Troubles brewing
Published:  27 August, 2008

The Japanese are famed for their beer drinking. Per capita, they drink the most beer in Asia - an annual average of 51.3 litres in 2006, according to figures from Euromonitor International .

Beer was first brewed in Japan in 1872, and by the 1990s the country was the world's sixth-biggest consumer, each year drinking more than 7 million kilolitres. But this national habit is being undercut in several ways. Indeed, a long shadow is looming over the brewing industry in the land of the rising sun. Wine and spirits are gaining a larger following, while health concerns are changing attitudes toward consuming alcohol in general. It could be a long sayonara for the Japanese brewing industry.

Estimates for beer production and beer-related products in 2007 are showing a 1 per cent fall on 2006 figures of 6.3 million kilolitres, with the industry saying the weakening demand reflects the fall in the nation's population, growing health concerns and stricter punishments for drink- driving. In company statements in January 2008, Asahi Breweries forecast a drop of 1.8 per cent in its beer sales in 2008, and rival Sapporo similarly predicted a fall of 1.7 per cent.

"The beer market has been shrinking because people want cheaper drinks," says Shuji Takimoto, spokesman for the Brewers Association of Japan. "But judging by the changing population, the future of beer looks tough."

Taxing issue

Tax has had a huge influence on how beer is made in Japan. The country's alcohol tax system divides beer into bands based on malt content. High tax beers have more than 67 per cent of malt. Low malt beers, which substitute rice or corn syrup for malt, are known as Happoshu and fall into three classes: 50 -67 per cent malt; 25-50 per cent; and less than 25 per cent. A final category, first introduced by brewer Sapporo in 2003, is known as third beers, which use no malt and can be made from fermented soybeans.

In the 1990s Japanese brewers began to introduce low malt content products to sidestep tax, which accounts for nearly half the price of a can of regular Japanese beer. So at half the price of full-malt beers, the low-malt alternatives quickly won over cost-conscious drinkers . And the tax dodge has seen a dramatic fall in production of beers in the full-malt category.

"Production has halved in the past 10 years," says Bryan Baird, owner of Baird Brewery. "The market was 7 million kilolitres in 1996, but by 2006 it had fallen to 3.5 million."

At the time, according to Euromonitor (August 2002), brewers could take solace in the fact that overall volume sales were up two per cent, thanks largely to the influence of low/no-malt beers. In the short term, Happoshu brands succeeded in raising overall consumption by offering a cheaper alternative to standard beers.

Scrapping for market share

Until the 1980s, the industry was conservative and brewed mainly sweeter American-style lagers. But in 1987 Asahi Super Dry was introduced: a light, crisp lager fermented with a highly attenuated (reduced in strength) yeast to minimise sweetness.

It marked the beginning of a change . Other big brewers introduced similar beers, and there began the export of Japanese beers and indeed a Japanese beer style.

But Asahi's reluctance to introduce its own Happoshu until February 2001 indicated that low-malt success came at a price, namely that of profit margins as regular beer drinkers traded taste for a lower price, leaving full-malt brands such as Kirin's Lager Beer faltering.

The great stir created by the launch of Asahi's Honnama Happoshu helped the economy segment surge forward, with brewers trading brand launches, each backed by massive advertising campaigns.

But according to some reports, the excessive number of new brand releases, which totalled 23 in 2007, seems to have backfired. Beer and Happoshu shipments have fallen below the previous year's levels. The third segment will be the only sector to register a positive performance.

Sales of Kirin's new The Gold beer are around 6 million cases, against the company's initially projected 8 million cases, says the BAJ . Shipments of Sapporo's Umai Nama third beer product were about 70 per cent less than projected.

"Consumers were confused by too many new brands," says one company spokesman.

If this was not bad enough Asahi, Kirin and Sapporo have all announced price increases of 3-5 per cent for early 2008 - the first in 18 years, save those forced on the industry by tax rises - citing steeply rising prices in the cost of raw materials, utilities and steel and aluminium for packaging.

To overcome these difficulties, Kirin has branched into pharmaceuticals and seedlings for cut flowers to diversify its sources of revenue. Asahi, which gets 90 per cent of its sales from alcohol, announced plans to buy a baby formula milk maker, Wakodo.

Some of Japan's brewers see China, the world's fastest-growing beer market, as the answer to falling home demand. Suntory began brewing beer in China in 1984. Last year it bought Chinese operations from the Australian Foster's Group, and it now controls about 60 per cent of a booming Shanghai beer market.

Asahi has five breweries in China through joint ventures. And Kirin plans to build a brewery in Guangdong Province and buy out its local partner to make Zhuhai Kirin Brewery a wholly-owned subsidiary.

China, though, is a hard, low-price market and Japanese brands trail other foreign rivals such as Anheuser-Busch, SABMiller, InBev and Heineken. And Japanese beer makers face another barrier in China, where many people still have bitter memories of World War II.

Asahi 's manager for Europe, Kozy Yoshimura, says: "The total market is shrinking slightly every year. We started exporting to make Asahi and Asahi Super a global company and a global brand, and to provide sustainable sales growth."

Asahi beers are now on sale in more than 40 countries, which includes export and licence brewing in China, Thailand, Cambodia, US, Russia and parts of Europe.

Kirin has similar ambitious plans to expand sales. A spokesman says: "We expect Kirin brand beer to be drunk by everyone around the world. We export it to Taiwan, Singapore, Hong Kong, Australia and the Philippines. And we also license-out our brand to overseas partners such as in the UK, the US, China and Russia ."

In 1994, the annual capacity requirement for a brewing licence in Japan was reduced from 2 million litres to just 60,000. This opened the door for a proliferation of small craft breweries.

Crafty solution

Craft brewers share less than 1 per cent of the beer market in Japan, but currently there are more than 280 microbreweries in business, according to the Japanese IRS, the country's tax agency. There are seven breweries that produce about 1,000 kilolitres each year, but most are around 100 kilolitres.

American Bryan Baird and his wife Sayuri founded the Baird Brewery in 2001. It is now regarded as one of the best of the country's craft brewers , drawing on American traditions .

Baird says: "The craft market boomed for a short time, as nascent markets often do, then it tanked - in my opinion because of awful beer sold at expensive prices. But the past few years have witnessed a modest resurgence in craft beer as the players get better and consumers more educated. Growing the market is a matter of more beer meeting the high standards of Japanese consumers as well as more educational efforts aimed at deepening consumer understanding of beer history and tradition."

Yo-Ho is the fourth-largest craft brewer in Japan. Brewmaster Toshi Ishii says: "Basically I'm not a Japanese brewer, but an American brewer. I was trained at the Stone Brewery in San Diego in California."

Ishii produces an interesting range of American and Belgian beer styles . And for the moment, though, he is concentrating on the domestic market . He says: "Now would not be good timing to export our beers to all over the world, even though our home market production is increasing over 35 per cent a year."

So despite the declining headline figures, perhaps it is not sayonara for the Japanese brewing industry after all.

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=== Global beer consumption, litres per capita ===

2002 2003 2004 2005 2006 2007

World 23.2 23.4 23.8 24.5 25.6 26.4

China 19 20.2 21.4 23.4 26.5 28.9

Japan 55.4 53.9 53.7 52 51.3 50.4

Australia 84.6 83.6 84.9 85.8 86 86.5

US 82 81.3 81.3 80.4 81.1 81

U K 97.9 98.3 97.5 96.7 97.5 92.8

Source: Euromonitor International




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