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Ito En ( ITOEF ) recruited baseball star for U.S. green tea push

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Now among many Japanese firms wrestling with tariffs

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Company executives weigh price hikes, U.S. production

By Kentaro Okasaka and John Geddie

TOKYO, June 13 (Reuters) - Top Japanese tea brand Ito

En's ( ITOEF ) latest push to win over health-conscious U.S. customers

with its traditional unsweetened brew has hit a new road bump:

President Donald Trump's trade tariffs.

The company, which splashed out on a tie-up with Major

League Baseball star Shohei Ohtani and launched a less bitter

tea to capture a bigger slice of the lucrative growth market, is

now debating whether to hike prices or move some production

across the Pacific, executives said in interviews with Reuters.

The dilemmas facing Ito En ( ITOEF ) can be found across

Japan, the biggest foreign investor in the United States, as

Tokyo's trade negotiators return to Washington this week to try

and strike a deal to cushion the blow to its fragile economy.

Makoto Ogi, Ito En's ( ITOEF ) general manager of international

business development, told Reuters the company may raise prices

of its products in the U.S. to compensate for Trump's 24% levy

on Japanese goods set to come into force next month.

The problem is their retailers and distributors may resist

for fear of losing sales. "We may not be able to ask them to

raise our prices despite what Trump is saying," he said.

The last time Ito En ( ITOEF ) raised prices in the U.S. - by

approximately 10% in 2022 - sales dropped by around 5%. The

company said the decline reflected the price hike as well as

factors such as COVID-19 that affected market conditions.

The company is also considering making tea bags in the

United States, and bottling drinks there rather than in Japan,

Taiwan and Thailand as it does presently, Ogi and other

executives explained during interviews in Tokyo.

These details of the firm's potential plans to counter

tariffs have not been previously reported. The executives did

not disclose the costs of such moves.

In its latest results released this month, Ito En ( ITOEF )

reported its profit shrank by 8.2% in the year to April, but

forecast an 11% jump this year.

It set a modest 3.7% profit growth target for its U.S. tea

business, versus 20.7% growth achieved last year, an outlook

partly related to tariffs, a company spokesperson said.

Its shares rose to nearly a four-month high in the wake of

the results, with its president later telling investors the

forecasts were "conservative".

Many Japanese firms have set up war rooms to chalk out plans

to restructure supply chains or cut costs to offset tariffs and

keep their U.S. growth plans on track, said Mizuho Bank analyst

Asuka Tatebayashi.

A survey of 3,000 Japanese companies by export promotion

organisation JETRO late last year before Trump's tariffs found

the level of interest in U.S. markets at the highest in nearly a

decade, with food and beverage companies like Ito En ( ITOEF ) the most

enthusiastic.

"When you talk to companies in Japan, the U.S. comes first,"

said Tatebayashi, adding that they face shrinking domestic

demand and are generally cautious about expanding into riskier

emerging markets.

GRAND PLANS

For Ito En ( ITOEF ), the U.S. has long been a market it is eager to

crack.

Five years ago, Joshua Walker, the newly-appointed head of

U.S. non-profit Japan Society, hosted Ito En's ( ITOEF ) North America

head Yosuke Honjo in his New York office.

Honjo gestured to the green-coloured bottles of their

flagship 'Oi Ocha' brand lining the shelves and said he wanted

them to spread around the world like Coca-Cola's red bottle.

"It was refreshing. Japanese companies would not normally

have ambition of that type of grandeur," said Walker, recounting

the executive's previously unreported remarks. Honjo, via a

company spokesperson, confirmed the remarks.

Founded in the 1960s by Honjo's father and uncle, Ito En ( ITOEF ) has

grown to dominate Japan's tea market, using around a quarter of

the country's total crude tea production.

Since expanding into the U.S. in 2001, it has dabbled in

selling sweet and flavoured tea varieties familiar to Americans.

But more recently it has focused on the unsweetened tea popular

in its home market, hoping to tap health-conscious customers and

a boom in Japanese food and cultural exports.

Honjo said growth has also been aided by a sharp rise in

Asian Americans, estimated at nearly 25 million in 2023, or

around 7% of the U.S. population, according to the Pew Research

Center.

Japan's exports of green tea surged 24.6% to 36.4 billion

yen ($251 million) last year, with nearly half destined for the

United States, official data showed.

Some equity analysts like Jiang Zhu of Tokyo-based rating

agency R&I have highlighted the high marketing cost of Ito En's ( ITOEF )

international push at a time it faces tough competition at home

from tea brands such as Coca-Cola's Ayataka.

The company said it has around a 2% share of the U.S. market

for tea beverages, ranking eighth largest, with Unilever's ( UL )

Pure Leaf leading the sector.

But it has a long way to catch up with the 3.9 billion

gallons of Coca-Cola's trademark Coke drinks sold in the U.S.

last year, at only 3.1 million gallons by comparison, according

to research firm Beverage Marketing Corporation.

"Kikkoman's ( KIKOF ) soy sauce is probably in every American

household now, but it took about 50 years for it to become a

part of the culture," said Akihiro Murase, Ito En's ( ITOEF ) public

relations manager, referencing the Japanese food manufacturer as

a template for success.

"We are not there yet but we would like to make

unsweetened green tea a part of the food culture," he said.