Food & Beverages
Strategically develop mainly in Asia and Oceania and establish a strong business foundation
Kirin Group has been expanding its operations internationally by actively pursuing mergers and acquisitions, focusing on Asia and Oceania in particular as key markets. Subsidiaries around the world are now helping drive the Group’s growth as a whole, including Lion, an operating company of alcoholic beverages businesses in Oceania, and Myanmar Brewery.
Further strengthen profitability
- Established strong brand equity and profit base in Japan
- Expanded value-added categories to overseas, e.g. craft beer
Strategies of operating companies
The market for alcoholic beverages is gradually contracting in Japan owing primarily to the nation’s declining population. In addition, the government began revising the liquor tax in 2020 and will continue introducing incremental revisions through 2026. We expect the revisions to increase the ratio of beer sales and affect the overall the product composition ratio, although the growing consumer preference for lower-priced products will likely result in no significant ratio change until 2026 when the tax rate will be consistent across all categories of alcoholic beverages. We also expect the ratio of RTD category products to continue growing.
Sales volume through on-premise channels fell sharply in 2020 during the COVID-19 pandemic. At the same time, the trends of increasing health consciousness and consumers desiring higher-quality products for home consumption are boosting.
Kirin Brewery is advancing three initiatives to achieve a normalized operating profit margin of 25% of sales revenue, excluding liquor tax, in 2027. The first initiative is to build a robust brand portfolio. We are applying customer-oriented marketing and full-company brand development from production through sales to continue strengthening KIRIN ICHIBAN, Honkirin, and Hyoketsu brands. The second initiative is to establish new drivers for business growth. In 2021, we will increase investment to develop craft beers and the Home Tap beer dispenser. Craft beer offerings have been developed with a primary focus on-premise channels, and we plan to increase our offerings for private, in-home consumers. The Home Tap is a rental keg service that comes with a subscription for regular delivery of one-liter kegs of high-quality beer directly to customer homes. These and other offerings are designed to boost profitability in the shrinking market by increasing the composition ratio of high value-added products and services. The third initiative is to transform the company’s profit structure. A key aim of the restructuring will be to improve the profitability of the RTD category, which has become a main focus for management. We plan to accelerate efforts to introduce high value-added products, review raw material costs, and optimize the logistics cost structure. We will also seek to improve ROI on selling expenses such as by increasing cost variability in the on-premise channel and improving sales promotion efficiency in the mass retail channel.
In 2020 the Australian and New Zealand beer markets were impacted by the spread of the COVID-19, mainly in the on-premise channel due to the temporary closure of pubs and hospitality venues. However, there was some recovery towards the end of the year as the number of new cases decreased and some restrictions were eased. As some social distancing measures such as restrictions on the number of people allowed into hospitality
venues will continue to be required, a certain level of impact will remain, but it is expected to be less severe than in other countries.
In terms of categories, there is growing interest in craft beer, as well as lighter beers, such as contemporary. Other than beer products, Hard Seltzer, which is growing rapidly in the U.S., is gradually expanding in the Australian and New Zealand markets.
Lion will champion sociability and help people live well by having the best and most loved crafted adult beverage brands in our target markets. Our business strategy is focused on accelerating growth and productivity while always keeping the consumer and customer at the heart of everything we do.
Specifically, in addition to investing in core categories such as craft beer and Hard Seltzer, we aim to grow by creating new value. We will also work with Kirin Brewery to strengthen our marketing capabilities. On top of this, the addition of craft beer maker New Belgium Brewing, of the United States, to the Group in January 2020 will enable us to establish a strong competitive position in the global craft beer market.
In terms of functional efficiency, Lion fully introduced a new enterprise resource planning (ERP) system in 2020 and this will improve operating efficiency by consolidating internal processes and enabling faster decision-making by accelerating data analysis. It will also enable us to achieve growth across the organization by fostering cost competitiveness at a global level.
By doing so, Lion will continue implementing measures to advance the Medium-Term Business Plan 2019 strategies to maintain high profitability and expand the foundation for new growth.
The impact of the COVID-19 pandemic was mainly felt in the on-premise market in 2020, and the domestic wine market contracted by 10% year on year. Mercian expects demand for wine products for consumption in the home to continue relatively strong.
In these market conditions, Mercian is aiming to strengthen the brand power of its Château Mercian, Oishii-Sankaboushizai-Mutenka Wine, Frontera, and other core brands and generate demand by developing its casual sparkling wines*1 and organic wines*2.
- Sparkling wine that is easy to drink, easy to buy, easy to use, and can be enjoyed casually in a variety of settings.
- Organic wine meeting the standards of the International Federation of Organic Agriculture Movements (IFOAM)
The market for beer in Myanmar was affected by the COVID-19 pandemic in 2020, but management expects the beer market in the country to return to its longer-term growth trend after the pandemic subsides.
Myanmar Brewery will continue applying the four elements of CSV, marketing, management, and digital transformation to capture the growing demand for products for in-home consumption.
The drastic change in the political situation in Myanmar that occurred in February 2021 is fundamentally contrary to the company’s business principles and human rights policy. The company has determined that the joint venture alliance with Myanma Economic Holdings Public Company Limited (MEHPCL), a welfare fund management company that has a business relationship with the country’s military, must be dissolved, and management is taking steps to sever relations.
The Japan non-alcoholic beverage market contracted by a substantial 7% year on year in 2020 during the COVID-19 pandemic. Kirin Beverage expects the market to grow 2% year on year in 2021 but continue the long-term trend of gradual contraction caused by the country’s declining population.
Amid this overall trend, Kirin Beverage expects the aging population and the heightened health consciousness fueled by the pandemic to support ongoing growth for products in the sugar-free category, which account for 66% of the market, and for health beverages (Foods for Specified Health Uses, Foods with Function Claims), which have been growing by about 10% annually. * The rapidly changing business environment includes a sharp decline in sales volume in the vending machine channel as people refrain from going out and work-from-home becomes more common.
- Health drink: food for specified health use, and food with functional claims
Source: Food Marketing Institute Co., Ltd.
Kirin Beverage is responding to the rapid market changes with CSV-based growth strategy and corporate structural reform. The CSV-based growth strategy focuses on two of the company’s core areas, which it defines as sugar-free and low-sugar products and products with positive health effects. While continuing to highlight its core Gogo-no-Kocha and Nama-cha brands, Kirin Beverage is repositioning itself as a beverage company in health science strategy by focusing on developing its iMUSE brand of Lactococcus lactis strain Plasma products which were registered as foods with functional claims with Japan’s Consumer Affairs Agency in August 2020.
Kirin Beverage is implementing corporate structural reform to reconfigure its channel portfolio and step up its environmental strategy. Reconfiguring the sales channels will entail reorganizing the distribution of management resources across the sales channels and revising the vending machine business structure in line with its shrinking ratio of sales. The environmental strategy includes a joint project with Mitsubishi Chemical to advance chemical recycling of PET plastics to address environmental issues related to plastic and meet societal needs for resource recycling.
The company has set the environment as one of its core CSV areas and plans to feature Nama-cha as its flagship brand for which it will boost the brand value by designing packaging with minimized or no labels and using R100 PET bottles.
Coca-Cola Beverages Northeast
Coca-Cola Beverages Northeast raised its normalized operating profit margin to 7.2% in 2020, achieving the 6% target for 2022 ahead of schedule. The company is facing a harsh business environment of shrinking sales volume, particularly in the on-premise segment. Nevertheless, it will continue seeking to raise its unit prices and maintain efficient cost levels to further improve profitability in the medium and long term.
Kirin Ichiban Shibori Relaunch and Craft Beer Market Development
Over the past two decades, Japan's beer market has continued to shrink. A decline in the drinking population is not the sole cause. At Kirin, we also perceive that beer has lost some of its appeal. In response, we have taken measures to make beer an attractive choice again.