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CASTLE MALTING NEWS in partnership with www.e-malt.com Korean
19 February, 2017



Brewing news Japan: Kirin Holdings set to reform its Japan beer business

Kirin Holdings has decided to pull the plug on its money-losing Brazilian beer and soft drink business after six years of battling ferocious competition in the world's third-largest market. The beverage giant is now setting its sights on reforming its beer business in Japan by moving its focus away from market share to value, the Nikkei Asian Review reported.

"The environment [in Brazil] was harsh, and it was difficult for us to turn the unit into a high-profit business on its own," Kirin Holdings President Yoshinori Isozaki said during a news conference on February 13.

After receiving approval from Brazil's fair competition authorities, Kirin will sell subsidiary Brasil Kirin to Heineken of the Netherlands for about 77 billion yen ($679 million).

Kirin entered the Brazilian market in 2011 on the back of robust growth there. The business conditions, however, turned for the worse in around 2013.

The sputtering economy and a fall in the Brazilian real inflated procurement costs and there was no effective price strategy in place.

As the company booked a more than 100 billion yen write-down on the business for the year ended December 2015, stock market participants saw the sellout as "acceptable," according to an analyst at an overseas brokerage house.

Now that Kirin has given up on the Brazilian business, Isozaki wants to put most of his efforts into increasing the earning capacity of the company's domestic beer business, which is the core of its operations.

In his New Year's statements this year, Isozaki delivered a message to company employees that the beer category will become the game changer. The message is based on his soul-searching over the past two decades.

Isozaki believes that the shrinking domestic market is the result of brewers obsession about share competition. He thinks what was really needed was "the introduction of attractive and novel products" - and that is the company's next goal.

Kirin's EBITDA (earnings before interest, tax, depreciation and amortization) margin - EBITDA divided by sales excluding alcohol tax - stood at 14% for the year ended December 2016, which paled in comparison with rival Asahi Group Holdings' 16%.

Although comparisons cannot easily be made, Kirin's figure is far behind the global breweries' EBITDA margins of between 20% and 40%.

In order to boost the margin, Kirin plans to take a drastic reduction in selling expenses.

Costs are estimated at 96.3 billion yen for the year ending December 2017, which accounts for 5% of consolidated sales. Isozaki said he is eyeing "lowering the figure to the 80 billion yen level within a few years."

If realized, this would lift Kirin's profits by up to 15 billion yen.

Excess funds will be used for product development.

In fiscal 2016, Kirin's versions of its flagship Ichiban Shibori beer unique to each of Japan's 47 prefectures became hit products with the sales volume 130% higher than the initial goal. The brisk sales increased the sales volume of Ichiban Shibori brand products by 1% from the previous fiscal year.

A Nomura Securities analyst said Kirin is in the process of getting away from the futile ongoing war of attrition to adopt a "decent" strategy.

Amid the dwindling beer market in Japan, the view is spreading among major breweries that a "value war, not price war, is needed," according to a senior official at Asahi.

The reduction of selling expenses has its downside; it could lower Kirin's market share and draw the company back into a price war.

Whether Kirin can thoroughly pursue added value instead of market share remains to be seen.





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