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Case-japanese Beer Industry

Case-japanese Beer Industry

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Published by Johar Menezes

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Published by: Johar Menezes on Nov 27, 2010
Copyright:Attribution Non-commercial


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Case 12
The Japanese Beer Industry
INTRODUCTIONIn 1980, after two decades of phenomenal growth during Japan’s “economicmiracle” years, the Japanese beer industry appeared to have changed from a growthto a mature industry. Beer consumption had leveled off; after increasing fivefoldfrom 1955 to 1965, and then doubling between 1965 and 1975, it grew by only 15 percent from 1975 to 1980. And with Japan’s population growing at a rate of only0.4 percent a year, demand was not expected to increase significantly in theforeseeable future.Virtually all the beer consumed by Japanese drinkers was produced by Japan’sfour brewers: Kirin, Asahi, Sapporo, and Suntory. These companies formed a profitable oligopoly protected by high entry barriers in distribution, advertisingcosts, and government regulation. In 1980 Kirin dominated the industry with a 60 plus market share. The company also acred as price leader, setting prices at a levelhigh enough to allow the weakest two competitors. Asahi and Suntory, to survive.This arrangement was tacitly supported by the Japanese government because of thehuge tax revenues that profitable beer companies brought in.The Japanese brewers competed with each other mainly through developmentand control of distribution channels and advertising. While there had been a certainamount of product innovation, Asahi, Sapporo, and Suntory had learned fromexperience that when one of them came out with a new product that threatened totake market share away from Kirin, the industry lender would imitate the innovationand use its advantage in reputation, distribution, and financial clout to overwhelmthe originator. Thus was a certain balance maintained the three smaller brewersavoided directly attacking Kirin for fear of retaliation, while Kirin, for its part fearfulthat further share gains would put the company in violation of Japan’s anti-monopoly law, restrained itself from doing anything that would further weaken itsrivals.Ten years later, however, the industry presented quite a different picture. Inthe mid-1980s, beer consumption picked up again, jumping 37 percent from 1985 to1990. Demand was expected to continue to grow at a rate of 5 percent a year duringthe first half of the 1990s. Sales growth had not translated into higher profits,though, as an expensive new product war had broken out in the mid interest andhelped stimulate demand. It also had dramatically reversed Asahi’s fortunes and
 produced the biggest market share shake-up an industry history. By 1991, however,the new product sweepstakes appeared to have become a negative-sum game, andthe high costs of developing and advertising new beers had many in the industrylonging for a return to the more stable and profitable competitive arrangements of the pre-1980s.About the time Samuel Taylor Coleridge (1772-1834) was penning the line “Water,water everywhere, nor any drop to drink,” British and Dutch trading ships were oft-loading kegs of beer in Japan. In 1870 Japan’s first brewery, Spring ValleyBrewery, was established by an American in Yokohama, and by the early twentiethcentury the popularity of beer had grown to the point where as many as 100independent breweries were operating.World War I proved to be a boon for Japanese brewers. Fueled by a consumer market in Southeast Asia that European producers were unable to supply because of the war, local breweries began exporting an expanding. The building of new plantswas facilitated by the availability at bargain prices of brewing and battlingequipment from America, where prohibition had shut down scores of companies.Brands such as Sakura, Kabuto, Fuji, Union, and Cascade Beer flourished, alongwith today’s familiar Kirin, Sapporo, and Asahi.All was not a bed of hops, however. With the stock market crash andworldwide depression of the late 1920s and 1930s, demand plummeted, resulting ina period of brewery failures and consolidations. As Japan went to war in the late1930s and 1940s, barley and hops became harder to obtain, there were shortages of needed electricity and coal, and beer taxes were raised continuously to provide war funds. By the end of the war only three brewers remained in Japan, and one of thesewent out of business in 1948. The two that remained were Kirin Beer, a descendantof Spring Valley, and Dai Nippon Breweries, which had evolved over a 40-year  period through the merging of numerous independent brewers, among them theoriginal Sapporo and Asahi.In 1949 Dai Nippon Breweries, which controlled nearly three-quarters of the beer market, was declared to be in violation of Japan’s anti-monopoly law, whichhad been imposed by the United States in its postwar occupation of Japan for the purpose of dissolving Japan’s zaibatsu (financial cliques). Dai Nippon was split intotwo parts along geographical lines: its breweries and distribution network in westernJapan became present-day Asahi Beer, while its breweries and distribution network in eastern Japan (including Tokyo) became Sapporo.
At the time of the breakup, Sapporo held 38.6 percent of the market, Asahi36.1 percent, and Kirin 25.3 percent. The next 30 years were a Kirin success story,as Kirin steadily increased its share of the market at the expense of its rivals andcame to dominate the industry (see Exhibit 1.), Kirin’s success is attributed toseveral factors.1.The breakup of Dai Nippon into Sapporo and Asahi left Kirin with the onlynationally recognized brand name and nationwide sales network, giving Kirina scale advantage in advertising and, until the others could expand their distribution networks, a larger target market.2.Kirin anticipated growing demand and, in order to meet it, built new production capacity aggressively, at the rate of one brewery every two years.3.Kirin concentrated on the home consumption market, which was growingrapidly as refrigerator use became widespread during the 1950s and 1960s.Asahi and Sapporo, by contrast, focused on the shrinking commercial market,in which they traditionally had been strong.
The strong, bitter taste of Kirin’s larger beer was right for the times. Thediet in postwar Japan was poor and bland, and people craved strong tastes.

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