TOKYO, July 11 (Reuters) - Kirin Holdings is falling behind in the Japanese beer market with no clear fix in sight as it extends a multi-year sales slide and gives up market share to rivals more in touch with changing consumer tastes.
Once the undisputed leader with more than half of Japan’s beer market, worth roughly $40 billion according to Euromonitor, the maker of Ichiban Shibori relinquished its crown to arch-rival Asahi Group Holdings in 2001 and lost more ground this year.
While other brewers hit a sweet spot with high-end offerings like Suntory’s The Premium Malt’s and Sapporo’s Premium Yebisu, Kirin stuck with its tried-and-true brands, missing out on a premium segment that grew by nearly a fifth in the first half of 2014.
Its sponsorship of Japan’s World Cup soccer fell flat when the team made an early exit, curbing demand for its limited-edition Samurai Blue drinks named after the team. Competitors also went after the restaurant and pub business, even displacing Kirin from one chain in which it is a major shareholder.
Data on Thursday showed Kirin’s beer sales in January-June sank 6.6 percent from the previous year - the biggest first-half fall in four years - making it tough for the 107-year-old company to achieve its 2014 target of a 0.1 percent rise.
Its market share also fell, to 33.1 percent from 35.0 percent in 2013, while Asahi gained 1 percentage point to 38.1 percent and third-ranked Suntory Holdings Ltd rose 0.4 point to 15.5 percent.
Its stock price has followed a similar pattern. While Asahi’s shares are up 10 percent year-to-date, Kirin’s are down 3 percent.
“Nothing’s going right at Kirin these days,” said Satoshi Fujiwara, consumer analyst at Nomura Securities. “They need to be more consistent in their focus on brands.”
Last year, Kirin poured its energy into ensuring a successful launch of the Sumikiri “third beer” - an inexpensive class of beer-like drinks made with little or no malt and taxed at a lower rate than regular beer. The brand was a hit with 5 million cases sold in 2013, but sales have since tapered off as the company shifted its focus on rebuilding the flagship Ichiban Shibori and its core “third beer” brand, Nodogoshi.
Kirin had also shifted its attention abroad in recent years to make up for a shrinking market in ageing Japan, including its $2.6 billion acquisition of Brazil’s Schincariol in 2011.
But its overseas operations have also disappointed. Without reviving its crucial home market, Kirin runs the risk of struggling on both fronts, unable to earn enough to beef up its business overseas and reverse a decline in operating profit.
Kirin blamed the first-half sales drop on comparatively weak marketing and a snapback from last year’s strong Sumikiri sales. But the fallout from the lack of a major premium beer product is growing.
The brewer faces a dilemma because it has long marketed the Ichiban Shibori - called Kirin Ichiban overseas - as a premium beer in all but name, touting its first-press brewing process and all-malt formula. That is one reason why it has held back from developing a premium beer, fearing dilution of the Ichiban brand.
“We are focusing our resources this year on a smaller selection of brands, with an extra emphasis on Ichiban Shibori,” said Hiromasa Honda, deputy director of Kirin’s investor relations department. “We won’t spread ourselves thin with new products.”
Meanwhile, Asahi hit the jackpot with a premium version of its popular Super Dry lager during Japan’s traditional gift-giving season last summer. The product had been limited to box-sales for seasonal gifts but proved so popular that Asahi added it to the regular line-up in February.
Kirin introduced a gift-sales-only Ichiban Shibori Premium this summer but said it has no plans to sell it year-round.
Analysts said it would take time for Kirin to come up with a viable premium beer strategy.
“(Asahi‘s) Dry Premium has been this successful because they’ve got an extremely strong base product in the Super Dry,” said Barclays Capital analyst Takayuki Hayano. “What Kirin needs to do first is to build that strong base in the Ichiban Shibori and Nodogoshi before it goes for a premium version. In that sense, their strategy isn’t misguided.”
Kirin said it would announce a “new project” in its beer business next Wednesday, declining to go into specifics.
Kirin is also looking vulnerable in restaurants and pubs, a segment that accounted for 48 percent of the total market last year. Asahi has moved in aggressively, investing about 2.5 billion yen ($25 million) in restaurant and pub chain operator Chimney Co, eventually taking customers away from Kirin at some of its locations.
In April, Kirin also lost a deal to Suntory at grilled-chicken restaurant chain operator Torikizoku Co despite being one of its top shareholders.
“We had lots of customer requests to carry The Premium Malt‘s,” a Torikizoku spokesman said. “It fits right into our policy of offering high-value premium beer for 280 yen ($2.76), so we made the switch.”
While Kirin says it will stick to its strategy of drumming up sales for its core products, Nomura’s Fujiwara said that in the longer term, he wanted to see the company develop a product in a new genre - something it has traditionally excelled at - much like it did with the no-alcohol Kirin Free five years ago.
“It won’t happen in the short term, but they have a chance to come back,” he said. ($1 = 101.5100 Japanese Yen) (Editing by Emily Kaiser)