rode Japan’s bubble tea boom to a record high before losing a quarter of its market value in one month may be poised for another leg up.

Kobe Bussan Co. and other retailers that cater to cost-conscious consumers could wind up big winners after Japan raises its sales tax to 10% from 8% on Oct. 1.

As Japan’s love affair with Taiwan’s famed tapioca tea took off this year, Kobe Bussan drew attention with products that allow consumers to enjoy the drink at home. Shares of the company, which also runs the Gyomu Super chain of franchised discount grocery stores, more than doubled between October and August, to a record high.

The stock has since tumbled, hurt most recently by its decision not to raise its outlook along with its Sept. 12 earnings report, said CLSA Ltd. analyst Nigel Muston.

The company reported after the close Thursday that its sales rose 12.3% in August compared with a year ago, slowing from 15.8% growth in July but slightly above the average this year. In addition to monthly revenue reports, Daiwa Securities Co. says the next potential catalysts for Kobe Bussan shares include improving margins on its private brand products and a new medium-term business plan.

“Recently, a boom in the popularity of tapioca in Japan is showing signs of waning,” analyst Jiro Kojima wrote in a Sept. 13 note. Even still, sales for the discount grocer “look likely to remain robust due partly to boosts from a two-month customer appreciation sale event launched in September.”

The sales tax hike may provide an additional tailwind for Kobe Bussan and other retailers that compete on price such as Pan Pacific International Holdings Corp., which operates the Don Quijote chain, CLSA said in a report dated Wednesday.

“We see more and more Japanese consumers gravitating towards discount supermarket chains like Gyomu Super given there are just not as many options outside of standard food supermarkets,” Muston wrote.

--With assistance from Shoko Oda.

To contact the reporter on this story: Kurt Schussler in Tokyo at kschussler1@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Kurt Schussler, Naoto Hosoda

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