Japan: Brewers upping alcohol content to combat declining consumption

Japanese brewers are discovering a new way to tap the lucrative market of working adults: Get them tipsy more quickly and efficiently, Bloomberg reported on June, 3.

This domestic segment is becoming more important to beer makers Kirin Holdings Co. and Sapporo Holdings Co. as Japan’s famously aging population -- the oldest in the world -- drinks less. They have released canned drinks with up to 9 percent alcohol by volume, which is the highest it can be without being pushed into another tax bracket.

The brewers are promoting the ready-to-drink (RTD) segment in Japan, looking for ways to expand sales as demographic changes and a trend of consumers diversifying their drinking habits has led domestic beer consumption to fall two years in a row.

“It’s because consumers are getting more value for their money. They can get drunk without spending too much, I think that is the products’ biggest appeal,” said Euromonitor analyst Akari Utsunomiya. “There’s a deep-rooted tendency to save money among Japanese consumers."

The companies are going after consumers such as salarymen, as businessmen are known in Japan, and working women short on time. Executives say there is a desire among some drinkers to get more bang for their buck when imbibing. As a result, the high-alcohol segment is growing almost twice as fast as the ready-to-drink canned mixed alcohol business overall.

Japan’s domestic beer doldrums echo the picture globally, with beer sales falling as wine and spirits revenue grows. That’s led beverage companies to come up with products targeted to specific demographic groups. Brewing giant Molson Coors Brewing Co. in the U.S. has released fruity-tasting beers targeted to 21- to 24-year-olds in a bid to attract young drinkers. In Japan, companies are focused on a slightly older demographic, as the population dwindles and fewer people turn 20 -- the legal drinking age -- every year.

RTD beverages have typically been the less expensive choice for drinkers in Japan as they are subject to a lower tax rate than beer. The drinks in the segment mostly consist of canned Chu-Hi, made with flavored mixer, and shochu - a spirit distilled from potatoes, grains or other food bases. In the past these drinks typically contained 4 percent to 6 percent alcohol by volume compared with the now more prevalent 9 percent drinks.

The value of the market for RTD drinks with 8 percent to 9 percent alcohol content has nearly doubled to 125 billion yen ($1.14 billion) from 2013-2017, according to market research firm Intage SRI. Comparatively, the RTD market grew by about 31 percent in value.

Soon-to-be retiree Shiro Abe is part of the consumer base fueling that growth. The value of the higher alcohol drinks resonates with him. “For an old man, getting drunk cheaply and quickly is very nice," Abe, 58, said in Tokyo after drinks to celebrate his retirement.

The appeal of high-alcohol drinks is rooted in other factors in Japan, such as high stress related to work and continued economic unease among consumers. Alcoholism remains an under-reported issue in reputation-conscious Japan, according to health officials. A Ministry of Health survey showed that in 2013 there were 580,000 alcoholism patients in Japan.

Beer companies said they’re careful to promote responsible drinking.

These drinks contain significantly more alcohol by volume than other products. A half-liter can of a mixed drink with 8 percent alcohol is equivalent to about three tequila shots, according to an industry group.

Ryosuke Den, a physician in charge of the alcoholic treatment department at Komagino Hospital near Tokyo, said the stronger drinks can lead to alcohol abuse. “High-alcoholic RTD is easy to drink, so it makes you drink excessively,” he said.

Global drinks makers see Japan as a good market to test concepts. Coca-Cola Co. last month started sales of a lemon-flavored Chu-Hi drink, the first for the giant. Kirin intends to build a new domestic factory to increase production for canned mixed drinks. Beermakers say they have been pushing high alcohol drinks recently because they’ve adapted the taste to better suit consumers -- less sugary and without the burning bite of some spirits.

Japan’s largest brewers all have begun marketing an 8 percent or 9 percent Chu-Hi product. Among them are Suntory Holdings Co.’s Zero Strong, Asahi Group Holdings Ltd.’s Mogitate -- which has shochu mixed with fresh fruit juice -- and Sapporo’s Relax, which is flavored with fruit vinegar. The companies also have been marketing pre-mixed cocktail drinks such as whisky-and-soda highballs.

“We’re increasing our variety of offerings within ready-to-drink. These types of products are gaining traction in the market,” said Sapporo Beer President Hideya Takashima in April.

The value of RTD products makes up about 7 percent of the Japanese alcohol market, according to Euromonitor. Brewers still generate a majority of revenue from beer in Japan, though with falling sales they are seeking markets overseas and reaching into areas such as craft beer. The companies’ market performances have been mixed, with Asahi and Kirin shares climbing more than 24 percent over the past 12 months, while Sapporo’s have slumped 14 percent.

Long-term prospects for the value-driven strategy are unclear. The focus on higher-alcohol content drinks as a way to get drunk less expensively also highlights an issue among Japanese beermakers -- they’re not focusing enough on producing premium brews to improve sales and margins, said Bernstein analyst Euan McLeish.

“They’ve been very innovative in many ways, but they’re innovating in the wrong way -- they need to innovate upwards instead of downwards," he said.

05 June, 2018