Kirin Brewery Company, Limited - Company Profile, Information, Business Description, History, Background Information on Kirin Brewery Company, Limited

2-10-1 Shinkawa
Tokyo 104-8288

Company Perspectives:

Long-Term (2010) Group Vision: Deliver enjoyment and pleasure through food and health as a trusted partner of consumers. Become a leading alcohol beverage and soft drink company in Asia and Oceania, utilizing leading technology in fermentation and biotechnology.

History of Kirin Brewery Company, Limited

Longtime leader of the Japanese beer market, Kirin Brewery Company, Limited in the early 2000s was overtaken by its arch-rival, Asahi Breweries, Ltd. Kirin nevertheless continues to sell two of the most popular beers in Japan, Kirin Lager (the country's oldest beer brand) and Ichigan Shibori. In the burgeoning happoshu (low-malt) category, Kirin Tanrei is the top seller. In addition, Kirin handles domestic distribution for several foreign brands, including Budweiser and Heineken. Kirin's brewery operations also extend overseas, through strategic alliances, subsidiaries, and affiliates, to China, Taiwan, Australia, the Philippines, Europe, and the United States. The company holds a 46 percent stake in Lion Nathan Limited, a consolidated subsidiary that is based in Australia but has particularly important operations in China. Kirin has also invested a 15 percent stake in San Miguel Corporation, the dominant brewer in the Philippines. With more than 100 years of experience in the brewing business, Kirin now applies its fermentation technology to areas such as plant genetics, pharmaceuticals, and bioengineering. Although brewing and related businesses remain the core of Kirin's activities, the company is also involved in several other sectors: hard liquor, wine, soft drinks, and food products.

Early History

William Copeland, a naturalized U.S. citizen of Norwegian descent, arrived in Yokohama in 1864. Japan had recently reopened its ports to Western commerce, and Copeland hoped to make his fortune there. He first established a drayage (cart-hauling) business and later a dairy firm; both of these ventures were modestly successful. In 1869, however, responding to the large foreign contingents' demand for domestically brewed beer (Japan had no brewing industry to speak of at this time), Copeland opened the Spring Valley Brewery. In 1872 Copeland left Yokohama temporarily to search for a bride in Norway; later, he returned with his wife, but she died in 1879. Shortly thereafter Copeland, who seemed dogged by misfortune, found that he lacked the necessary capital to improve and expand the business. By 1884 he had closed the brewery and sailed for the United States.

A year later W.H. Talbot and E. Abbott, both foreign entrepreneurs, entered into partnership with two Japanese businessmen, Yonosuke Iwasaki and Eiichi Shibusawa, to reopen Copeland's brewery. With sound financial backing, the newly formed Japan Brewery Company, Ltd. soon became a profitable enterprise. By 1888, all of its beer carried the "Kirin" label. According to ancient Chinese legend, the Kirin, which is half horse and half dragon, heralds good fortune to those able to catch a glimpse of it.

Although Copeland's association with the company that would one day control a major share of the Japanese beer market was relatively short and difficult, he is credited with founding the only Yokohama brewery that has survived until the present with some degree of continuity. Copeland returned to Yokohama during the late 1880s to open the Spring Valley Beer Garden next door to his old brewery. He operated his establishment with a new wife, but it was not a success and he again left Yokohama. He returned once more in 1901 and died a year later. To this day, however, employees pay tribute to the founder by leaving cans of Kirin beer at his grave.

Initially, many foreigners were involved with the company: Americans and Englishmen filled the executive ranks and German technicians supervised the brewing process. Over the years, however, their presence gradually diminished. By 1907, when the firm was incorporated as Kirin Brewery Company, Limited, management had been taken over entirely by the Japanese; the company was purchased that year by the Mitsubishi family, marking the beginning of Kirin's affiliation with the Mitsubishi keiretsu. It was not long before Kirin began to expand rapidly; in 1918 the company constructed a brewery in Amagasaki and later built another facility to house the operations of the Toyo Tozo Company, which Kirin had taken over.

In 1923 the Great Kanto Earthquake destroyed most of the company's facilities in Yokohama, including its main brewery. Kirin, however, soon built a new brewery at a different site in Yokohama. In 1929 Kirin opened its own bottling factory, the Yokohama Bottle Plant. It was clear by this time that the novel attraction of beer had developed into a large market demand; Kirin achieved record sales figures during the mid-1930s.

Postwar Ascendancy

With the start of World War II, the government imposed strict controls over the entire brewing industry. Sales of Kirin beer dropped drastically. Despite a reduction in operations, Kirin established the foundation for its future research and development efforts. In January 1943 the company created the science laboratory at the Yokohama brewery and the research department at the Amagasaki brewery.

Over the years, Kirin's research and development activities outgrew the original facilities. Consequently, to coordinate long-term projects and centralize its scientific investigations, the firm built a new laboratory in Takasaki. The General Research Laboratory, completed in 1967, placed Kirin in the forefront of brewing technology. At Kirin's Takasaki laboratory scientists offered the first explanation for the mechanics of diacetyl formation in the brewing process. Based on this discovery, Kirin devised a way to control metabolism during the period of fermentation. Another noteworthy research effort included the development of the "Amagi-Nijo" strain of malting barley, which eventually commanded more than a 50 percent share of the worldwide market. More recently, company bacteriologists learned how to control a virus known to destroy the bitter flavor of hops.

Sales improved dramatically after the war; during the 1950s the average increase was 17 percent a year. In 1954 Kirin became the number one brewer in Japan, with a market share of 37.1 percent (Kirin had been aided in this by U.S. occupation forces who in 1949 broke the giant Dai Nippon Brewery into two regional companies--Asahi Beer, Ltd. [later Asahi Breweries, Ltd.] and Nippon Breweries, Ltd. [later Sapporo Breweries Limited]--leaving Kirin, temporarily at least, as the only national brewery). By the end of the 1950s, beer had replaced sake as Japan's most popular beverage, fueling additional Kirin growth.

A little more than ten years later, Kirin's sales figures were exceeded by only one other brewery in the world--the St. Louis-based Anheuser-Busch Company, Inc. Much of Kirin's success was attributed to its controlling more than 60 percent of Japan's beer market, which was itself growing by an annual rate of 8 percent. To keep up with this growth, Kirin opened several more breweries in the 1960s and early 1970s. The Nogoya Brewery was completed in 1962, the Takasaki Brewery in 1965, the Fukuoka Brewery in 1996, the Toride Brewery in 1970, the Okayama Brewery in 1972, and the Shiga Brewery in 1974.

Beginning to Diversify in the 1970s

During the early 1970s Kirin's management decided to diversify into new areas. In 1971 a partnership was announced with Joseph E. Seagram & Sons Inc., the U.S. subsidiary of the Montreal-based liquor company; Kirin-Seagram Ltd. operated a distillery in Japan to produce Robert Brown scotch whisky. The company also launched a variety of new soft drinks, and Kirin's Lemon Fizz and Orangeade were generating large sales. Later, dairy items and fruit juices were added to its product line. In 1977 Kirin established a U.S. subsidiary, KW, Inc. (later known as The Coca-Cola Bottling Company of Northern New England, Inc.), to bottle and sell Coca-Cola in New England. In addition, using its expertise and knowledge acquired from years of developing fermentation technology, Kirin introduced new drugs to the health care field.

Kirin's beer sales reached a record high in 1977. But, threatened with an antitrust suit, the company president, Yasusaburo Sato, initiated a temporary program of self-imposed regulation. The plan was to control production, ration distribution, and tone down the advertising campaign. By the following year, Kirin achieved a stabilization in beer sales and still increased revenues because of its successful diversified businesses.

Kirin suffered a setback in the fiscal year of 1979-80. Following the yen's depreciation, import costs for barley and fuel reduced the company's operating profits by 22.2 percent. Moreover, the increased price of domestic barley and wheat, which Japanese brewers were forced to use by government decree, contributed to Kirin's unimpressive performance. The company had to raise the price of its beer; two years later Kirin reported an increase in operating profits.

Making Further Moves Overseas in the 1980s

Kirin had been deterred from selling its beer in foreign markets because of high transportation costs. But in 1984 a licensing contract was arranged with Heineken N.V., the Netherlands-based brewing company, whereby Kirin produced Heineken for the Japanese market and Heineken produced Kirin for the Dutch market.

As Japanese cuisine became popular with Americans, the demand for Kirin beer increased. The firm established the Cherry Company Ltd., a wholly owned subsidiary in Hawaii, to supervise Kirin's U.S. market distribution. Kirin USA, Inc. was then established in New York in 1983 to promote sales.

By 1986 Kirin's international operations encompassed Europe, North America, South America, Asia, and Australia. In West Germany, Kirin contracted Krones A.G. to market empty bottle inspection machinery. (This equipment marked the introduction of intelligent robots to the brewing industry.) In Brazil, Kirin held a majority interest in a food and beverage company; in China, the company constructed a soft drink production factory; in Australia, the Kirin Australia Pty. Ltd. subsidiary manufactured and supplied Kirin products to the Australian market. In 1987 the company entered into an agreement with Molson Companies Ltd. (later known as Molson Breweries of Canada Limited) whereby Molson would brew Kirin beer in Canada for sale in Canada and the United States. The following year Kirin bought Raymond Vineyard and Cellars, Inc., a winery in California's Napa Valley.

In the 1980s, management initiated major changes in Kirin's research and development program. The company's laboratory was divided and reorganized along three major fields of investigation--brewing science, pharmaceuticals, and plant bioengineering. New departments were also added at the administrative level to coordinate fund-raising activities for research projects.

A number of joint ventures with American companies established in the 1980s increased Kirin's participation in the field of biotechnology. In 1984 Kirin completed a 50-50 venture--known as Kirin-Amgen, Inc.--with Amgen Inc., a California-based company, to develop and market a synthetic human hormone to treat anemia. This pharmaceutical, called Erythropoietin, was created to help patients undergoing kidney dialysis. In the past, many patients commonly became anemic and required blood transfusions during treatment. Another potential application was as a drug for cancer patients suffering blood cell reduction from chemotherapy. Kirin also combined its resources with an agricultural biotechnology company, Plant Genetics Inc., to develop synthetic seeds for a variety of agricultural products.

A successful chain of beer pubs called Kirin City was started in the Roppongi district in 1983, eventually growing to 11 pubs across Japan. Similarly, the Kirin Food Service Co., Ltd. was established to operate a restaurant franchise. Kirin also constructed a number of health clubs and sports complexes across the nation. Another addition to Kirin's list of subsidiaries was Flower Gate Inc., which produced African violets developed by an innovative tissue culture process.

Facing Heightened Domestic Competition in the Late 1980s and 1990s

In the mid-1980s Kirin maintained a domestic market share in beer of about 60 percent, with Sapporo holding 20 percent, Asahi at 10 percent, and Suntory Ltd., a whiskey distiller that had entered the beer market in 1963, at 8 to 9 percent. Asahi then made an extraordinary leap starting in the late 1980s, catching Kirin more or less flat-footed, with Asahi's most important move coming in March 1987 when Asahi Super Dry, Japan's first dry beer, was introduced. Super Dry, a cold-filtered draft beer, quickly became popular with younger drinkers who liked its lighter, less bitter taste. Just a year after Super Dry's introduction, Asahi increased its domestic market share to 17 percent. By 1996 Super Dry became the top-selling beer in Japan, displacing Kirin Lager, and Asahi's market share had increased to 35 percent while Kirin's had fallen to 47 percent.

During this period Kirin faced not only stiffened competition but also changes in consumer tastes and distribution, to which the company failed to react quickly enough. Japanese consumers wanted lighter, less bitter beers--Super Dry delivered this; Kirin Lager did not. Kirin eventually, somewhat belatedly, in early 1996, gave in to consumer preferences and changed Kirin Lager to a less bitter, draft beer. In the intervening years, Kirin was not idle, however, having introduced, in 1990, the successful Kirin Ichiban Shibori (meaning "first pressing"), which quickly became the country's number three beer brand. Kirin Light also debuted in 1989. Nevertheless, Kirin was certainly slow to adapt to changes in beer distribution in Japan. For decades, beer had been sold in small liquor stores by the bottle, and Kirin had built a nationwide distribution network of special contract wholesalers who sold to the liquor stores. The emergence in Japan of convenience stores and discounters in the late 1980s marked a major shift in the way consumers purchased beer, and by the mid-1990s as much beer was sold through these new outlets as through the traditional liquor stores. With its long-established distribution network and with most of its beer still bottled rather than canned (the new outlets preferred the easier-to-stock cans), Kirin was unable to shift quickly to the new outlets. By the mid-1990s, Kirin had gone a long way toward adapting to the new environment--offering more canned beer and shifting more of its stock to the convenience stores and discounters. But the firm's belated moves only slowed the steady decline of its market share, and in late 1997 Kirin was forced to restructure. It closed three aging breweries located in Tokyo, Kyoto, and Hiroshima, shifting production to its remaining 12 plants, and began a process to reduce its workforce by 20 percent, or about 1,000 employees, through attrition by 2000.

At the same time that it was defending itself at home, Kirin was aggressively expanding its foreign brewing ventures. In 1989 the company established a brewing operation in Hong Kong called Kirin Brewery (H.K.) Co., Ltd. The following year Kirin entered into an agreement with South Korea's Oriental Brewery Co., Ltd. whereby Kirin would sell OB Beer, South Korea's top beer, in Japan. In 1992 Kirin entered into a joint venture with Charles Wells Ltd. through which the U.K. brewer began making and selling Kirin beer in Europe. That same year the company's joint venture with Molson ended, and it began distributing its products in the United States. Kirin and Anheuser-Busch Companies, Inc. in 1993 entered into a joint venture, Budweiser Japan Co., for the distribution of Budweiser beer in Japan. Three years later the two companies established Kirin Brewery of America, LLC to produce and distribute the Kirin Lager, Kirin Ichiban (equivalent to Kirin Ichiban Shibori), and Kirin Light brands in the United States at an Anheuser-Busch facility in the Los Angeles area; Kirin invested an initial $8 million in this venture, which began production in April 1997. In addition to solidifying its position in the world's number one beer market--the United States--Kirin also aimed to grab a share of the Chinese market, number two in the world in the mid-1990s but predicted to surpass the United States in beer consumption in the early 21st century. In April 1995 Kirin signed a licensing agreement with China Resources (Shenyang) Snowflake Brewery Co. (the second largest brewer in China), through which Kirin beer would be brewed on a consignment basis for sale in seven large cities in northern China. Production began in June 1996. A few months later, Kirin entered into a joint venture called Zhuhai Kirin President Brewery Co., Ltd., which operated in China's Guangdong province, where it began brewing Haizhu Beer and Ichiban Shibori for the Chinese market.

Late 1990s and Early 2000s: Losing Market Share at Home, but Gaining Ground Overseas

In the late 1990s and into the early 2000s, the overall beer market in Japan was stagnant (in part because of the shrinking number of young people), but there was a significant shift occurring in the types of beers that Japanese people were consuming. Rapidly growing in popularity were low-malt beers known as happoshu. Starting in 1994, some Japanese brewers decided to take advantage of the Japanese tax system, which taxed beer according to its malt content. The tax on low-malt beers was significantly lower, resulting in a retail price about two-thirds that of a regular beer. Budget-conscious consumers, wracked by the lengthy Japanese recession, snapped up the lower-priced beer in increasing numbers, such that by 2000 the happoshu segment accounted for 22 percent of the overall beer market. (To maintain a beer-like taste, producers of happoshu used various types of malt substitutes.) Kirin joined the happoshu bandwagon in February 1998 when it launched Kirin Tanrei. The new brew quickly captured the top spot in its sector, grabbing half of the happoshu market.

Amid the increasing competition at home, Kirin announced in September 1997 its intention to seek mergers and acquisitions to increase its presence overseas. Its first step in this direction came in April 1998 when it revealed it had purchased a 45 percent stake in Lion Nathan Limited for NZD 1.33 billion ($746.1 million). Lion Nathan operated two breweries in New Zealand, where it had a 54 percent market share, and four in Australia, where its share was 42 percent. Its brands included Castlemaine XXXX, Swan, Tooheys, Steinlager, and Lion Red. Also attractive to Kirin was Lion Nathan's significant presence in China, where it had a joint venture brewery in Wuxi and a wholly owned brewery at Suzhou, both located in the Chang (Yangtze) River Delta area.

At the start of 2000 Anheuser-Busch dissolved its six-year-old joint venture with Kirin in Japan, Budweiser Japan Co., after the venture fell victim to the highly competitive market and turned loss-making. The venture was replaced by a licensing agreement between the two companies, whereby Kirin took over production and distribution of the Budweiser brand in Japan. Later in 2000, as part of its ongoing cost-containment efforts, Kirin closed another of its aging Japanese breweries, this one located in Takasaki. In January 2001 Kirin adopted a holding company structure to oversee its group companies' operations; each business sector--including brewing, soft drinks, distilled liquor, food, and pharmaceuticals--gained more independence. Also in 2001, Kirin entered another growing low-alcohol market in Japan, chu-hi drinks, canned mixtures of distilled liquor and fruit juices. Through the combined talents of Kirin's brewing, liquor, and soft drinks businesses, Kirin Chu-hi Hyoketsu had a strong debut and was offered in several varieties, including lemon, grapefruit, orange, plum, and lime. The liquor used was shochu, a local spirit similar to vodka but specially distilled to remove all harsh flavors.

In February 2001 arch-rival Asahi Breweries launched its first happoshu beer, and despite being the last of the major Japanese brewers to enter the segment, Asahi Honnama captured 22.3 percent of the happoshu market for 2001. This strong debut finally knocked Kirin from its perch as the top Japanese brewer--a position it held for nearly 50 years--as Asahi grabbed 38.7 percent of the market in 2001, compared to Kirin's 35.8 percent.

Early in 2002 Kirin acquired the global rights to the Four Roses brand of bourbon whisky. The company completed its second acquisition of a stake in a major Asia-Pacific brewer in February of that year when it spent PHP 27.88 billion ($544 million) for a 15 percent stake in San Miguel Corporation, the overwhelmingly dominant beer maker in the Philippines, where it held a 90 percent market share. In addition to its five breweries in the Philippines, San Miguel also operated breweries in China, Vietnam, Indonesia, and Australia. Meantime, Kirin and Lion Nathan joined forces in May 2002 to launch a new product in Taiwan called Kirin Bar Beer, the first low-priced beer sold outside of Japan under the Kirin name. In November 2002 Kirin Brewery's Kirin Beverage Corporation subsidiary, Groupe Danone of France, and Mitsubishi Corporation established a joint venture called Kirin MC Danone Waters Co., Ltd. with the explicit aim of creating the leading mineral water company in Japan.

In 2003, despite an unusually cool summer in Japan and an increase in the tax on happoshu, which made the low-malt beers more expensive but still cheaper than regular brews, Kirin Brewery managed to eke out a small increase in sales while seeing net income fall very slightly. Despite the tax increase, sales of happoshu kept growing, accounting for more than 40 percent of the overall beer market in Japan by 2003; Kirin predicted that during 2004 it would, for the first time, sell more happoshu than traditional beer. Nevertheless, sales of chu-hi drinks were growing even faster, and Kirin saw its revenues in that sector jump 44 percent in 2003. Overseas, Kirin and Lion Nathan continued to collaborate on new products, launching Kirin Pure and Light in Shanghai and Kirin Ichiban--First Press Beer in Australia and New Zealand. In April 2004 Kirin's Chinese affiliate Zhuhai Kirin President Brewery introduced Haizhu Draft Beer into its market area in Guangdong province. Kirin may have been dethroned from the top spot in Japanese brewing, but its aggressive pursuit of faster growing markets overseas boded well for the future.

Principal Subsidiaries: ALCOHOLIC BEVERAGES BUSINESS: El Sho Gen Co., Ltd.; Kirin Distillery Co., Ltd.; Kirin Australia Pty. Ltd.; Lion Nathan Limited (Australia; 46%); Zhuhai Kirin President Brewery Co., Ltd. (China); Kirin Europe GmbH (Germany); Taiwan Kirin Company, Ltd.; Four Roses Distillery LLC (U.S.A.); Kirin Brewery of America LLC (U.S.A.); Raymond Vineyard & Cellar, Inc. (U.S.A.). SOFT DRINKS BUSINESS: Hokkaido Kirin Beverage Corp.; Kirin Beverage Corporation; Kirin MC Danone Waters Co., Ltd.; Vivax Co., Ltd.; The Coca-Cola Bottling Company of Northern New England, Inc. (U.S.A.). PHARMACEUTICALS BUSINESS: Kirin Kunpeng (China) Bio-Pharmaceutical Co., Ltd.; Kirin Pharmaceuticals (Asia) Co., Ltd. (Hong Kong); Jeil-Kirin Pharmaceutical Inc. (South Korea); Kirin Pharmaceuticals Co., Ltd. (Taiwan); Gemini Science, Inc. (U.S.A.). OTHER BUSINESSES: Kirin Dining Co., Ltd.; Kirin Engineering Co., Ltd.; Kirin International Trading Inc.; Kirin Lease Co., Ltd.; Kirin Logistics Co., Ltd.; Kirin Techno-System Corp.; Kirin Well-Foods Company, Limited; Nagano Tomato Co., Ltd.; Takeda-Kirin Foods Corporation; Yokohama Akarenga, Inc.; Yokohama Arena Co., Ltd.; Indústria Agrícola Tozan Ltda. (Brazil); Qingdao International Seed Co., Ltd. (China); Germicopa S.A. (France); Fides Holding B.V. (Netherlands); Kirin Agribio EC B.V. (Netherlands); Barberet & Blanc, S.A. (Spain); Southern Glass House Produce Ltd. (U.K.); Twyford International, Inc. (U.S.A.).

Principal Competitors: Asahi Breweries, Ltd.; Sapporo Breweries Limited; Suntory Limited; Takara Holdings Inc.; Mercian Corporation.


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