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January 9, 2009

Kirin Brewery: Business Approach for 2009

2009: Kirin Brewery Basic Strategy

2009 marks the final year of our 2007 - 2009 group medium-term business plan, and Year Zero in the run-up to our next medium-term business plan. We intend to secure high levels of customer support and loyalty by improving our product solutions in the comprehensive alcohol beverages approaches, and strengthening group alliances as part of a comprehensive beverages strategy. We will further strengthen the shift that we have pursued until now from a price-driven approach to a value-driven approach. In doing so we will develop the robust corporate constitution needed to produce stable earnings amid harsh business conditions.

Key Issues

  • Secure higher levels of customer support and loyalty in the growing new genre category, and strengthen Kirin's sweeping position in the happo-shu category. Reinforce core brands in the beer category
  • Further strengthen Kirin's top position in the RTD (Ready to Drink) category for pre-mixed cocktails, aiming to develop our product portfolio and grow overall demand. Expand Kirin's presence in the markets for type A and type B shochu
  • Strengthen marketing activities tailored to individual areas, reinforce quality improvement and safety and reliability in our raw materials and at our production facilities, and pursue efficient SCM strategy to ensure that each division produces, transports and sells products of value to customers
  • Create synergies with other Kirin group companies such as Kirin Beverage and Mercian, targeting all parts of the value chain from product development through to sales
  • Develop our own social contribution program based around the themes of the environment, product development, and food safety and reliability, and making use of using the technology of Kirin Group

Review of 2008

 The combined domestic market for beer, happo-shu and new genre contracted in 2008, influenced by Japan's declining population and decreasing birthrate, the diversification of individual tastes, price revisions against a background of higher raw materials costs, and other factors. Kirin's sales volume in this market was 180.2 million cases.
 During 2008, Kirin focused on the three themes of strengthening core brands, strengthening low-carbohydrate products, and increasing overall demand. In the new genre market, which grew considerably, Kirin Nodogoshi continued to receive unparalleled support, and we launched Kirin Strong Seven as a response to recent consumer trends that show a growing tendency toward thrift and a diversification of individual tastes. Our performance in the happo-shu category was strong: in addition to strengthening the top position of our core brand, Tanrei, we upwardly revised our sales targets for Kirin ZERO twice. In beer we focused mainly on Kirin Ichiban Shibori. In RTDs we made product proposals on a new axis from the Kirin Chu-hi Hyoketsu brand to develop Strong and Zero, both of which were received positively.

Initiatives in 2009

 With the industry expected to continue on its overall negative trend in the combined domestic market for beer, happo-shu and new genre, Kirin has positioned this market as a priority area. We aim to further increase customer support, strengthen our comprehensive alcohol beverage operations by advancing group alliances, and improve our profitability despite the harsh business conditions that persist in the domestic alcohol market. We will also strive to fulfill our responsibilities as the core business supporting the overall growth of Kirin Group, promoting Kirin's development as a comprehensive beverages group.

2009 Kirin Brewery sales targets   Millions of cases (one case=20 large bottles for beer/ happo-shu and new genre, and 24 250ml cans for RTD)

Beer/ happo-shu/
new genre
Beer Happo-shu New genre RTD
179.3 (down 0.5%) 63.2 (down 7.3%) 62.4 (down 2.7%) 53.7 (up 12.1%) 36.9 (up 9.5%)

1. Product Strategies

(1) Beer, happo-shu, new genre

 Drawing on the ongoing growth in the health consciousness of consumers, we intend to advance and further develop the three key themes that we promoted during 2008: strengthening core brands; improving our response to consumer health consciousness; and increasing overall demand. We will also proactively address diversifying customer needs by leveraging group technology to advance the concept of evidence marketing1, based on our awareness that customers are looking for product clarity and a simple rationale for their purchases. From June 2009 we will add Guinness to our lineup of imported beers, which already includes Budweiser and Heineken, and will strengthen our approach to the premium category in particular.

  • 1. A marketing technique that promotes products by providing customers with easy-to-understand evidence and product value that is supported by technological or other forms of proof
Strengthen core brands

 2009 marks the 20th anniversary of the launch of Kirin Ichiban Shibori, and during the year we will renew this product. To further evolve the character of Ichiban Shibori we will make the beer 100% malt and achieve an even clearer taste. In the happo-shu market, in which we enjoy strong customer support, we will use new advertising and marketing campaigns to further strengthen Kirin Tanrei Nama as a brand; this will mainly center on a fine-tuning of its taste to promote the value of authentic taste with refreshing crispness. In the new genre market, which continues to see new product launches from other companies, we will focus mainly on Kirin Nodogoshi Nama, developing our popular television commercials and posters to promote its strength as a product backed by technological excellence.

Improve our response to consumer health consciousness

 Consumer health consciousness is expected to continue to increase during 2009. We aim to further boost customer support mainly through Kirin Tanrei Green Label, which contains 70% less sugar, while also promoting Kirin ZERO and our new product Tanrei W, which combines wine polyphenols with a 99% reduction2 in purines to achieve a diverse lineup that reflects the widening market.

  • 2. Compared with regular Kirin happo-shu
Increase overall demand

 As the business environment continues to change in a variety of ways, the task of increasing overall demand is becoming more urgent. Focusing on Kirin Strong Seven and Sparkling Hop, we will strengthen our crossover products between the RTD, shochu and soft drinks categories to offer new value proposals to our customers.

  • Launch of Kirin Free

 We will launch Kirin Free, a non-alcohol beer-taste beverage, that customers can enjoy before driving, before and after sports, and in other situations in which they previously could not drink beer with peace of mind. We have developed a new production method that does not produce alcohol, to achieve the world's first3 beer-taste product containing 0.00% alcohol.

  • 3. According to a Kirin survey of products in the beer-taste beverage category

(2) RTD

 In 2008 we achieved renewed growth in the RTD category, with substantial contributions from new offerings such as the Strong and Zero products that developed from the Kirin Chu-Hi Hyoketsu series, along with Two Dogs cocktails. During 2009 we will aim to further expand the market by strengthening our proposals to the 30 to 40 year-old age bracket in addition to the consumers in their twenties that we already target. We will launch Grapefruit Spumoni from the Two Dogs brand of cocktails and Mango Orange from the Gyugyutto Shibotta series. In June we will add the world's number one selling RTD, Smirnoff Ice®, to our lineup, offering stylish new ways to enjoy the RTD experience.

  • Launch of Hyoketsu Aperitif

 During 2009 we will launch Hyoketsu Aperitif, offering consumers an RTD beverage that helps bring out the flavor in a meal. This new product from the Hyoketsu series has been developed in collaboration with Mercian, which has expertise in the compatibility of wine and food.

(3) Japanese/western liquor category

 In shochu we will increase our presence in the growth categories of shochu group B and blended shochu, with good product lineups centering popular brand Hakusui. We aim to achieve further growth in the western liquor category, mainly by promoting products such as Chivas Regal, Fujisanroku and Four Roses.

  • Launch of Kirin Shochu Tanrei Straight

 As a proposal for a new drinking style in line with the general trend toward lighter, crisper tasting beverages, we will launch Kirin Shochu Tanrei Straight as a limited edition product in the Kanto, Koshinetsu and Shizuoka regions of Japan. This new product is aimed at tapping demand for shochu that can be enjoyed chilled and straight.

2. Strengthening marketing capability

 Our aim is to ensure that Kirin products are closest to customers, and in pursuing this aim we adopted a new market-covering organizational structure in September 2008. We intend to make use of this new structure during 2009 to develop our customer relationships in each region based on extremely close appreciation of and response to the specific characteristics of each market area, while increasing our overall activity level to develop our wholesale and on-premise business. On the sales front, we will pursue a range of initiatives including developing our support campaign for the Japan soccer team, implementing plans for collaboration with food makers and carrying out internet-based marketing initiatives that draw on new food trends. We will also use Kirinology, our unique knowledge circulation system, to pursue marketing that incorporates our successes and failures as well as customer feedback to improve the quality of our proposals.

3. Further boosting technological capability and reducing costs

 In technology we will work to develop new products in each beverage category, tapping into the increasing trend of consumer health consciousness, and pursue the production of lighter containers that create less environmental impact. We will also work to further enhance our quality assurance framework amid heightening concern amongst the public about food safety and reliability.
 We will continue to reduce costs. At manufacturing sites, we will review our production framework from a total perspective that includes not only beer, but also other categories such as RTDs and soft drinks. In addition, we will use alliances between our production, SCM and marketing divisions to advance TCR4 initiatives such as warehouse rationalization and the use of trucks with increased tonnage capacity.

  • 4. Total Cost Reform: uses lateral cooperation between production, SCM and marketing divisions to achieve cost reduction by creating solutions to the problems underlying increased costs

4. Expanding group synergies

 To develop our business as a comprehensive alcohol beverage producer, and strengthen the foundations of our comprehensive beverage group strategy, we will reinforce alliances throughout the value chain and create strong synergies in each area. In development, we will launch the Tanrei W and Hyoketsu Aperitif, products that we developed in collaboration with Mercian, drawing on Mercian's strong expertise in wine fermentation technology. In distribution, we will continue to pursue our group logistics strategy based on alliances with Kirin Beverage Company, Limited and with Kirin Logistics Co., Ltd. In marketing we will use mutual collaboration between Kirin Beverage and Mercian, and create marketing synergies drawing on the strengths of each company. In addition to Kirin Oolong Tea, a Kirin Beverage-developed product for which we carry out marketing, we will also pursue alliances with group companies in each area of the food business, including Nagano Tomato Co., Ltd. and Kirin Food-Tech Company, Limited.
 We have now designated certain parts of our organization as Centers of Excellence5, namely: our production technology division, which has CO2 and energy-saving technology; our packaging research center, which has superior container development technology; and our market research office. By adopting a diagonal allocation of resources we aim to make use of their technological, developmental and analytical capabilities throughout the group. Furthermore, we will continue the personnel exchanges with Kirin Beverage that began in fall of 2008, promoting organic integration between the two companies.

  • 5. Center of Excellence: a division that contributes to the excellence of our technological capabilities and client relationships. We aim to allocate more personnel resources to these selected departments and bolster group synergies.

5. Using technology in social contribution

 We aim to be an environmentally advanced company, pursuing social contribution activities with a focus on priority tasks for preventing global warming, namely CO2 reduction, the 3Rs for packaging and containers, and the four initiatives outlined in the Eco First Commitment6. In 2008 we achieved the first annual target of a 39% reduction in CO2 compared with 1990 levels (unit basis), and looking ahead we aim to achieve the 2012 target of a 50% reduction by 2012 (overall emissions) and 45% reduction (unit basis).
 We will actively respond to consumer health consciousness and societal demand, leveraging our technological capabilities to develop products that address the personal values of our customers. In our commitment to food safety and reliability, we will use cooperation between the Kirin Holdings Center for Food Safety Science to further enhance our quality assurance technology, and improve the structure and operation of our safety assurance system.

  • 6. A system established by Japan's Ministry of the Environment to promote environmental conservation activities by leading industry participants. Kirin Brewery was the first manufacturing company to declare its commitment to Eco First, at a signing ceremony attended by the Minister for the Environment in June 2008. Kirin Brewery has set specific targets for the practice of the 3Rs in packaging and containers, materials recycling, global warming prevention, and water source conservation around factory premises throughout Japan.