Japan: Kirin's business approach for 2006


Kirin made public on January 12 its business approach for 2006. In this one Kirin states the following:
We enhanced customer support through improved communication, and target further progress as we approach our centenary in 2007.

Report on 2005
2005 was the second year of our medium-term business plan, and in pursuit of our plan targets we actively implemented initiatives to raise the value of the Kirin brand and become a corporate group centered around a development and proposal-oriented strategy.
As regards our domestic alcohol business, the market as a whole witnessed rapid growth in new genre products, which grew to comprise around 16% of the overall market including beer and happo-shu. At the same time, the overall market contracted, reflecting the effects of the introduction of open-pricing in January 2005, a decline in demand following the hot summer in 2004, and other factors. Against this backdrop Kirin's Nodogoshi, launched in April 2005, has become a record-breaking hit product, and Kirin's total volume sales of beer, happo-shu and new genre category products were 178.5 million cases (up 0.3% from the previous year; 12.66l/case) marking the first year-on-year increase in seven years. Total volume sales of low-alcohol beverages* including chu-hi were 196.9 million cases (an increase of 0.1% from the previous year) showing that in a harsh market environment Kirin is benefiting from strong support from its customers, outperforming the overall industry, and continuing to lead the market.
* Alcoholic beverages with an alcohol content of less than 10%, such as beer, happo-shu, new genre and chu-hi.


Approach to 2006
Basic Groupwide Policies
• In the last year of the 2004-2006 Kirin Group medium-term business plan, we will strengthen R&D and product development capabilities, and we will accelerate the realization of group synergies on a broader front in tandem with our approach to CSR. Through actively implementing qualitative changes to raise the value of the Kirin brand we aim to be a strong corporate group that is clearly centered around a development and proposal-oriented strategy.
• Strengthening the core domestic alcohol business is our top priority and, we are aiming to gain further support as a comprehensive alcohol beverages maker with beer, happo-shu and new genre products as the main drivers of a dynamic corporate group
• In our overseas alcohol business and diversified businesses (pharmaceuticals, nutrient foods, agribio) we will accelerate moves to build an enhanced platform for growth, while restructuring our soft drinks business with a focus on enhancing its competitiveness.


1. Domestic Alcohol Business
While an alcohol tax revision is planned for May 2006, we will aim to increase the momentum gained in 2005 and continue to develop our value proposition. We will maintain our basic policy of raising the value of the Kirin brand with a development and proposal-oriented strategy, and further promoting activities directly focused on the customer as we aim to be the number one company with consumers.
Key Issues
• We have positioned 2006 as a year of intensified positive action and we will consolidate our strong leading positions in happo-shu and the new genre category, while delivering the value that meets customers' expectations in the beer category.
• In the RTD*(mainly Hyoketsu), shochu, wine and spirits categories we will aim to win support as a comprehensive alcohol beverages manufacturer through actively implementing attractive proposals.
* RTDs are pre-mixed cocktails that are ready to be consumed on opening. The market in Japan has grown considerably, mainly based on sales of chu-hi in cans.
• We will develop a range of attractive proposals for consumers around the theme of supporting the Japanese teams in the Olympics and soccer World Cup.
• We will link the sales organization more closely to regional characteristics by strengthening its collaboration with local factories and other sites.
• To encourage a more stable industry environment we will promote a trading environment based on a cost plus mind-set


As a result of the above, it is expected that the total market for beer, happo-shu and new genre will reduce by 1% compared to the previous year, while Kirin will focus on achieving its plan target of 184.8 million cases (an increase of 3.5% year-on-year). Sales targets by each core category are: Beer - 84.2 million cases (an decrease of 0.2% year-on-year), happo-shu - 61.8 million cases (a decrease of 6.6% year-on-year), new genre - 38.9 million cases (an increase of 39.4% year-on-year), chu-hi - 41.7 million cases (an increase of 15.5% year-on-year; 6l/case). Our total sales target for low-alcohol beverages is 205.9 million cases (an increase of 4.6% year-on-year).

(1) Products and Marketing Initiatives
1. Beer
As the diversification of taste preferences continues, consumers are calling for fuller tastes and also becoming more discerning. By creating new proposals that meet the expectations of our customers, we will enhance brand strength. We will demonstrate brand value with Kirin Lager and Kirin Classic Lager, 'a genuinely great taste enjoyed through the generations'. Taking food as a theme, we will be involved in a range of approaches with Ichiban Shibori Draft Beer, using the 'enjoying the season' value proposal of unique Japanese tastes as well as commencing sales of the new unfiltered chilled beer (live yeast products) Muroka, creating new added-value products. With the Maroyaka Kobo, Hojun and Golden Hop product lineup, Kirin will offer the rich fragrance and flavor of chilled beer to the continually growing premium segment and strive to broaden the market.

Regarding sales to the on-premises marketAwe will strive to further increase product quality as we aim to realize an even better tasting draft beer. Furthermore, we will actively demonstrate the value of distinctive brands such as Kirin Braumeister, Heartland, Budweiser and Heineken matched to a diversity of outlet types and environments.

2. Happo-shu
Despite an impact from the new genre category, in 2005 the happo-shu market became established as a category with firm support in the home use market. Kirin has been strengthening its initiatives focused on the Tanrei series, has outshone its peers in winning customer support and as a result has consolidated its position as the leader in the happo-shu category. In 2006 it will continue to be treated as a core category and Kirin will strive to increase brand strength, focusing on Tanrei Nama, along with Tanrei Green Label, and Tanrei Alpha. We will also create new value proposals, and in February 2006 will be launching Kirin Enjuku, to meet demand for a full body and flavor product.

3. New Genre
In 2005 this market witnessed huge expansion and grew to comprise 16% of the total beer, happo-shu and new genre market. In April 2005 Kirin launched Kirin Nodogoshi and within six months it had secured top position in the market. Sales volume reached approximately 28 million cases for the year, and in its first year Nodogoshi Nama became one of Kirin's biggest-ever hit products after Kirin Ichiban Shibori and Tanrei Nama. In 2006, we will respond to customer expectations and fine tune the brand, realizing a more distinctive flavor with a finer head, while aiming for further growth in a brand that is symbolic of Kirin's dynamism.

4. RTD category, focused on Chu-hi
In the growing chu-hi market, Kirin Chu-Hi Hyoketsu has sustained market leadership since its launch. In 2005 we offered Hayazumi Lemon in the new range 'low-sugar' series. In March 2006, we will further broaden the original and innovative Hyoketsu lineup with the launch of Yuzu (a Japanese citrus flavor). We also plan to launch a sugar-free chu-hi range with a different concept to Hyoketsu to meet a diversity of customer preferences.

5. Shochu, Wine and Spirits, and Other Alcohol Beverage categories
In the shochu category, which continues to grow, Kirin is presenting a new lineup, based on the highly successful Kirin Mugi Shochu Pure Blue. In wines, as well as selling three new varieties to the Franzia brand for everyday drinking, we will promote the strengthening of core brands such as . In spirits, as well as Chivas Regal and Four Roses, we are striving for further growth, concentrating on Kirin brand whisky Fuji-Sanroku, which has received an excellent reception since its launch in September 2005. Moreover, we are further broadening the product lineup of the Kirin subsidiary company Eishogen, which sells such Chinese liquors as Shinluchu, and promoting a stronger comprehensive alcohol beverages business.

6. Marketing Initiatives
With the Torino 2006 Olympic Winter Games and the 2006 FIFA World CupTM Germany, 2006 can be said to be a global year of sport. Kirin aims to create a range of highly original proposals throughout the year around the overall theme of supporting Japan and will be involved in a range of activities supporting sports. These include the 'Kirin support for Japan at the Torino 2006 Olympic Winter Games campaign', and a campaign to support the Japan's national soccer team. Further we plan to join with customers from local regions, and introduce regional specialty foods from all over the country alongside beer as part of our 'Choosing the best tastes in Japan campaign' which we will continue from 2005.

(2) Sales strategies
Through strengthening the links between the sales organization, local factories and Kirin Communication Stage* we are leveraging community-based sales to bring us even closer to customers in regional areas. Kirin will begin to build a fan base through the full dissemination of local information via the internet and by cooperative activities with local companies and organizations. By strengthening our community-based development and proposal-oriented sales structure we aim to become a corporation that is well regarded by local communities. Furthermore, by observing our voluntary guidelines, we will strive for further diffusion of the open-pricing system introduced in 2005 to promote a trading environment based on a cost plus mind-set.


2.Overseas Alcohol Business; Diversified Businesses; Leveraging Synergies with the Soft Drinks Business

(1) The Overseas Alcohol Business and Diversified Businesses
In the Overseas Alcohol Business we will promote business improvements and also consider new alliances concentrating on Asia and Oceania. In China in particular we will expand the scale of Kirin Brewery (Zhuhai) business in the Pearl River Delta, an area that is witnessing sustained growth, by establishing a new factory to double our production capacity, and we will also strengthen the sales structure of Kirin (China) Investment in Shanghai.

In Pharmaceuticals we will carry out preparations for the launch of KRN 321, a new-generation medicine for renal anemia that is awaiting approval and Busulfex, a pre-treatment drug for stem cell transplant patients, and, as well as progressing development to secure new applications for KRN 321, we aim to advance the development of candidate product KRN 1493, a treatment for secondary hyperparathyroidism to the next stage. In addition we are also carrying out R&D in human antibody drugs and cellular therapeutic vaccines, which we have positioned as the future pillars of this business. Overseas we will commence business development in ASEAN countries, particularly focused on our operations in Singapore and Thailand.

In Nutrient Foods we will renew core health products handled by Kirin Wellfoods such as Lieta, and will also consider the overseas launch of KW Lactobacillus, the product of in-house research, as well as existing health food products. Moreover, moving towards the creation of new generation health and functional foods, we will promote business cooperation with the Yakult Group, with whom an alliance was formed in 2005. We will also initiate structural improvements to improve competitiveness in the Takeda-Kirin seasonings business.

In Agribio, we will enhance our business foundations in Japan and overseas while promoting development of the seeds and seedlings business, including chrysanthemums, carnations, and roses along with the potato business focused on the 'Cynthia' variety.

(2) Leveraging Synergies with the Soft Drinks Business
In the Soft Drinks business, we will carry out structural improvements to increase the competitiveness of Kirin Beverage, and also pursue Group synergies from the development stage through to production and sales. In addition to commencing commission production of Kirin Alkali-Ion-no-Mizu at Kirin's Hokuriku factory we will be broadening links from a sales perspective by commencing the merchandizing of Kirin Beverage products by Kirin Communication Stage. Through the three-company business alliance with the Yakult Group we will accelerate the creation of synergies and overseas, we will strengthen development of Kirin Chu-hi Hyoketsu, which is currently manufactured and sold by the Kirin Beverage subsidiary Shanghai Jin Jiang Kirin Beverage & Food.

3. Implementing CSR
Continuing with the 'Group CSR Declaration' made in 2005, and encapsulating the philosophy that CSR comprises activities to gain the trust of society, Kirin will carry out CSR activities based on the following five themes: 'compliance', 'safety and security', 'protection of personal information', 'promoting responsible and appropriate drinking', 'strengthening activities to protect nature'.

Regarding environmental activities, we will carry out planting at the water source of the Fukuoka plant, which will be the eleventh location nationwide where we have carried out watershed afforestation activities, and we will extend these activities to other Group company plants in the future. Further, as part of efforts to prevent global warming, we will promote the use of solar power electricity generation systems and other natural energies, as well as carrying out fuel conversions and onsite electricity generation at factories. Through such efforts, we aim to have achieved 2010 CO2 reduction targets by 2007.

In respect of Kirin's support for sports, with the Torino 2006 Olympic Winter Games and the 2006 FIFA World CupTM Germany, we will be carrying out further activities to support Japan's representatives at both events and will develop a range of measures to offer our support along with the fans.

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