Japan: Japan’s largest brewers slipping despite rising temperatures

Even as temperatures rise in a historic heat wave, the stocks of Japan's largest brewers have slipped as consumers lose their taste for beer, the Nikkei Asian Review reported on August 8.

Kirin Holdings reported on August 7 that its net profit for the six months through June fell 49% from a year earlier to 86 billion yen ($772 million). Beer sales by volume declined 4%. Sales of operations in the last fiscal year had a significant impact on the company's results. The company's stock extended a multi-session losing streak to hit a 2018 low.

The news follows the 2.5 billion yen net loss posted on August 3 by Sapporo Holdings, which also downgraded its full-year net profit forecast. The stock dropped 9% at one point on August 6 to a year-to-date low, the same day that the nation registered the second-highest temperature on record at 41 degrees Celsius in Hyogo Prefecture.

Asahi Group Holdings reported on August 2 a 48% jump in its bottom line to 60.3 billion yen, an all-time high for the January-June half. But the earnings were driven by European assets purchased last year from global beer behemoth Anheuser Busch InBev, while domestic alcohol sales slipped 4%. "Growth will depend entirely on Europe," said Naomi Takagi at SMBC Nikko Securities.

"I never expected it to be this severe," a fund manager at a Japanese asset management company with Asahi in its portfolio said of the news.

Investors sold off Asahi, with the stock falling as much as 6% on August 3. The slide continued on August 3 to hit a year-to-date low.

Suntory Holdings, whose net profit rose 37% to 74.7 billion yen, is not listed.

The brewers' hardships stem from June of last year, when Japan instituted a new tax schedule on beer and beer-like beverages to discourage price wars among sellers. With beer's sticker prices rising, consumers spent their money on cheaper options like chuhai, a type of premixed cocktail with shochu liquor.

First-half shipments of beer - along with Japan's legally defined low-malt "happoshu" and no-malt alternatives - receded 3.6% to 183.3 million cases, marking a record low for the period for the sixth consecutive year.

"The market for domestic alcoholic beverages is shrinking more than anticipated," said Kenji Hamada, chief financial officer at Asahi.

A comeback for beer is unlikely given "stronger thriftiness among consumers," says an analyst at a Japanese brokerage. Although chuhai sales are rising, investors are wary of price competition and rising expenses.

"Considering that beer generates higher margins at the product level, making up the difference in profit from chuhai alone will be difficult," according to a domestic brokerage analyst.

Kirin estimates that for every degree the mercury rises between June and August, beer sales increase 2.5% by volume. Nikkei point of sales data shows that July's beer sales by value climbed 13% on the month. But weekly data indicates that the third and fourth weeks of July declined from the prior week, following sharp increases for the first two weeks.

"If it gets too hot, consumers don't go out, so it is not a positive," said an industry insider.

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