Japans brewers seek to branch out

Japan's brewers seek to branch out

The latest sales figures to emerge from Japan's largest brewers have underlined that they must either dive into overseas markets or face stagnation and decay at home.

Sapporo Holdings has estimated that Japan's market for beer and beer-type drinks shrank by a further 4% in volume in the first half of 2010.

If correct, this would mark an acceleration from a 2% drop in beer market volume in the 2009 full-year, which was itself a record industry low and a fifth consecutive year of decline.

Add in Japan's ageing and declining population, plus an estimated 5% fall in gross domestic product (GDP) in 2009, and the predicament facing Japan's 'big four' drinks firms becomes clear. Kirin, Asahi, Suntory and Sapporo simply have to find new markets; they must swim to get there or sink in the attempt.

Problems in Japan are making themselves felt in the companies' results. Kirin last month cut its sales forecast for the first half of 2010 by 14%, while Sapporo and Asahi last week reported half-year sales drops of 3% and 0.4% respectively.

Sapporo's alcoholic drinks division in Japan reported sales down by 5% for the six months, compared to the same period of last year. "A growing preference for lower-priced products and a commercial market demand slump reduced total demand for conventional beer products by an estimated 6%," said the group.

We can, therefore, expect these names to become even more commonplace in merger and acquisitions rumours across Asia and Oceania over the next couple of years.

Of the four, Kirin has led the charge into foreign markets by acquiring Lion Nathan, a 48% stake in San Miguel Breweries and, last month, a 14% stake in Fraser & Neave. However, all of the others have been active to differing degrees, with Asahi taking a 20% stake in Tsingtao, Suntory acquiring Orangina and control ASC Fine Wines and Sapporo taking control of Kronenbourg Vietnam. All this within the last year.

With Foster's Group's wine and beer businesses set to be separated next year, and ongoing opportunities in the attractive drinks markets of nearby India and China, Japan's big drinks firms are well-placed geographically to take advantage.

Considering that there are also four major brewers fighting for space in a shrinking room, consolidation among the big four must also remain an option. Kirin and Suntory failed to agree terms on a merger earlier this year, but how long before market realities make a tie-up too compelling to ignore?

Watch this space.