KIRIN BREWERY CO. LTD.

THE DRY BEER WAR

Prepared by: Ted Blair, Jason Epstein, John Morill, Daniel Ojeifoh, Hunaid Sulemanji
Instructor: Dr. Anu Mitra
For: Marketing Management

INTRODUCTION

The Japanese beer industry has grown considerably as beer consumption has become a mainstream part of Japanese culture since World War II. Statistics show that both alcoholic consumption per capita and beer consumption per capita have doubled between 1965 and 1987. As of 1987, the 500 million kiloliter beer market commands 67% of all alcoholic beverages consumed. In Exhibit A, Table 1, the per capita consumption and annual alcohol consumed the beer drinking population is estimated at just over 11.4 million beer drinkers.

In contrast to other alcoholic beverages, the beer image is clear. It is a casual drink associated with relaxing or social events, such as sports. Popularity is spread across social classes. Beer drinking is seasonal (1/3 of sales in June and August) and mostly consumed during the summer months.

SITUATIONAL ANALYSIS

Market

Four breweries have long dominated the market: Kirin, Asahi, Sapporo, and Suntory (see Exhibit B, Product Mix by Brewer). Other Japanese manufacturers and foreign beer sales account for only one percent of the market. Market segments have been defined according to product characteristics. As it matures, the beer industry develops according to more specialized tastes (e.g. soft, rich, smooth, sharp). Furthermore, brewers in the 1980’s have positioned their products to attract more consumers and better cater to specific alcoholic content and taste needs (see Exhibit B, Comparative Market Share by Segment). Demographics also are key elements which brewers use to define their target markets. These users have been defined according to age, sex, and especially usage (e.g. light, middle, heavy).

Company (Kirin)

Kirin has maintained its market leader position in the Japanese beer industry for nearly 40 years. As a market leader, its dominance is closely linked to its many strengths.

These strengths include:

market share of 57% (Exhibit A, Market Share to Marketing Expenses) in total beer sales and controlled 91% of the lager segment in 1987 (Exhibit B, Comparative Market Share by Segment)
strong brand equity from Kirin Lager;
strategic factory location (close proximity to major Japanese cities ensuring freshness of product);
largest operational capacity in the industry (shown in Exhibit A, Capacity/Capital Investment);
exclusive rights to 516 suppliers (70% of its 800 wholesalers and 31% of Japan’s 1800 wholesale distributors);
immense capital reserves (Y31 billion alone in 1987 profits);
large economies of scale;
strategic alliances and multiple joint ventures (distribution networks for US, Canada, and Australian companies) and;
category extension diversification.

Kirin’s main strengths contribute to their weaknesses. While an analysis does not show many company weaknesses, they render Kirin vulnerable to competitor attacks.

Its weaknesses include:

poor category extension choices (ventures in bio technologies);
heavily dependent on beer sales (94%) and the lager segment (83%);
minimal motivation to compete through innovation due to size and heretofore little dynamic competition, and;
reliance on older beer drinkers (40+ year old males).

In reviewing the strengths/weaknesses in Exhibit C both before and after the release of Dry beer, Kirin maintains strong competitive advantages over its competitors.

Competition

Entry into the Japanese market is severely restricted. Japanese state agencies mandate licensing for brewing and wholesale beer distribution. Additionally, prices are fixed at suggested rates and heavily taxed at 46.9%. As shown in Exhibit A, Capacity/Capital Investments, a new entrant would have to invest a minimum of Y150 billion in plant and equipment costs and Y21.1 billion (Exhibit A, table 4) to cover advertising and promotion, to be competitive. Between regulatory requirements, closed distribution channels, and high initial capital investment requirements, the Japanese beer market will remain an oligopoly. International competitors recognize this fact and enter into joint venture agreements to evade the restrictions. Nonetheless, the four Japanese breweries still account for 99% of total beer sales.

Kirin enjoys many opportunities:

Fourth largest beer market in the world (500 million kiloliters);
The Japanese alcoholic consumption population has room to expand to the 5.6 million consumers (33%) who are not currently beer drinkers;
Kirin currently distributes than less than half of the Japanese wholesalers (800 of 1800);
Emergence of female beer drinkers (more health & weight conscious);
Lucrative market (Y5 billion in marginal profits associated with each market share);
20+ years adult population is growing at a 1.2% average annual rate, and;
40+ years adult population is growing at a 1.4% average annual rate.

As for consumer preferences:

70% of beer is consumed at home;
Beer is typically consumed before dinner, but generally after 6 p.m.;
It is consumed after a bath (ofuro) or sports;
The quality of beer is judged by its freshness, and;
Most consumption occurs in the summer months.

Threats to Kirin’s dominance include:

Asahi is focusing its marketing activities on Kirin’s traditional lager drinkers;
Asahi is gaining on Kirin’s freshness competitive advantage;
A homogenous brewing process among competitors blurs distinctions among the brands;
Kirin faced antitrust lawsuits in 1979 when they pushed the market share past 50% to 63%. If Kirin pushes too hard in head-to-head competition against Asahi, Kirin may face government anti-trust actions.
Marketing tools including promotion and branding are losing its effectiveness, and;
International brews have doubled their market shares between 1984 to 1987.

Kirin Brewery

Strengths

Maintained a dominant market leadership position for 40 years (Brand Equity - 90% in Lager)

Exclusive rights to 516 supplier (70% of the 800 wholesalers, which equates to 31% of the 1,800 wholesale distributors)

More operational capacity, 14 factories and 3.5 million kl

Large capital reserves (annual profits topped Y31,000 million)

Large economies of scale (top)

Logistical location allows Kirin to provide a freshness competitive advantage

Joint ventures (distribution networks with strategically alliances in the US, Canada, and Australia)

Category extension diversification

After Dry Beer (Strengths)

Ability to react to the dry beer market (consumed almost 25% of market share from Asahi in the following year)

New product line strategy such as Cool, Malt Dry, and Pilsner (line extension to dry beer)

Only brewer to post positive gain on the draft market

Weaknesses

Poor category extension choices

Heavily dependent on beer sales (94%) with 83% dependence on Lager

No motivation to compete through innovation.

After Dry Beer (Weaknesses)

Slow to determine if the dry beer is a fad or significant investment over long term

Faces gradual erosion because of redefinition of the beer market in Japan.

Sapporo Breweries Ltd.

Strengths

Dominant position in draft segment

Second largest economies of scale in the industry with operational capacity of 2.5 million kl

Diversification and product extensions

Weaknesses

Poor protection of territory, thus loss of market share

Heavily dependent on draft beer

Suntory Ltd.

Strengths

Monopoly in whisky market (well diversified)

Large capital revenues

Market leader in Malt

Capitalized on line extension rather than product extension.

Weaknesses

Smallest operational capacity per plant

Largest market expenditure but lowest market share (ineffective marketing strategies)

Asahi Breweries Ltd.

Strengths

Alternative recognition of consumer preferences and tastes (lager to draft)

Diversification and product extensions (such as extension to soft drinks and pharmaceuticals)

Ability to tap into a new niche market (dry beer)

Emphasize quality over cost (willingness to go beyond Japanese market for best ingredients)

Variety of marketing strategies (for a small market segment they utilize a higher sales force)

Effective use of market resources to support new product launch.

After Dry Beer (Strengths)

Able to focus on marketing activities to Kirin's Lager segment

Able to maintain dominance in the new niche (dry beer)

Weaknesses

Growing sales but declining profits.

Continued loss of beer market share and distribution retailers

Inability to differentiate products from competitors

After Dry Beer (Weaknesses)

High barrier to exit in the event dry beer were to fail as a fad

Although strong sales but declining profits

PROBLEM STATEMENT

Kirin faces an overall market share erosion caused by a redefinition of the traditional Japanese beer market. Asahi has mounted a frontal attack to create a specific dry beer niche which is being marketed to Kirin Lager’s target market (40+ year old males). Kirin has been slow to determine if dry beer is but a fad or may have a significant long-term impact in the Japanese beer segments.

ALTERNATIVE EVALUATION

The facts remain that the dry beer niche is projected to comprise 33% of beer sales in 1988 totaling 1.9 billion in Yen (see Exhibit A, Table 5). Further, each of the four brewers have launched a dry beer. Kirin must take action to defend against further market share erosion. What are their alternatives?

Become the Market Leader in the Dry Beer Niche.

Kirin has the capacity, resources, and brand equity to overtake to become the Dry Beer King. Whether the dry beer phenomenon is a fad or not, the market is too large to ignore. The dry market is experiencing hyper growth, with the very real possibility that it will soon command a large share of the beer market. Moreover, Asahi has thus far successfully exploited Kirin’s target over-40 male market. Kirin could better withstand losses from a price war. Under this alternative, competition will be fierce as barriers to exit are high for Asahi.

Unleash a frontal attack in the draft market.

Kirin’s major competitor in the draft segment, Sapporo, has experienced a gradual decline in market share. Kirin is the only competitor which is projected to gain in draft beer sales (see Exhibit A, table 5). Further, Antitrust action is less likely since Sapporo is a larger and healthier company than Asahi. Draft beer is an established market and dry beer has many characteristics similar to shochu. Clearly, draft is not a fad. Furthermore, marketing surveys indicate that draft beer is evaluated as a smooth and soft product, which has a cross-gender appeal.

RECOMMENDATION

Regardless of approach, Kirin Lager is a cash cow. Kirin Lager Beer equals brand awareness and brand loyalty. Therefore, there should be an increase in advertising with no change in promotion to maximize effectiveness.

Whether or not dry beer is a fad, Kirin cannot continue to ignore its drop in overall market share. Accordingly, Kirin should proceed with the launch of a dry beer variation, but ought to be more cognizant of taste tests and surveys to define tastes for target markets. Too many products in the same positioning category will only lead to product cannibalism.

Nonetheless, the draft market has great possibilities for Kirin to remain a market leader. Kirin must expend additional resources on advertising to appeal to a younger middle-user population that enjoys smooth and soft tastes. Price cutting can be expected to enhance the company’s attractiveness to potential customer. Kirin is better able to absorb the squeeze in profit margin than Sapporo.

Sapporo Breweries Ltd.
Strengths Dominant position in draft segment Second largest economies of scale in the industry with operational capacity of 2.5 million kl Diversification and product extensions	Weaknesses Poor protection of territory, thus loss of market share Heavily dependent on draft beer

Suntory Ltd.
Strengths Monopoly in whisky market (well diversified) Large capital revenues Market leader in Malt Capitalized on line extension rather than product extension.	Weaknesses Smallest operational capacity per plant Largest market expenditure but lowest market share (ineffective marketing strategies)