When Japanese soccer fans settle down in front of the TV to watch this year's soccer World Cup in Germany, there's a good chance they'll do so while enjoying a Kirin (KNBWY) beer. After six years as No. 2, Kirin this year looks set to become Japan's biggest brewer, outselling archrival Asahi Breweries during the first three months of 2006. And as sponsor of Japan's national soccer team, Kirin reckons the World Cup will help increase beer sales by 5% this year.
The early signs are good. More than 5 million beer-loving fans have signed up for a promotion offering a chance to win soccer T-shirts in return for buying Kirin brews. "We will make the most of this campaign," Kirin's new president, Kazuyasu Kato, told the Nihon Keizai Shimbun newspaper.
The odd thing is that much of Kirin's recent success isn't due to beer, but rather drinks that look and taste like beer but, strictly speaking, aren't beer at all. In the past year, Kirin has outsold rivals with a new drink called "new-genre beer" or "third beer." Unlike traditional brews, third beer uses no malt in the brewing process. Instead, brewers use protein from fermented soy beans to get a beer-like taste.
BEER TAX. While that might not sound appetizing to real ale enthusiasts, Japanese drinkers don't seem to mind. Sales of regular beer fell by 7.8% last year. But the new-genre beers, first introduced by brewer Sapporo in 2003, accounted for 21% of all beer sales in February, compared to less than 5% in 2004. And Kirin's Nodogoshi, launched last April, has nabbed 40% of the new-genre market.
It's easy to see why the stuff is popular. Beer in Japan is taxed according to its malt content. So while third beer costs about the same to produce as traditional brews, it's taxed at a far lower rate, so it can be sold for less. Regular beer costs about $1.75 for a 350-milliliter can -- of which 66 cents is tax -- while the new genre brews cost just $1.05 per can (including roughly 21 cents of tax).
Another variety, called happoshu -- brewed with some malt, but less than traditional beers -- sells for about $1.25, including 40 cents of tax. "It's like using chemicals to make strawberries taste sweet," says Yoshihiko Asai, author of several books on beer. "People just buy third beer and happoshu because they're cheap."
BLANKETING THE MARKET. But what explains Kirin's dominance of the market for the new brews? After all, rivals Asahi, Sapporo, and Suntory all brew happoshu and third beers. One factor is taste. Although experts say the new brews lack the depth and richness of regular beers, Asai says Kirin's Nodogoshi tastes better than rivals' offerings. "Asahi's third beers taste watery compared to Kirin's," he says. And he says Kirin's Enjuku brand of happoshu, launched in February, is the best tasting in that segment as well.
Kirin is sparing no expense in marketing the new brands. While Asahi, Sapporo, and other brewers trim advertising budgets this year, Kirin plans to maintain spending of around $850 million -- a big chunk of which will go to the World Cup campaign. In 2005, four of the 20 most successful ad campaigns in Japan were for Kirin drinks, according to a survey of advertising executives for the Nikkei Marketing Journal. "Kirin is attacking every area of the market," says Yoshiyasu Okihara, an analyst at Nomura Securities in Tokyo.
NOT FOR EXPORT. That's helping the bottom line. Nikko Citigroup projects revenues at Kirin will rise 2.3% this year even as its shipments of regular beer fall. Operating profits are expected climb 5%, to $995 million. Even the prospect of higher taxes on third beers in May and a new third beer from Asahi don't seem to be causing undue concern. "There has not been such a concentration of positive investment news on [Kirin's] stock in the last 10 years," Nikko Citigroup analyst Nobuyoshi Miura noted in a report in March.
If you're outside Japan, though, don't expect to see Nodogoshi, Enjuku, or any other new brews anytime soon. Although Kirin holds a 20% stake in San Miguel of the Philippines, owns 46% of Australian brewer Lion Nathan, and has growing operations in China, there's no tax incentive to selling the brews outside of Japan. And few would argue the brews offer much advantage other than lower cost.
Rowley is a correspondent in BusinessWeek's Tokyo bureau. With Hiroko Tashiro in Tokyo
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