Consolidation of the Japanese beer market – finally
Suntory, Asahi and Kirin: These three companies are quite similar to one another and share a common heritage. Each of them has total sales of about USD 15 billion (or less); each of them has a top three brewing business in Japan; and each of them has diversified into other alcohol drinks, soft beverages and food products, in an effort to cope with Japan’s declining beer market (15% over the past decade).
“However, they also differ in key respects, in terms of strategy and financial condition; these differences we believe will determine which of them will succeed in the acquisition battles to come, in the next year or two”, M&A consultants Glenboden write in a research note.
Asahi is the clear market leader in beer in Japan, with about 37 percent share. Alcoholic beverages make up about 70 percent of the group’s total sales, with the remainder being mostly soft beverages. Generally, Asahi’s focus is on re-engineering and streamlining its existing businesses to increase profitability.
Although the group has always talked about acquisitions going forward, this is quite vague, and most of the focus is on product innovation. Moreover, its main foreign ventures, in the beer market in China and fruit juices in South Korea (Haitai Beverages), are underperforming so far.
Even the purchase of a 19.9 percent stake in Tsingtao Brewery, which Asahi acquired in January this year from Anheuser-Busch InBev, is not the acquisition breakthrough for Asahi, and if it stays clear of the consolidation race in Japan’s beer market, it may have missed the boat and may gradually fall into decline, Glenboden say.
Kirin Holdings, the number two in beer in Japan with a 25 percent share, has much more aggressive growth targets than Asahi. It has targeted its soft drinks business pillar, which already constitutes about 25 percent of group turnover, as its growth engine in Asia and Oceania.
With an acquisitions war chest similar in size to that of Kirin, privately owned Suntory – number four in beer in Japan – is set to remain Kirin’s most serious rival in the overseas acquisitions arena. Like Kirin, it has aggressive growth targets that include overseas expansion. Its portfolio is more diversified however, spanning spirits and wine, RTD coffee, foodservice and flowers. It also has a very strong corporate social responsibility mandate.
A merger between Kirin and Suntory would create the largest player in the Japanese beer market (50 percent), and one of the biggest globally, with combined annual sales of USD 40 billion, according to Japan’s media.
However, it is still early days. Not only does the merger face big antitrust hurdles, combining the companies will also be difficult. Kirin is a public company that is tied to one of the country’s biggest conglomerates. Suntory is a private, family-run firm. Where are the synergies to be found if not in trimming costs? This usually entails shedding staff, culling less profitable brands and closing redundant factories. All these measures are resisted by Japanese managers, or only take place in time scales measured in years, not months, comments The Economist newspaper.
Unsurprisingly, the merger talks between Kirin and Suntory have triggered off other merger fantasies: what if number one Asahi and number three Sapporo hooked up with each other?
A merger of these two players – Asahi and Sapporo – would produce a competitor with less than half the revenues of a combined Suntory-Kirin. Still bankers, boards and corporate strategy teams at the two will no doubt be assessing the attractions of merger and acquisition activity more than ever.
