Asahi Breweries, Ltd. Business Information, Profile, and History

Company Perspectives:

The Asahi Breweries Group aims to satisfy customers with the highest levels of quality and integrity, while contributing to the promotion of healthy living and the enrichment of society worldwide.

History of Asahi Breweries, Ltd.

Asahi Breweries, Ltd. is the number one brewer in Japan; its 38.7 percent share of the Japanese market in 2001 edged out arch-rival Kirin Brewery Company, Limited, which had held the top spot from 1954 to 2000. Aiding Asahi's surge to the top was the 1987 introduction of Asahi Super Dry, which in a decade became the top-selling beer in Japan, a position it held into the early 21st century; in 2000 Asahi Super Dry was the number four beer brand in the world, with shipments of 20.9 million barrels. Other domestic brands include Kuronama, Fujisan, Super Malt, and Honnama, the latter being Asahi's entrée into the burgeoning happoshu (low-malt) category. Asahi is very active overseas and has built a network of alliances with such major brewers as Molson and Miller in North America and Bass and Löwenbräu in Europe, as well as making aggressive moves to capture a major share of the emerging market in China. In addition to its brewery operations, which account for about 75 percent of the company's net sales, Asahi manufactures and markets other alcoholic beverages (including distilled spirits and wines), soft drinks (headed by the flagship Mitsuya Cider), and food products (mainly brewer's yeast extracts and related products); sells pharmaceuticals; and runs restaurants.

Early History

The history of Asahi Breweries is linked with that of virtually every other brewery in Japan. Beer had been introduced to Japan in the mid-1800s. The American in large part responsible for renewing trade relations with Japan, Commodore Matthew Perry, brought several cases of beer to Japan as a gift for the Tokugawa Shogunate. The beverage was so well liked that the Japanese government soon decided to establish a brewing industry. After an extensive search for a suitable area, wild hops were found growing on the island of Hokkaido, the northernmost island in the Japanese archipelago. As a result, in 1876 the Commissioner-General for the development of Hokkaido founded Japan's first brewery in the town of Sapporo. (Coincidentally, the global beer capitols of Munich, Milwaukee, and Sapporo are all located along the 45 degrees north latitude.)

In the late 1880s the government sold its Hokkaido brewery to private interests--and thus the Osaka Beer Brewing Company, Japan Beer Brewery Company, Sapporo Brewery, and Nippon Brewing Company all came into being. In 1888 Hiizu Ikuta was sent to Germany by Osaka Beer Brewing Company to study brewing at the famous School of Weihenstephen in Bavaria. He returned the following year and was appointed manager and technical chief of the Suita Brewery, one of the individual breweries controlled by Osaka. Three years later, in 1892, his creation, Asahi Beer, was released for sale. Osaka was reorganized in 1893 as Osaka Breweries, Ltd.

In 1906 the Osaka Breweries, Sapporo Brewery, and Nippon Brewing Company were amalgamated into the Dai Nippon Brewery Co., Ltd. Asahi, now a separate division of the new company, began a long history of producing nonalcoholic beverages as well as beer. Asahi pioneered the soft drink industry in Japan with both Mitsuya Cider and Wilkinson Tansan, a mineral water. Mitsuya Cider was released for sale in 1907, 17 years after Asahi Beer had first been introduced to the market.

In the years leading up to World War II, particular beer brands tended to dominate local markets. The Asahi brand gained popularity in the Kansai area. The Asahi division expanded in 1921 through the completion of the Hakata brewery and in 1927 with the opening of the Nishinomiya brewery.

Forming Asahi Breweries, Ltd. in 1949

In 1949, as a result of the enactment of the Excessive Economic Power Decentralization Law, Dai Nippon Brewery, which had cornered nearly 70 percent of the beer market in Japan, was divided into two parts--Asahi Beer, Ltd. and Nippon Breweries, Ltd. (the latter later emerged as Sapporo Breweries Limited). In 1951 Asahi introduced Wilkinson Tansan mineral water to the Japanese market. That year also saw the introduction of Japan's first fruit-flavored soft drink, Bireley's Orange. In 1958 the company launched a canned version of Asahi Beer, Japan's first canned beer. Asahi's first plant exclusively devoted to the production of soft drinks was opened in Kashiwa in 1966. Six years later another Asahi soft drink plant began production in Fukushima. By the mid-1970s soft drink sales accounted for 35 percent of the company's total sales.

Asahi also enjoyed other kinds of success. Its Central Research Laboratory, charged primarily with quality control, also developed new products, including "Ebios," a day brewer's yeast renowned in Japan for its medicinal properties; the company introduced Ebios in 1930 and has been manufacturing it ever since. In 1965 laboratory staff invented the world's first outdoor fermentation and lagering tank (the "Asahi Tank"); the West German beer plant construction firm of Ziemann soon negotiated with the company for a license to build the tank.

The early 1970s saw Asahi take its first serious moves outside Japan and in the area of importing. In 1971, in a joint venture with Nikka Whiskey Distilling Company, Asahi established Japan International Liquor to import foreign liquors, primarily Scotch whiskeys (Dewars and King George IV). Also in 1971, Asahi was the first Japanese brewery to have its beer produced overseas under license when it concluded a technical assistance agreement with United Breweries of New Guinea, and a brewery was subsequently constructed at Port Moresby. Two years later Asahi began to import French and German wine. In January 1986 a technology transfer agreement was reached with the San Miguel Corporation of Indonesia for the local production of Asahi beer. Another technical transfer agreement had previously been reached in 1979 with this same company for the use of Asahi's automatic beer gauge system for beer fermentation at other plants under San Miguel control. This system had been jointly developed by Asahi and the Toshiba Corporation.

Asahi entered the restaurant business in the early 1980s. Subsidiary companies--Asahi Kyoei and New Asahi--managed more than 100 restaurants in western and eastern Japan, respectively. The company also entered into a joint venture with the U.S. company Pizza Hut to establish Pizza Hut restaurants in Japan.

Turnaround in Market Share: Mid-1980s

In October 1981 Asahi Chemical Industry (despite their similar names, the companies were not previously related) acquired 22 million shares of Asahi Beer, Ltd. An agreement was concluded between the two companies concerning relations involving personnel, technology, and sales. Asahi Chemical eventually held about 10 percent of Asahi stock, making it one of the brewer's ten largest shareholders.

Another of Asahi's important shareholders at this time was the Sumitomo Group, which held about a 12 percent stake. Over the preceding decades, Asahi's share of the Japanese beer market had declined significantly, from a peak of 36 percent in 1949 to 10 percent in 1981. Among Japanese brewers, Asahi was a distant third, trailing both Kirin and Sapporo Breweries. Executives at Sumitomo Bank had been placed into the president's office starting in the early 1970s, but they were unable to stop the decline. Then in January 1982 another Sumitomo Bank executive, Tsutomu Murai, was sent to Asahi to take over. Murai specialized in turning around troubled companies and had previously helped to rescue Mazda Motor Corporation.

Murai began with a reorganization aimed at improving communication between company departments. He then concluded a series of licensing agreements with foreign companies. In November 1982 the company entered into an agreement with the Löwenbräu Company of West Germany to produce Lowenbrau Beer under license in Japan; production of the German beer began the following April. Asahi also gained needed technical know-how by signing contracts with U.S., British, and German brewers to obtain technology. In 1984 Asahi's soft drink division concluded an agreement with Schweppes, which led to Asahi manufacturing several Schweppes brands in Japan--Tonic Water, Golden French (an apple and ginger drink), Passion Orange, and Grapefruit Dry. Asahi entered into other partnerships, notably to import foreign beers and wines into Japan. Asahi in 1985 formed a partnership with the Australian wine company Lindemann's, after which Asahi sold Australian wine under the "My Cellar" brand.

Perhaps most important, Murai pushed the company to become more attuned to its customers. One byproduct of this was a renewed attention to quality. Asahi abandoned its policy of buying most of its wheat and hops in Japan and began to buy the best raw materials available, regardless of cost or origin. The company also made moves to ensure the freshness of its beer, such as having salespeople visit stores where they would throw out any Asahi beer older than three months.

In 1985 Murai ordered a series of market surveys. Of most significance was that 98 percent of the beer drinkers surveyed advised Asahi to change the taste of its beer; consumers said that they wanted a beer that was rich but left no aftertaste, a combination that the company's technicians said was not chemically possible. Murai insisted that nothing was impossible, and Asahi subsequently developed and introduced in 1986 Asahi Draft, a full-bodied beer with a crisp taste. Then in March 1987 Asahi introduced Japan's first dry beer, Asahi Super Dry, which became a blockbuster hit. Super Dry, a cold-filtered draft beer, contained slightly more alcohol than other Japanese beers--5 percent compared with 4.5 percent--but less sugar and was thus lighter; it was also less bitter. The brand became particularly popular among younger drinkers and helped Asahi's market share increase to 17 percent just one year after its introduction.

So successful was Super Dry that Murai had to abandon a planned diversification that aimed to derive half of the company's revenue from nonbeer operations. Instead, beer increased in importance, making up 80 percent of sales in 1988.

Marketing Innovations and Globalization in the Late 1980s and 1990s

By the end of the 1980s Asahi's market share had surpassed the 20 percent mark and the company (which was renamed Asahi Breweries, Ltd. in January 1989) leapfrogged Sapporo into second place among Japanese brewers. In addition to the new brands, Asahi's success in the late 1980s and early 1990s was also attributable to changes in marketing. In Japan, most beer was traditionally sold in small liquor stores by the bottle. Asahi targeted nontraditional customers by producing more of its beer in cans and packaging it in six-packs, and by sending the canned beer into supermarkets and convenience stores. The company also became much more aggressive in its pitches to retailers who sold beer. Asahi continued to emphasize the freshness of its product and by 1995 was able to deliver beer to stores just ten days after brewing. By 1997 Super Dry had dethroned Kirin's Lager brand from the top spot among Japanese beer brands, and Asahi's overall market share hit 34.4 percent, up from 10 percent in 1985. During the same period, Kirin's market share had plummeted from 60 percent to 43 percent.

From the late 1980s into the mid-1990s, Asahi continued to be active in importing but at the same time stepped up its export activities. A technological agreement was reached with the U.K.-based Bass Brewers Ltd. in 1988, whereby Asahi began to import the Bass Pale Ale brand. In 1996 the two companies entered into a new agreement that called for Bass to produce and market Asahi Super Dry in the United Kingdom and elsewhere in Europe.

In 1990 Asahi gained further access to manufacturing and marketing channels outside Japan by purchasing a significant stake--which stood at 20 percent in 1992--in Foster's Brewing Group Ltd., based in Australia and then the fourth largest beer company in the world. In the succeeding years Asahi expanded its own system of overseas operations so that the purpose of the tie-in with Foster's grew less important. Asahi consequently reduced its stake, then in mid-1997 sold its remaining 14 percent stake back to Foster's.

A 1994 license agreement with Molson Breweries brought Super Dry into the Canadian market. Asahi then targeted the two largest beer markets in the world--the United States and China. In 1995 a wide-ranging alliance with the Miller Brewing Company commenced, which initially featured the introduction of the Miller Special brand in Japan--a brand brewed specifically for the Japanese market--and the Super Dry brand in the United States. In September 1996 Asahi and Miller introduced Asahi First Lady, a beer targeted toward women, in Japan and the United States. In April 1998 Asahi Beer U.S.A., Inc. was established as a U.S. marketing and sales company that would work with the Miller distribution network to increase sales of Super Dry in the world's leading beer market.

On the Chinese front, in 1994 and 1995 Asahi acquired shares in and began managing five Chinese brewing companies in Beijing, Yantai, Hangzhou, Quanzhou, and Jiaxing. Initially four of the companies sold a beer called Asahi Bichu, then in March 1998 Yantai Beer Asahi Co., Ltd. launched the production and sale of Asahi Super Dry. Meanwhile, in December 1997, Asahi entered into a joint venture with the largest beer maker in China, Tsingtao Brewery Co., to construct a state-of-the-art beer plant in Shenzhen. Production of Asahi Super Dry began at this plant in May 1999.

In addition to growing market share in Japan and an increasing presence in Europe, North America, and China, further proof of the brewer's resurgence came in 1996 when Asahi posted record net sales and net income. Asahi repeated the feat in 1997. In mid-1997 the company finished construction of a new research and development center in Ibaraki Prefecture and was confidently building its ninth brewery, the Shikoku brewery, which was subsequently completed in June 1998. In March 1999 Asahi reached an agreement with Bass Brewers whereby Bass would undertake local production of Asahi Super Dry through an affiliate in the Czech Republic called Prague Breweries, A.S.

Becoming the Number One Japanese Brewer in the Early 21st Century

In the late 1990s and into the early 2000s, the overall beer market in Japan was stagnant (in part because of the shrinking number of young people), but there was a significant shift occurring in the types of beers that Japanese people were consuming. Rapidly growing in popularity were low-malt beers known as happoshu. In the mid-1990s, some Japanese brewers decided to take advantage of the fact that beer in Japan is taxed according to its malt content. The tax on low-malt beers was significantly lower, resulting in a retail price about two-thirds that of a regular beer. Budget-conscious consumers snapped up the lower-priced beer in increasing numbers, such that by 2000 the happoshu segment accounted for 22 percent of the overall beer market. (To maintain a beer-like taste, producers of happoshu used various types of malt substitutes.)

For some time, Asahi had been able to ignore the happoshu phenomenon because Asahi Super Dry was defying the trend and continuing to gain market share. As the low-malt interlopers continued to gain market share, however, Asahi felt compelled to launch its own happoshu brand. Asahi Honnama launched in February 2001 and captured 22.3 percent of the happoshu market for 2001, despite Asahi being the last of the major Japanese brewers to enter the segment. This terrific debut helped Asahi Breweries finally surpass Kirin and claim the top spot in the Japanese beer market for 2001 with a market share of 38.7 percent.

The year 2001 also saw Asahi return to the black after posting a net loss in 2000 that was attributable to large write-offs of unrealized losses from securities holdings and pension-related liabilities. Overall sales for 2001 increased 2.4 percent over the previous year, with the ¥1.43 billion ($10.86 billion) figure being a record for the company. In addition to its successful introduction of Honnama, Asahi also was concentrating on strengthening its nonbeer alcoholic beverage operations in order to develop a more complete lineup of alcoholic products. To that end, Asahi announced in February 2002 that it would acquire the alcoholic beverage businesses of Kyowa Hakko Kogyo Co. for about ¥20 billion ($150.8 million). The deal included production and sales facilities for ready-mixed alcohol drinks, wine, and shochu, a distilled liquor comparable to vodka. In April 2002 Asahi reached an agreement with Maxxium Worldwide, a Dutch liquor sales firm, whereby Asahi gained the rights to market in Japan such brands as Remy Martin brandy, Highland Park whiskey, Absolut vodka, Cointreau liqueur, and Maison Louis Latour wine. Also in April 2002 Asahi agreed to purchase the shochu and low-alcohol beverage operations of Asahi Kasei Corporation. In August 2002 Asahi declared that it would buy a 10 percent stake in Okinawa-based Orion Beer Co., the fifth largest brewer in Japan with a market share of almost 1 percent. This last was a seemingly minor deal, but it did show that Asahi, having finally gained the top spot in Japanese brewing, was likely to leave no stone unturned in fighting to maintain that long-coveted position.

Principal Subsidiaries: The Nikka Whisky Distilling Co., Ltd.; Asahi Beer Pax Co., Ltd.; Asahi Soft Drinks Co., Ltd. (51.2%); Asahi Beer Food, Ltd.; Asahi Beer Pharmaceutical Co., Ltd. (99.8%); Nippon National Seikan Company, Ltd.; Asahi Beer Malt, Ltd. (91.9%); Asahi Logistics Co., Ltd.; Asahi Food Create, Ltd.; Asahi Beer Garden, Ltd.; Asahi Beer Real Estate, Ltd.; Asahi Beer U.S.A., Inc. (99.2%); Asahi Beer International Finance B.V. (Netherlands); Asahi Beer Europe Limited (U.K.); Buckinghamshire Golf Company Limited (U.K.); Asahi Breweries Itochu (Holdings) Ltd. (China); Hangzhou Xihu Beer Asahi Co., Ltd. (China; 55%); Jiaxing Haiyan Beer Xihu Asahi Co., Ltd. (China; 55%); Quanzhou Qingyuan Beer Asahi Co., Ltd. Fujian (China; 60%); Asahi Breweries Itochu China (Holdings) Ltd.; Beijing Beer Asahi Co., Ltd. (China; 55%); Yantai Beer Asahi Co., Ltd. (China; 53%); Yantai Beer Dong Ying Xinyi Co., Ltd. (China; 60%); Asahi Beer (China) Investment Co., Ltd.; Asahi Beer (Shanghai) Product Services Co., Ltd. (China); Qingdao Tsingtao Beer & Asahi Beverage Co., Ltd. (China; 60%).

Principal Competitors: Kirin Brewery Company, Limited; Sapporo Breweries Limited; Suntory Limited; Takara Holdings Inc.; Mercian Corporation.

Chronology

• Key Dates:
• 1889: Japanese government sells its Hokkaido brewery to private interests, simultaneously establishing Osaka Beer Brewing Company and several other brewing companies.
• 1892: Osaka begins production of Asahi Beer.
• 1893: Osaka is reorganized as Osaka Breweries, Ltd.
• 1906: Osaka, Sapporo Brewery, and Nippon Brewing Company are amalgamated into Dai Nippon Brewery Co., Ltd., which includes a separate division called Asahi.
• 1907: Asahi introduces the Mitsuya Cider soft drink brand.
• 1949: Dai Nippon is divided into two parts: Asahi Beer, Ltd. and Nippon Breweries, Ltd.
• 1958: Canned version of Asahi Beer, Japan's first canned beer, is introduced.
• 1983: Asahi begins producing Lowenbrau Beer under license in Japan.
• 1987: Asahi Super Dry is introduced and becomes a blockbuster hit.
• 1989: Asahi Beer, Ltd. is renamed Asahi Breweries, Ltd.
• 1994: A push into the burgeoning Chinese market begins with the purchase of controlling interests in several breweries.
• 1995: Wide-ranging alliance with U.S.-based Miller Brewing Company commences.
• 1996: Super Dry becomes the top-selling beer in Japan.
• 2001: Asahi enters the happoshu segment with the introduction of Honnama; company gains the top spot in the Japanese beer market, edging past longtime rival Kirin.