Japan: Craft beer sector expanding slowly but steadily

Tomoko Sonoda was a college student during the “Dry Wars,” the years immediately following the 1987 release of the game-changing light lager Asahi Super Dry. She and her classmates held tasting parties for the spate of new brews that were released by the three other major breweries in an attempt to compete. Together, they tried to discern the different flavors, but there wasn’t much to discover. They were all more or less the same: drinkable light lagers, perfect for the Japanese beer market, The Japan Times reported on June 4.

None were able to dethrone Super Dry. Asahi represented 10 percent of the market at the time. A year later, it was 20 percent and, by 2001, Asahi had overtaken Kirin as the market leader.

This was the extent of Sonoda’s experience with beer until 1996, when she was working as a parking lot attendant at Tokyo Disneyland in Chiba Prefecture. Japan’s harsh brewing laws had been loosened two years earlier, reducing beer production requirements mandated by the Ministry of Finance from 2 million litres to a far more manageable, yet still significant, 60,000 litres. Smaller breweries began to pop up across the country.

Disney’s parent company was developing the area outside Maihama Station into what would become the Ikspiari entertainment area, and they had plans to install a microbrewery, so they put out an internal call for a new position: brewmaster. Intrigued by the prospect of making beer, Sonoda submitted an application.

“When I heard I got the interview, I panicked,” she says. She visited the closest craft-beer bars and drank her way through new beer styles: a sweet but drinkable German wheat beer and a darker Alt beer that was crisp; each dramatically different from Super Dry. She landed the job, still with no previous brewing experience and, by 2000, she was running the 1,000-liter brewhouse at Harvestmoon Brewery.

Sonoda’s experience may seem exceptional, but in a way it typifies the country’s overall craft-beer experience since 1994. Many Japanese have been eager to introduce new styles to the country but, compared to other countries, there is a general lack of brewing expertise.

Combined with a market that is dominated by a cartel of big brewers, consumers without knowledge of craft beer and laws that present obstacles, ji-biiru (regional/local beer) has grown in fits and spurts. However, as with any niche in Japan, there are die-hards, and the market is gradually starting to change.

Japanese beer has been German-style beer since its inception in the late 19th century. Japan imported German ingredients and manpower to help establish the industry and the lager style of beer that originated in Germany has had a firm foothold ever since; lager currently makes up 95 percent of the domestic beer market.

There were around 70 breweries making 100 brands of beer in the country by the turn of the century, but these were consolidated by a 1901 beer tax that wiped out many breweries overnight and continues to affect the price of beer to this day. The beer tax became a dream for politicians; the taxes on alcohol produced roughly one-third of all tax revenues before World War II.

In his 2013 book “Brewed in Japan,” historian Jeffrey Alexander writes that the war resulted in a “permanent decoupling” of Japan’s beer culture from its German roots. Japanese brewers were forced to brew on their own terms. Recipes became lighter and less bitter as a result of shortages and rationing.

Beer overtook sake as the country’s booze of choice by 1959 and, during the latter half of the 20th century, it became more and more associated with the light, crisp flavor captured best by Asahi Super Dry.

It would be nice to imagine that the 1994 legalization of microbrewing in Japan was sparked by a frenzied group of beer enthusiasts or entrepreneurs seeking to enter the market, but Alexander notes that the Finance Ministry’s decision to lower the production minimum “came quite suddenly, and was largely an internal licensing decision. In part, more brewing licenses meant more revenue.”

The first wave of ji-biiru rushed into the market. Within five years, the number of small breweries peaked at around 300. Some had success and survived, but others fell apart and the number of breweries dropped steadily toward 200.

The market contracted in part due to low-quality product. In 1999, a few years after the initial rush, John Schultz opened Minami Aizu Brewing Co. in Tadami, Fukushima Prefecture.

“Unfortunately many restaurants had a bad experience in the beginning,” Schultz says. “It took a long time to overcome that initial image.”

Schultz himself struggled against the frosty environment, an “extremely hostile” local community and big breweries that wanted craft brewers out of the market.

“Sapporo and Suntory fought desperately to destroy the craft-beer market share,” Schultz says. “They didn’t want us to have even 1 percent. They would come in and bully the restaurant to take my beer out. It was pretty disgusting.”

In 2008, nine years after producing his first beer, Schultz threw in the towel.

The survivors, however, have grown, improved their product and are expanding. The vocabulary has also started to change; the term ji-biiru is being overtaken by “craft beer,” as the beer is less regional and “pocketed” in major urban areas.

Still, craft beer represents less than 1 percent of the domestic market. While breweries such as Asahi, Kirin and Suntory produce beer in the millions of kilolitres, even the largest craft breweries only produce several million litres.

Yo-Ho Brewing, known for convenience-store staples such as Ao Oni IPA and Suiyoubi no Neko Belgian white ale, puts out a cool 5 million liters a year, according to industry insiders. However, most craft brewers produce much smaller amounts, ranging anywhere from the minimum requirement of 60,000 liters to 450,000 liters a year.

Some see potential for the market to expand to at least 1 percent and perhaps as much as 4 percent. This is reflected in investments made by some ji-biiru brewers. Niigata-based Echigo Beer, the very first ji-biiru brewery to be licensed, has expanded its operations in the past year, allowing them to brew up to 3 million litres.

Brian Baird of Baird Brewing, which is based in Numazu, Shizuoka Prefecture, started as the smallest brewery in the country in 2002, brewing 30-liter batches similar to those that many American homebrewers produce in their garages. A new expansion in nearby Shuzenji will allow them to brew up to 2 million litres, but they’ll first focus on doubling their 2015 production of 350,000 litres.

The big brewers are starting to take notice. In 2014, Kirin purchased a minority stake in Yo-Ho, a development that has been seen in the current craft-beer capital of the world, the United States, with breweries such as Lagunitas, Ballast Point, Boulevard and a number of others, which have been sold entirely or partially.

It seems to be an investment with decent prospects. Despite an over 10 percent decline in beer consumption from its peak in 1994, the number of domestic craft breweries has begun to increase again, creeping up to more than 220 by 2015, and the sales volume of craft beer continues to rise.

Part of this change can be attributed to distributors and bar owners who have helped develop the market and educate both consumers and brewers alike.

Since 1985, Tatsuo Aoki, one of the godfathers of craft beer in Japan, has owned and operated the Ryogoku bar Popeye, the first bar to serve Echigo Beer. He had three taps in 1995, 20 in 1998, and a full 70 by 2008. He has hosted events dedicated to real ale served off hand-pump taps at cellar temperatures and started study sessions to introduce new beer styles, which were attended by beer enthusiasts and brewers such as Sonoda.

Distributors have brought over classic American beers that have drawn an international fan base. Andrew Balmuth and his wife, Akemi, opened Nagano Trading in 2006 with two brands and 240 kegs, and now he imports 15 brands and more than 10,000 kegs a year.

Nagano Trading’s 100 percent cold-chain distribution allows beer to be trucked cold to its warehouse in Long Beach, California, shipped by refrigerated boat to Japan, and then delivered directly to the bars where it is served, thus maintaining quality.

Jamil Zainasheff, owner and brewer at Heretic Brewing Co. in Fairfield, California, brought over his beer through the importer AQ Bevolution beginning in 2014.

“I was amazed,” Zainasheff says. “I’ve had our beer in Japan and I thought it was every bit as good as in our own tap room.”

Distributing to Japan can actually be easier for U.S. brewers.

“With various states in the U.S., we often have to set up a business license in the state, file reports, submit labels and pay fees that in some cases are in the thousands of dollars,” Zainasheff says. “AQ Bevolution, on the other hand, handles all the paperwork and fees. They also treat our beer as delicately as if it were food.”

Despite the expansion of craft beer, Japan can be a bit of a puzzle to small breweries. Unlike the three-tier distribution system in United States that controls how breweries sell and distribute their beer, domestic laws give breweries relative freedom. Producers can sell freely to liquor shops and restaurants through distributors, or directly to consumers through independently owned stores and online storefronts.

However, taxes continue to restrict profits and keep prices high. Japan taxes beer ¥220 for each litre, one of the highest rates in the world. This adds ¥77 to each can of beer, ¥47 to happoshu (a beer brewed with lower malt content), and ¥28 to “third-type beer” (which includes an even lower percentage of malt and other sources of fermentable sugars such as green peas). The tax adds to the already expensive price, which can be as high as ¥1,300 to ¥1,500 per pint. This makes craft beer an affordable luxury rather than an accessible daily quaff.

Lobbying by the Japan Brewers Association has earned moderate tax exemptions for smaller brewers. However, these are scheduled to expire in 2018, and some brewers have criticized the association for focusing on consumers rather than producers. For example, there are no trade shows along the lines of the Craft Brewers Conference in the U.S.

Perhaps the biggest barrier to craft beer in Japan is lack of a true beer and brewing culture.

“Homebrewing is really what drives American craft-brewing creativity,” Zainasheff says.

Ichiri Fujiura, proprietor of Watering Hole and soon to be brewer at Tharsis Ridge Brewing, notes that homebrewing and craft beer are “totally unrelated in Japan.”

Watering Hole is a craft-beer bar that occupies a small space on Meiji-dori between Shinjuku and Yoyogi stations. The neighboring section of the building is filled with a budding brewhouse: Several stainless steel tanks sit covered in plastic. Fujiura is waiting on a few more items and hopes to be brewing by the winter of 2016 once he is licensed.

Fujiura has become somewhat of a legend after winning the American Homebrewers Association Homebrewer of the Year award in 1998 for his Toasted Coconut Porter. No one had brewed anything like it before, and it inspired Jamil Zainasheff to make his own Chocolate Hazelnut Porter, which he notes “would not exist” were it not for Fujiura.

Fujiura, however, is the exception rather than the rule. There is a small homebrewing community, but it exists in a legal gray zone; Japanese law prohibits the homebrewing of beer stronger than 1 percent alcohol by volume.

Still, equipment and ingredients can be purchased at online stores such as Advanced Brewing, run by Hiroyuki Aizawa since 1999, and some can be shipped from abroad. Even these options have their limits; shipping from abroad is expensive and impossible for some items such as chemical cleaning agents, and some homebrewers in Japan report that many ingredients are often out of stock online, notably hops and yeast.

There are no clear statistics for homebrewing in Japan, but there are several clubs with membership numbers in the low hundreds, and those enthusiasts gather several times a year at parks and share their beer. A recent competition run by one of the organizations featured 60 homebrewers, around one-third of whom were non-Japanese.

Despite the fact that homebrewing is illegal, the police do not seem eager to shut down the activity. Homebrewers report of being spoken to by park authorities during one of their gatherings but only because they had erected a tent adjacent to a covered area; the beer wasn’t the problem. Some in the beer industry note that the National Tax Agency is the organization most concerned with brewing and that they perhaps lack the manpower and funding for true enforcement.

Fujiura of Tharsis Ridge admits that the lack of homebrewers requires domestic breweries to hire inexperienced workers. A healthy homebrew scene in America, on the other hand, provides breweries with a pool of informed labor.

“You can’t produce major leaguers without a baseball program in elementary and junior high school,” says Hirotaka Kido, Popeye’s manager, by way of metaphor. “The knowledge (about brewing here in Japan) is different.”

Kido also notes that Japan lacks specialty beer brewing schools; all students at jōzō gakkō (fermentation schools) must study sake, wine, miso and soy sauce in addition to beer.

Almost everyone is unanimous in their pessimism about the prospect for change in homebrewing’s legal status. At best, some can imagine the Tax Agency issuing homebrewing licenses allowing the brewing of a certain amount of beer for a fee, but this is nothing more than a dream at the moment.

“Unfortunately, in Japan there isn’t any mechanism to change the current system in order to make a richer and more pleasant life for the people who live here,” Aizawa says. “We lack the desire to change the system for ourselves.”

Balmuth predicts that brewers will be bilingual in the future, simply because most of the literature is in English. Fujiura himself has copies of many of the core English-language texts, including Zainasheff’s well-known book “Brewing Classic Styles.”

However, some change is happening. Tatsuo Aoki opened up his own small brewery, Strange Brewing, to provide beer for Popeye, but he also made the decision to start a yeast lab because he felt low-quality craft beer was partially a result of poor yeast management. This resembles developments during World War II when brewers were forced to find domestic sources for hops.

Change can also be seen in the opening of more and more craft-beer bars all over the country. Yusuke Sato, previously a bartender at Dry Dock in Shimbashi, now runs two of his own — Pilsen Alley and Brassiere Beer Boulevard — in the same neighborhood. Sato notes that despite the 20-year history of craft beer in Japan, “it feels like ji-biiru has really only just begun.”

Sato admits that Japan is “one step behind” the U.S. in terms of craft-beer trends. Most Japanese IPAs don’t explode with flavor from late-addition hops as they do in America, and domestic brewers aren’t yet attacking barrel-aged beers and sour beers at the rate American brewers are. They are, however, experimenting with native ingredients such as yuzu, sake yeast, beniaka sweet potatoes and plums, among others.

For the foreseeable future, domestic craft beer should continue to develop as it has over the past 10 years. Breweries will continue to open on-premise locations which function as an easy sales pipeline. Fujizakura Heights Beer, a brewery well-respected for German-style beers, opened a restaurant in Roppongi in March. Nagano Trading has sold their beers through the dedicated bar Antenna America in Yokohama since 2013.

And vice versa, beer bars such as Popeye and Watering Hole will continue to start small brewpub operations under happōshu licenses, which only require them to produce 6,000 liters each year, a very manageable amount. Thrash Zone, a heavy metal bar in Yokohama, has also followed this pattern: owner Koichi Katsuki first hired Atsugi Beer to produce beer for special events but now puts out beer under his own license.

Those with the business and beer chops may decide to push to become a larger brewer, but many have mentioned concern about the conservative nature of domestic brewers and entrepreneurs.

“People who know that beer is their whole life can challenge the beer industry in Japan,” Sato says.

The Japan Brewers Association worries about the quality of beer being produced at smaller breweries, as does Brian Baird.

“The biggest barrier to craft beer going mainstream is still too much mediocre beer and not enough truly outstanding beer,” Baird says.

There are signs of hope, however: Japanese brewers took nine medals at the recent 2016 World Beer Cup, including five gold medals. Gold winners include first-year entrant Devil Craft, a brewery that began as a single craft-beer bar in Kanda, as well as Minoh Brewing in Osaka, a perennial entrant and long-time craft brewer.

Meanwhile, drinkers are becoming accustomed to domestic brews such as the hop-forward ales of Y. Market in Nagoya, the smoky flavor of German rauchbier from Fujizakura Heights Brewing and the aromatic character from Kyoto Brewing’s Belgian-style ales.

The shelves of supermarkets and convenience stores will likely change at a slower pace. In March, Suntory blanketed stores with an ale version of their Premium Malts beer, but the flavor is mild compared with most American and British ales, and there is still relatively little true craft beer on offer at off-premise locations.

“Retailers haven’t recognized that beer has expanded,” Balmuth says. “It takes time. A lot of data led to the development of off-premise sales in the U.S. The data exists in Japan, too, and only just now people are looking at it.”

06 June, 2016