History: Japan a beer-loving nation, part 2: The fight for shares in a limited market

 HISTORY

Japan – a beer-loving nation, part 2: The fight for shares in a limited market

Michaela Knör (Axel Simon Library, VLB Berlin)

As we discussed in the first part of this article (Brauerei Forum 3/2020, p. 22), the Japanese beer market in the 1980s was dominated by four major breweries: Asahi, Kirin, Sapporo and Suntory. The Big Four were fighting for shares in a largely saturated Japanese market. This led to the question: How do you stand out from the competition and secure a bigger slice of the highly coveted pie?

The product is ubiquitous. According to its own information, the brewery fills 1500 cans per minute One way of securing market shares was through new products. The Asahi brewery took this approach back in the 1980s, experimenting with the production of a particularly dry, highly attenuated lager. The product, not unlike a light pilsner, was launched by Asahi 1987 under the brand name Asahi Super Dry. This saw Asahi double its market share, causing heavy losses to Kirin and the other brewing giants. But Asahi's rivals soon followed suit, jumping on the dry beer bandwagon with Kirin Dry, Sapporo Dry and Suntory Dry. The result was a real ding-dong battle, which has now come to be known as the time of the “Dry Wars.” In the course of this “war” one front-line battle in particular stood out: the lawsuit Asahi filed against Kirin. The design of Kirin Dry had been based on Asahi Dry. Kirin had to backpedal, but recovered with a highly successful counter-attack in the form of Kirin Ichiban. In total, the breweries launched a variety of dry beers, though the most they managed to achieve by doing so was to slow down the Asahi Super Dry victory parade, as the flood of new dry beers on the market led to the competition essentially eating itself.

Low-malt beers

Another tactic adopted by the breweries in their effort to secure market shares was to develop a beer-like beverage that could be sold at a lower price due to its lower malt content. In accordance with Japanese law at the time, beer (biiru) had to contain at least 67 % malt, and was subject to a tax of 40 %. Alcoholic beverages with a lower malt content and those based on other raw materials were taxed at a lower rate. It is worth noting at this juncture that the alcohol taxation laws in Japan are unusual in that beer, despite being relatively low in alcohol content, is taxed more heavily than high-proof products such as whisky and sochu. In 1994 Suntory launched Hop’s Draft, a drink that, while it could not be officially termed “beer” due to its 65 % malt content, was nevertheless very similar to beer in appearance and taste. This drink, known as “happoshu” (literally: “foaming alcohol”), was very popular among Japanese beer drinkers and could be sold at a lower price due to its lower taxation. But once again, it wasn’t long before the other breweries came up with competing products. In response to this influx of “beer-like drinks”, the law was changed so that all happoshu products with a malt content of up to 50 % would be taxed at the same rate as beer. This was followed by different tax brackets for products with a malt content of 25 to 50 % and less 25 %. As a result, the breweries kept on reducing the malt content of their “low-malt beers” further and further. The majority of happoshu with a malt content of less than 25 % produced today tastes far less like beer than the products brought out at the beginning of this trend. Nevertheless, they have successfully established their own corner of the market thanks to their low price. In 2017, happoshu accounted for 27 % of Kirin’s product range, and 9 %

Photos: Michaela Knör

and 7 % respectively for Asahi and Sapporo. Suntory – the first brewery to launch the beer-like beverage – is the only member of the Big Four that has not produced happoshu since 2012.

The “third beer”

In the early 2000s, the idea of producing a beer-like beverage that would qualify for a lower tax rate was revisited. This time it was the Sapporo Brewery that developed the drink in question – this time without using any malt at all. The brewers started by experimenting with millet and corn as raw materials, before eventually launching Draft One – a beer-like drink based on pea protein and caramel – in 2004. Again, it didn't take long for the other breweries to come out with copycat products: Suntory was next in line with Super Blue, followed by Kirin with Nodogoshi Nama and Asahi with Shin Nama. Since this product was neither beer nor happoshu, it needed a new name. It ended up being called “third beer” (dai-san no biiru) or happousei – which translates literally as “effervescence.”

Liberalization of the beer market

This phase of the change in direction for the beer market began in the 1990s. It was the food trade in particular that drove the discussion on opening up the market. One result of this debate was the reduction in the minimum production quantity in 1994, from 20 000 hl of beer (biiru) per facility – a rate that had been in place since 1959 – to just 600 hl. This granted smaller breweries access to a market that had been severely restricted for many decades. The first wave of local microbreweries (jibiiru) was founded as a result. In December 1994 the rural Uehara brewery, which is located in Niigata Prefecture on the west coast of Honshu Island and owned by Echigo Beer Co., became the first local microbrewery in Japan to receive its license. It eventually opened as a pub brewery in February 1995, and still exists today. A multitude of small breweries followed, the vast majority of which were classic pub breweries with more traditional beer styles. By 1999, the number of breweries in Japan had grown to 310. Incidentally, this number included the Sumidagawa pub brewery run by Asahi, which jumped on the trend early by opening in the Asahi headquarters complex in Tokyo in March 1995, and is also still in operation today. Kirin also opened a beer pub in Kyoto in 1994 (serving specialty beers such as ales and stouts from their experimental brewery), but didn't enter the craft brewery market until 2014 with the founding of their Spring Valley Brewery. The new wave of microbreweries also included several traditional sake breweries. While these obviously had experience in the production of fermented alcoholic beverages, they were complete novices when it came to making beer – not that they were alone in that regard.

Bringing in overseas expertise

Due to the legally stipulated minimum production quantity for the industry – which still applies today – it was and still remains de facto illegal to brew small quantities of beer in Japan. It was impossible for a home-brewing movement like that seen in America to develop in Japan. As a result, there was no experimentation in terms of how the drink was made. This was one of the main reasons that Japanese breweries were forced to rely on the expertise of foreign brewmasters, just as they had over 100 years ago. Many of these experts came from Germany and the USA, thus largely repeating the history of how the big breweries were originally founded. This time, however, there was one key difference: Unlike the large breweries, which were supported by well-funded investors, the new microbreweries were usually unable to employ skilled foreign personnel for long periods of The Asahi Kanagawa Brewery in Ashigariashi is the youngest and most modern of the eight Asahi breweries in Japan

Collection of Japanese craft beer bottles at Kizakura’s Sake and Beer Museum in Kyoto time. On top of this, the prices in the beer market were under pressure, and the imported raw materials required to make “real” beer led to high production costs. The heavy taxation did the rest. About one third of the microbreweries that sprang up in the 1990s had to close again shortly after their foundation. However, as the American craft beer movement swept into the country from across the Pacific in the mid-2000s, a second wave of new operations was founding, which saw experimental craft breweries (kurafuto biiru) emerge alongside pub breweries. Today, there are about 280 microbreweries of various sizes in Japan, each with very different product ranges. The range of products often gives an indication of the owners’ backgrounds: many of the breweries are run as joint ventures by Japanese and Americans, while others are owned by Europeans. Some craft breweries produce beers with a regional or seasonal twist that can actually be considered completely new beer styles in their own right. One example is the matcha beer produced by Kizakura, a traditional sake brewery in Kyoto’s Fushimi district that has been producing beer since 1996 and thus belongs to the first generation of microbreweries.

Interest groups

In order to support microbreweries, the Japan Craft Brewing Association (JCBA) was founded in 1994, followed by the Japan Brewers Association (JBA) in 1999. These associations organize craft beer events and competitions, thus raising the profile and acceptance of craft beers while also driving a continuous improvement in quality. In addition to this, the stakeholders articulate the needs of small brewers at the political level, even though craft beer only has a relatively small market share of around 1 to 2 %. Sales development and quality assurance matters were on the agenda when a delegation from the JBA visited the German Brewers Association and VLB Berlin in November 2019.

Legal reform

The Big Four continue to dominate the Japanese beer market. However, the major brewers are now struggling with declining sales. This is the main reason why they have initiated a discussion regarding a change in the tax base for beer and beer-like beverages in recent years – a campaign that has brought them success. On 1 April 2018, the legal definition of beer in Japan was revised for the first time in 110 years. The next few years will see the taxation of beer gradually being brought in line with that beer-like beverages, until they eventually reach the same level by 2026. From now on, beverages with a malt content of 50 % or higher will be classed as beer. The list of ingredients has also been expanded. Where rice, corn, wheat, sorghum, potato, starch, and sugar were once the only ingredients allowed, beers can now also include fruit, seaweed, bonito fish flakes and herbs. Taxes rates on beer will be lowered slightly in the future, while those on happoshu and “third beers” will increase. Japan’s population is shrinking, and its average age is on the rise. At the time of writing, it is debatable whether tax harmonization will stimulate the market and bring benefits to the smaller brewers, especially in the context of an ageing society. Ultimately, it is too soon to say for certain. Meanwhile, the major breweries have begun to adapt their product ranges to the needs of older customers in terms of packaging size. They also hope to attract the younger, non-beer crowd using beer-like drinks. For their part, the smaller breweries are trying to win over younger and older beer lovers alike by being experimental.

Contact: Michaela Knör, knoer@vlb-berlin.org