September 16, 2008

Sales Drop As Young Japanese Turn From Beer Companies Look Overseas for Growth and Offer Less Expensive Alternatives

By Mari Saito

Times are tough for brewers in Japan as young people cut back on their drinking to improve their health and their finances.

Young Japanese have become averse to spending their hard-earned cash on alcohol, helping push beer sales down by about 5 percent this year. Brewers are responding by looking abroad for growth and by developing less expensive beers and imitation brews to hold on to domestic customers.

"I rarely ever drink," said one university student, Keisuke Kato. "I don't like the taste of beer. I do a lot of sports and I think beer is fattening. I hate the way it settles in my stomach."

Tax records in Japan show that per capita intake of alcohol, mostly beer, gradually declined to 74 liters, or 19.5 gallons, by 2006 after peaking at 80 liters in 1999. Beer shipments have fallen by more than 10 percent from a peak in 1994.

Analysts attribute the drop to a variety of factors, including an aging population and changing social norms. The decline in beer consumption also reflects a shift in consumer tastes to canned cocktails and less fattening drinks based on shochu, a distilled alcohol commonly made from barley, potatoes or rice. Volume shipments of shochu drinks surged 42 percent in the 10 years leading to 2006.

"Beer has been walloped by cheaper and perceivably healthier alcohol drinks," said Tokushi Yamasaki, an analyst at Daiwa Institute of Research. "Over all, Japanese do not drink as much as they used to."

The relative lack of interest in alcohol among young Japanese is a sharp shift from the past, when drinking bouts with colleagues were de rigueur and tipsy white-collar workers stumbling home late at night were a frequent sight in Tokyo's bar districts.

"Drinking in Japan was about bonding with your colleagues," said Ron Carr, a professor at the Japan campus of Temple University in Philadelphia. "But Japan's declining economy shifted corporate structure and it doesn't require workers to drink together any more.

"When I first came here in the early '90s there were still so many drunken salarymen at the end of the year, drinking beer and spilling out on the streets. I've seen a huge decline in all that."

After the economic bubble burst in 1989, Japan was thrown into years of economic stagnation. This period left its mark on young Japanese who, analysts say, tend to spend carefully.

This wariness of overspending is being exacerbated by a gloomy economic climate, with growing concern that Japan's economy, the largest after the United States', may be in recession. A key measure of inflation hit a decade high in June, pressured by soaring energy costs and an uncertain economic outlook.

Such worries mean that many Japanese are thinking twice before spending on expensive beers, especially when low-alcohol beers, which are taxed less, are so much more affordable.

Faced with drooping sales, some brewers are stepping up production of alternative beers, making lager out of soybeans or adding wheat or barley spirits to carbonated water to make a less authentic brew and thus avoiding high beer taxes.

"Taste is not really a consideration for young people when they choose beer," said Toru Yamazaki, a marketing manager for Kirin, which holds a 36.7 percent share of the beer market in Japan. Rather, he said, they look for terms like "zero calorie" or "low alcohol" on the label.

Takahiro Hamasaki, a bar manager in Shibuya, a popular district in Tokyo, said his business was feeling the pinch. "The way young people are spending money is changing," he said. "They seek cheaper drinks and food, even though they spend a lot of money on clothes. Many of them don't know how to drink. I can always see the ones at the table who are not drinking any alcohol."

Domestic beer sales from the five main Japanese brewers dropped by a combined 4.2 percent in the first half of this year and Kirin Holdings' sales fell by 5.9 percent.

The top four breweries, Asahi, Kirin, Suntory and Sapporo, are jostling to attract new customers as Japan ages, reducing the drinking population even further. Given the demographics, beverage makers will increasingly have to rely on young Japanese for growth. Yet surveys show that young Japanese consume less alcohol than those in their forties do.

Some breweries are looking offshore for sales. Kirin has said it will spend about yen300 billion, or $2.7 billion, in acquisitions and alliances, especially increasing investment outside Japan to stay ahead of its competitors.

But not all the news is bad for brewers. While sales of regular beer may be faring badly, alternative beers are in demand.

Asahi Breweries recorded a 3.4 percent drop in beer sales for the first half year, but sales in its alternative beer category increased by almost 17 percent in the period.

Asahi now plans to introduce more alternative beers, like a ginger-infused beer that taps into the sweet-toothed younger drinkers' market. Other breweries are introducing their own versions of alternative beers aimed at the 20-something market.

"I think for the short term, beer will shift to the alternative beers, where there is high demand," said Katsunori Tanaka, an analyst at Goldman Sachs.

Originally published by Reuters.

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