Japan's Brewers look for new options in declining market
The ailing Japanese beer market has been contracting rapidly for the past five years and has forced its largest drinks companies to look for new cash-generating opportunities.
The Japanese domestic beer market is down 20% from 1996 and saw a 4.5% drop last year as economic slow down and changing tastes hit regular beer consumption.
2001 ASAHI BEER ImageGirl
This has heightened the already bitter competition between Japan's major brewers and forced the second biggest, Asahi, to enter a market it once ridiculed.
The low-malt sector of the Japanese beer market has surged in the last two years as tighter budgets have forced consumers to accept this low-cost alternative.
Once considered socially inferior and called a "pseudo-beer" by Asahi, low-malt beer has become mainstream and Asahi has followed its rivals in launching a beer in this market.
Last month 3,000 Asahi employees took part in operation Red Storm - a marketing exercise that had senior management and post room staff out on the streets plugging the low malt Honnama.
Low-malt beer costs considerably less than regular beer as it attracts a much smaller tax. The beer is made in a similar way to regular beer and uses the same ingredients but has less malt content so it is technically counted as a sparkling drink.
"With the Japanese economy depressed more people are picking up low malt beers"
This makes low-malt beer about a third cheaper and while it would have been considered a working man's drink in the past, the arrival into the category of Japan's biggest brewer Kirin three years ago and Asahi this year has given low-malt credibility.
Asahi has been forced into low-malt because in 2000 the sector grew 15% - bucking the big drop in regular beer consumption - and its archrival Kirin is the number one player with Tanrei.
Kirin Tanrei accounts for 53.5% of the low-malt sector and has kept the company at its 38% share of the overall beer market. Asahi's Super Dry is the number one for regular beer but the company's absence from the low malt market has meant it has been unable to increase its 35% overall market share and overtake its rival.
"With the Japanese economy depressed more people are picking up low malt beers," said Kirin's Hiroshi Fujikawa from Sydney. "People felt they didn't want to be seen buying these products but with Kirin getting into this market people see the quality we bring and are happy now to buy low malt."
Kirin may hold onto its number one spot in Japan but the company is facing a turbulent time. On March 29 the company's shareholders will appoint senior managing director Koichiro Aramaki as president.
Aramaki comes from the embryonic pharmaceutical division and his appointment to the top job is a clear indication to analysts that Kirin sees its long-term future in this more dynamic area.
"Pharmaceuticals will be our second engine for growth in the future," says Fujikawa. "Aramaki is seen as a balanced person so he will not just focus on drugs, he will also emphasise the beer business. Beer is the cash cow for our business but drugs are the next growth opportunity and we will need growth in the future."
Kirin is also attempting to expand its drinks operations away from reliance on the sagging beer market. It has the distribution rights to Seagram's Chivas Regal whisky and Four Roses Bourbon but following the Diageo/Pernod Ricard break-up deal that arrangement is in doubt.
History suggests that in such a terminal market the most likely outcome will be corporate casualties
Kirin is in negotiations to hold onto that deal as both brands are very popular in the Japanese market and represent an important part of the company's plan to broaden its range.
Kirin also plans to tap into the growing wine market using its connections with Australia's Lion Nathan, in which it has a 44% stake. Assuming Lion gains control of New Zealand's Montana, Kirin will be looking to use that relationship in its domestic market.
With such a drastic decline in beer consumption the remedial action being taken by Japan's two biggest brewers is not surprising but history suggests that in such a terminal market the most likely outcome will be corporate casualties.
Perhaps Japan's notoriously closed drinks market may find itself in need of overseas partners in the same way that its financial and motor industries have done.
For more information on the beer market in Japan, take a look at Canadean's report "Beer in Japan" at:
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