Japan: Kirin to expand in health care to reduce reliance on beer

Kirin Holdings, Japan’s second-largest brewer, is planning to expand in health care to reduce its reliance on beer as it foresees increasing regulation of the alcoholic beverages industry, the Japan Times reported on August 1.

It’s one of the first major players to lay out its plans after the World Health Organization in May called for stricter rules on digital marketing that companies use to promote their products across borders and urged governments to set higher prices to discourage drinking. Kirin’s approach stands in contrast to bigger rivals like Anheuser-Busch InBev and Asahi Group Holdings, who are doubling down on alcohol and investing in higher-end businesses like craft beers.

“I feel that more regulations are to come, and future of the beer business will probably be very difficult,” said Takeshi Minakata, head of the health science business at Tokyo-based Kirin. “There is a certain risk to continue to rely on the alcohol industry forever.”

The company has chosen health care as its next area for growth, and will invest its resources accordingly, Minakata said, acknowledging it may take time. Kirin aims to generate ¥500 billion ($3.8 billion) in health care sales over the next decade by starting contract manufacturing for pharmaceutical ingredients, expanding its food additives and supplement operations and acquiring new businesses, he said.

Kirin has a budget of ¥200 billion for acquisitions and will borrow if necessary, Minakata said.

Excessive use of alcohol kills 3 million people worldwide each year, about one every 10 seconds, accounting for roughly 5% of all deaths, according to the WHO.

Kirin’s operating profit in 2021 dropped 32% to ¥68 billion from a year earlier after domestic beer sales fell due to the pandemic and it sold its Australian dairy and drinks business to Bega Cheese. The domestic beer and spirits unit made up 36% of its total revenue.

Satoshi Fujiwara, an equities analyst at Nomura Holdings, said he’s not fully convinced about Kirin’s approach, in part because the health science business is still comparatively small. The strategy is at an early stage and the company needs to show it can stabilize profit before stretching further, he said.

“The first important thing is to prove organic growth,” said Fujiwara. “I get that it’s considering strategic acquisitions. It has sufficient cash, but it’s still unclear it’s the right way to go yet.”

The company expects to generate ¥200 billion from the sale of nutrients such as lactic acid bacteria to boost immunity, citicoline to help brain function and human milk oligosaccharides for baby formula, Minakata said. Drug ingredients will contribute ¥100 billion, while another ¥200 billion in sales will come from acquisitions, he said.

It’s interested in buying businesses to boost Kirin’s presence in North America and Southeast Asia, as well as mail order businesses overseas, he added. The company also is seeking to collaborate more with Fancl, which sells skincare products and dietary supplements, Minakata said. Kirin bought a 33% stake in the Japanese company for ¥129 billion in 2019.

“We are two separate listed companies, so the speed of the business is limited,” said Minakata. “There will naturally be a discussion whether to keep it as it is,” he said when asked if the Kirin is interested in increasing its holdings.

Kirin is paring back other beverage investments as it shifts to focus on food, health and pharmaceuticals. It said it would sell its 51% stake in Myanmar Brewery, a venture with the local military-run partner Myanma Economic Holdings Public, for ¥22.4 billion last month. It also said in February it will sell its stake in a beverage venture with China Resources Holding Co. for ¥115 billion.

The company is especially confident about its prospects in the dietary supplements business as the market is growing and the products are made with the fermentation technology Kirin has long cultivated through making beer.

The global dietary supplement market is expected to grow 8.9% every year through 2028, eventually hitting $307 billion as personal disposable income grows and consumer awareness rises, according to a marketing research firm Facts & Factors Research.

“Handling microorganisms is in Kirin’s DNA, we are quite good at it,” Minakata said. “It has a really high potential. We really have to succeed in it.”

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