At first glance, the takeover of Daiichi Sankyo Healthcare by Suntory Holdings earlier this month appears to be of only passing interest to the global drinks trade. A little curiosity might be piqued by the magnitude of the deal – Y246.5bn or around $1.6bn – but what does the acquisition of an over-the-counter pharmaceuticals concern have to do with the world of booze?
The Daiichi buy is clearly a long-term play: the multi-phase deal won’t even be completed until June 2029. It’s equally clear that this is becoming a trend in Japan, with Suntory rival Kirin Holdings spending A$1.88bn (then US$1.24bn) on Australian vitamins business Blackmores in 2023 and Y220bn on Japanese cosmetics and skincare business Fancl a year later.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
On one level, this strategic diversification reveals some uncomfortable structural truths about the state of the Japanese drinks market, beset by an ageing population and younger legal drinking age consumers turning away from alcohol. Anyone remember the faintly desperate Sake Viva! campaign launched back in 2022 to get Japanese youth turned back on to alcohol and boost the government’s dwindling tax take?
But what if Japan were merely presenting an exaggerated version of a global consumer shift, where moderation, health and wellness ascend the pecking order of priorities – and where alcohol is consequently viewed with a degree of suspicion and caution?
The jury remains out on the real reasons for the challenging trading conditions currently prevalent in major global markets – is it cyclical and linked to macroeconomics and geopolitics, or is there something more significant and long-lasting behind it all? But even the most cockeyed optimist would have to admit to a few concerns, given the persistence of the difficulties.
If the stalling of premiumisation and the softness of demand continues for much longer, more companies – and not just those headquartered in Japan – may come to contemplate diversification as a means of spreading risk and reducing exposure to low-growth categories. And, if it happens, it’s nothing new – but it would constitute a reversal of the prevailing thinking of the past three decades.
In 1997, Diageo was formed through the merger of Guinness and Grand Metropolitan, creating the world’s biggest premium drinks company but one with a number of non-core legacy brands also on its books. Over the following few years, the likes of the Burger King fast food chain and baked goods business the Pillsbury Company were sold off.
Diageo’s biggest early rival was Allied Domecq, created by the combination of Allied Lyons and Pedro Domecq in 1994. Once that business was taken over by Pernod Ricard in 2005, the French company wasted no time in selling off restaurant business Dunkin’ Brands to a private equity consortium for $2.43bn.
This strategic philosophy is appealingly straightforward: focus on core strengths – selling alcohol – and cast off any distractions. This has been honed further in recent years: as the wine category has faced structural decline, big players including Diageo, Pernod Ricard and Brown-Forman have headed for the exit, progressively selling off all but the most lucrative brands and becoming dedicated spirits players.
That strategy is predicated on the continued growth of the spirits market, particularly in the more profitable premium-and-above price tiers. But what happens when that growth stalls, or goes into reverse? Again, there are recent examples to ponder.
The spirits industry – so far – has not really had to deal with this kind of diversification conundrum
Faced with declining demand in key markets such as the US and China, the world’s big brewers have progressively pivoted to alternative categories. It’s more than six years since Molson Coors Brewing Company became Molson Coors Beverage Company in an explicit embracing of a ‘beyond beer’ strategic shift.
Brewers in the US especially have become major players in RTDs – hard seltzers in particular – with Anheuser-Busch InBev (which already owns Cutwater Spirits) acquiring an 85% stake in BeatBox Beverages last December for $490m. Meanwhile, last year also saw the £3.3bn (then $4.2bn) acquisition of UK soft drinks giant Britvic by Carlsberg.
A similar dynamic can be observed in wine, particularly with the recent purchase of Four Roses Bourbon by Gallo for $775m – coming at a time when the company has been closing wineries and making redundancies. Gallo has been involved in spirits for some years via the likes of New Amsterdam vodka and High Noon seltzers but the Four Roses buy places it in a different league.
The spirits industry – so far – has not really had to deal with this kind of diversification conundrum. For now, companies appear content to tweak their strategies, investing in growth areas such as RTDs, aperitifs and no/low. But if the current market conditions persist for another few years, will that change?
There’s an argument for saying that Suntory and Kirin are very different businesses, facing a particularly difficult set of circumstances in their crucial domestic market. Suntory is already – in beverage alcohol terms – quite diversified, with existing health supplements and skincare brands, soft drinks and even Japanese restaurants in Hawaii and Mexico.
But many of the underlying demographic concerns in Japan are also relevant to the mature markets of the West – and indeed China – that have been so vital to the growth of spirits over the past two decades. If these concerns continue to affect demand, India is going to have to do an awful lot of heavy lifting in the years ahead.
Since the late 1990s, consolidation, accompanied by a narrowing of focus and a disposal of non-core assets, has bred a new generation of beverage alcohol businesses, characterised by a concentration of a large number of brands in a relatively small basket of categories.
Is that a bad thing? Not if growth continues in those categories. But when the pressure is on, two courses of action suggest themselves: sell off unwanted brands, or explore new avenues of growth away from your core activities. We’ve seen plenty of the former in recent years; might it soon be time to look at the latter?
