Japan: Suntory warns of coronavirus hit to alcohol consumption
The chief executive of Suntory has warned that the coronavirus outbreak is hitting alcohol consumption, which will eventually impact on profits at the third-largest spirits maker, adding that he expects the turmoil in China to trigger a return of production to Japan, the Financial Times reported on March 8.
“When I look around hotels, a lot of space is available. At restaurants, very few tables are occupied, and at bars, there’s almost nobody,” Takeshi Niinami, head of the world’s third largest spirits maker. “This will impact our bottom line sooner or later.”
“The trend to shift production lines will be enhanced globally,” Mr Niinami, who also sits on an economic advisory panel for prime minister Shinzo Abe, said in an interview. “China will still be the centre, but production will go back to mother countries to some extent.”
The global epidemic has disrupted supply chains and sapped consumer demand, causing a $285 mln blow to sales at Anheuser-Busch InBev, the world’s biggest brewer, and a potential £200 mln hit to operating profits at Smirnoff vodka maker Diageo.
In Japan, beverage groups from Kirin to Suntory are preparing for similar fallouts as nightlife and restaurant activity come to a near-standstill even though it is nearly cherry blossom season, normally the busiest time of the year for parties.
SMBC Nikko Securities estimates that annual beer sales in Japan will fall 4 per cent from a year earlier as a result of a decline in demand from the spread of Covid-19.
The outbreak has also hit tourist spending with Nomura forecasting the number of foreign visitors will decline 40 per cent quarter-on-quarter in the first three months of the year.
Following government guidance for school closures and companies to cancel large events, economists expect the Japanese economy to shrink at an annualised rate of more than 2 per cent in the first quarter. Department stores in Japan have reported year-on-year declines of up to 18 per cent in February.
“There will be considerable economic damage,” Yoshinori Isozaki, Kirin’s chief executive said at a recent earnings presentation, adding that the impact on beer consumption at restaurants, inns and pubs would be “immeasurable”.
Suntory, which owns US spirits maker Beam, does not have a large exposure to China but the group does produce most of the 1.4m promotional beer can servers it gives to consumers of its Premium Malt beer products in the country.
While the company has a large inventory, Mr Niinami said he was considering using Japanese providers to share some of the production if the outbreak lasted for a long time.
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