Japan: Asahi Breweries focuses on beer-like brands

Asahi Breweries Ltd. aims to strengthen its low-malt and no-malt beer categories, its new president said May 23, as Japan's biggest beer maker faces the imminent threat of losing the top spot to second-ranked Kirin Brewery Co., Reuters informed the same day.

President Hitoshi Ogita, who took the helm at the end of March after heading the group's soft drink unit, Asahi Soft Drinks Co. , said costs may rise but the company targeted an operating profit margin of 7-8 percent in the mid to long term with higher sales.

It had forecast a margin of 7 percent in 2006.

"By creating new products or improving the current ones, we have to be the top brand in the happoshu and beer-like drink categories where other companies currently outdo us," Ogita, 64, told Reuters in an interview. "Otherwise our domestic alcohol business will have no future."

It would be a shift of strategy for Asahi, which has poured resources to its flagship Super Dry, a brand that holds nearly half of the domestic market for regular beer.

In January-March Kirin's total beer sales surpassed Asahi's for the first time in six years at 38.4 percent to 36 percent due to the popularity of Kirin's beer-like drink Nodogoshi Nama.

Low-malt happoshu and no-malt beer-like drinks - dubbed "third-type" beer - escape higher tax imposed on regular beer because they are brewed from ingredients that make them subject to a lower tax.

Asahi will also introduce a new premium beer, Prime Time, in late June to catch up with rivals third-ranked Sapporo Holdings and unlisted Suntory Ltd., which have successfully attracted drinkers who want to enjoy better tasting beer even with higher prices.

The premium beer will hit the market after Asahi introduces another beer-like drink, Gubinama, aimed at the growing category, now dominated by Kirin.

Asahi is now developing a mid-term business plan for the three calendar years starting next January. Ogita said it would likely keep a dividend payout ratio of around 20 percent in the plan but aimed to boost total shareholder returns, including share buybacks and retirement.

Under its current 2004-2006 business plan, Asahi earmarked about 100 billion yen ($895.8 million) for mergers and acquisitions. It has used up most of that money through acquisitions of Japanese baby food maker Wakodo Co. and soft drink makers Elbee Nagoya Co. and Elbee Saitama Co.

Asahi aims to build up its soft drink and food units to be its main businesses along with alcoholic beverages at a time when the domestic beer market faces stagnant growth.

Ogita said M&A spending may increase in the next three years but declined to be specific, saying nothing is decided on the next mid-term plan.

Its overseas strategy focuses on China, and it plans to build its fifth Chinese plant for about 3.7 billion yen in Huzhou, near Shanghai, aiming to cement its foothold in the world's biggest beer-consuming country.

"We should not hesitate to make investments in order to realise future growth, such as investments on new product development, on facilities and on personnel," Ogita said. "A profit increase just from cost cuts does not lead to real growth."

Asahi has said it expects overall beer category sales to rise 3.4 percent in 2006 despite flat growth in the domestic beer market, and the aggressive forecast also led to a forecast of a 16 percent increase in its profit this year. Ogita said the company may revise up its beer-like drink sales target of 19 million cases, up 28.4 percent from a year earlier. But he said Asahi had no plan to change its total beer category sales target for this year.

One case is equivalent to 12.66 litres.

Shares in the company closed down 0.06 percent at 1,649 yen, while the Nikkei average ended down 1.63 percent. ($1=111.62 Yen)

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