Asahi chief toasts future of Japan's alcohol market

Naoki Izumiya, the busy chief executive of Japan's largest beer company, does not look the kind of man who would spend his mornings in front of a popular television drama.

But the head of Asahi Group Holdings is thrilled that the NHK public channel is broadcasting a serial based on the life of Scotswoman Jessie Roberta Cowan, who married Japan's founding father of whisky in 1920.

Masataka Taketsuru's Nikka whisky is owned by the Asahi, the food and drinks conglomerate best known for its Super Dry beers. Though neither Nikka's name nor that of its founder are used in the 150 TV episodes, "every Japanese knows that this is [the story of] Nikka whisky, so it is a very good advertisement for us", beams Mr Izumiya.

The free publicity is a welcome boost for Asahi in Japan's crowded beer market. Four big brewers compete in the country of 126m people, where the population is forecast to drop 30 per cent by 2060 on current fertility trends.

Seated in the amber-coloured Asahi Beer Tower in Tokyo - a giant beer jug of a building with a foam-like white roof alongside a huge Philippe Starck sculpture of a gold sud - Mr Izumiya is less pessimistic than most.

"I don't agree with those who are negative on the future of the Japanese market. There are only 12 countries in the world with a population of over 100m. We are blessed with such a big mother market. Having a large share in this market means a lot," the 66- year old says in an interview with the Financial Times.

Nevertheless the Japanese beer market peaked in terms of volume in 1994. "We have continued to grow until 2001 but then we have started a decline," he acknowledges.

Though he sees overseas expansion involving M&A by Asahi as both desirable and inevitable, he believes it can only be done from a position of strength in the domestic market.

Citing the example of the global leader in the beer industry - Anheuser-Busch InBev - Mr Izumiya says: "Their core market is the Americas - United States, Canada, Brazil, Mexico. They have also gone overseas into other regions. We will be able to do that with the core market in Japan."

Asahi has the biggest share of the Japanese beer market, having overtaken rival Kirin though the two are close competitors, with shares respectively, of 38 per cent and 35 per cent. This puts them well ahead of Suntory and Sapporo, according to Nomura analysts.

Mr Izumiya says Asahi has shifted away from a margin-destructive price war between the four brewers towards introducing more premium beers, including one served close to its freezing point.

Its Extra Cold version of Asahi Super Dry became a hit when it was launched back in 2010. The beer is refrigerated to minus two degrees Celsius, just above its freezing point.

"The taste becomes much sharper and appeals to the younger generation that love this sharper taste unlike older people who prefer something bitter," said Mr Izumiya. "We shifted towards that preference earlier and that was our success."

Premium beer, which is priced about 10-20 per cent higher than regular beer, is also a bright spot.

Led by Sapporo's Preimum Yebisu and Suntory's The Premium Malt's, the high-end segment is expected to grow from less than 5 per cent of Japan's beer market in 2003 to 15 per cent by the end of this year, according to Suntory's estimate.

Asahi followed suit with the launch of Super Dry Premium last summer and Kirin came in last with the start of gift delivery of Ichiban Shibori Premium from this June.

Sapporo, Suntory and Asahi saw domestic beer sales increase in the first half of the year thanks to the premium segment, while Kirin saw a 4.8 per cent decline.

But at some point, the Japanese brewers will have to consolidate if they are to achieve the scale necessary to take on the globalised beers groups - AB InBev, SabMiller, Heineken and Carlsberg.

"To become a serious global player, some domestic consolidation is likely first," says one Tokyo-based M&A banker.

Talk of domestic consolidation has been longstanding not only in the beer industry but across other sectors, including consumer electronics, cars and pharmaceuticals.

It has been slow in coming partly as a result of distinct corporate cultures; this was manifest in the 2010 failed merger talks between Kirin and Suntory. The talks fell apart after the top executives failed to agree on who would take control of the company.

Since then, smaller deals have taken place including Sapporo Holding's investment in privately held Pokka, known for its canned coffee in 2011, and Asahi's takeover of beverage maker Calpis in 2012.

Analysts say domestic merger talks may re-emerge with the appointment of Takeshi Niinami, who took up his post of Suntory president this month. The former head of convenience store operator Lawson is known for his unconventional business approach.

Analysts also say Kirin - which has had a chequered overseas M&A record - may need to shop for targets in Japan especially as it stalls in its domestic beer strategy.

"Japan is still one of the most attractive markets in the world for our business," says Mr Izumiya. "But I don't think we need four companies to try and satisfy the domestic demand."

He will not be drawn further but one thing is for certain: it will take more than a hit TV series to broker the consolidation he thirsts for.

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