Japan: Top brewers’ responses to slowing domestic beer market

Kirin Brewery Co and Asahi Breweries Ltd, Japan's top two brewers, are expanding their non-core businesses such as soft drinks and overseas operations to grow in a shrinking domestic beer market, Reuters communicated on September 9.

The ageing population and the fall in the country's birth-rate have caused Japan's beer market to decrease, fuelled also by a shift in consumer tastes to alternative spirits such as "shochu", a distilled alcohol made from ingredients such as sweet potatoes.

Saturated domestic markets have driven the world's biggest brewers, including InBev and SABMiller, to look to expanding markets such as Latin America, China and Russia for growth.

Asahi and Kirin also aim to invest in overseas markets, although their targets are limited in Asia, and they have also been boosting their non-core operations such as soft drinks and food that are expected to contribute to larger profits.But the centre of the two brewers' strategies is set at different focal points.

Industry leader Asahi, having a top share in the domestic beer market thanks to its Super Dry beer, has set the flagship product at the heart of its business, while No.2 Kirin's strategy is all about diversification.

"We plan to add more value to Super Dry and breed it solidly as a cash cow," Asahi's Chairman and Chief Executive Shigeo Fukuchi told Reuters in an interview.

"Even though the overall market isn't expanding, we aim to grow by taking away others' shares with the power of our brand," he said without giving specific details. Fukuchi also said that the company would spend the remaining half of a planned 100 billion yen ($905 million) investment in the three years to 2006 mainly on its soft drinks and food businesses and on expansion in Asia.

Kirin, on the other hand, has been seeking growth through multiple branding. In the alcohol business, it has snatched the top shares in happoshu and the growing segment of so-called "third-type" beer through extensive marketing. Third type beers look and taste like regular beer but are cheaper because they are made from ingredients that exempt them from the high taxes imposed on regular beer.

As part of its overseas expansion, Kirin, 46 percent owner of Australia's Lion Nathan Ltd., aims to eventually raise its 20 percent in San Miguel Corp., Managing Director Kazuhiro Sato told Reuters in an interview on Thursday. Kirin, maker of Lager and Ichiban beer, also aims to strengthen non-core businesses including pharmaceuticals.

Among the big three Japanese brewers that include Sapporo Holdings Ltd., Asahi relies most on beer, from which it earns 75 percent of its overall sales compared with 64 percent for Kirin. As part of Asahi's 2004-06 mid-term business plan, it has estimated the contribution will reach 78.3 percent in 2006.

Fitch Ratings analyst Akiko Kamigori said in her July 19 report that diversification would support stability in Japan's sluggish beer industry, while some other analysts have noted Asahi's financial health has strengthened as it gained more customers to its Super Dry.

"Kirin appears to have a more stable business profile than Asahi in light of its diversified business portfolio, although Asahi outperforms Kirin in beer operations in terms of business franchise and profitability," Kamigori said in the report.

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