USA: Suntory Holdings to expand high-end whiskey and other premium offerings

Japanese drinks maker Suntory Holdings will expand its high-end whiskey and other premium offerings as it seeks to widen the profit margin in the key U.S. market, President Takeshi Niinami tells Nikkei.

Niinami spoke with Nikkei during a recent visit to New York for the opening of subsidiary Beam Suntory's new headquarters there, following a relocation from Chicago amid the company's expansion push.

The president sees the focus on premium offerings as a way for the company to weather rising production costs in the country.

"We'll combine Japanese and U.S. techniques to create high-quality products, not mass-produced ones," he said.

Suntory Holdings' alcoholic beverages segment logged a 16% operating profit margin last year, excluding taxes on alcoholic beverages. Its operations in the Americas brought revenue of 362.7 billion yen ($2.61 billion at current rates).

The holding company is boosting product development at Beam Suntory, looking to shift toward the higher end of the market for drinks like whiskey. It aims to increase the subsidiary's profit margin to 25% from about 22% now, based on earnings before interest, taxes, depreciation and amortization.

Beyond whiskey and other spirits, Beam Suntory wants to roll out new high-margin offerings such as ready-to-drink beverages.

Reshuffling the brand lineups of its U.S. subsidiaries is also a part of the U.S. strategy.

"We'll buy brands that would do better under our umbrella and shed those that wouldn't," he said.

Potential acquisition candidates include drinks, such as tequila and other types of mezcal, which would strengthen Suntory's presence in market segments where it lacks much of a foothold.

As for why Suntory is targeting the U.S. in particular, Niinami observed that "the market is large, and consumers are willing to spend."

"It's a dog-eat-dog business environment, where animal spirits are high," he said. "It's important to put ourselves in such a competitive environment."

He also argued that boosting Suntory's share of U.S. sales is key to the group's globalization.

Controlling costs will be a challenge, with inflation unlikely to abate anytime soon. Niinami noted rising expenses for ingredients, labor and shipping, and connected them to Suntory's strategic direction. The group already has been raising prices, with Jim Beam bourbon up 10% or more over the past two years.

"Although we let [spirits like whiskey] sit to age after we make them, the impact will be major when you look further ahead," he said. "Countering that is part of why we're shifting toward premium products."

26 November, 2022