Asahi 1

Assignment 2

Asahi Breweries Case Analysis

Anonymous Student #2

Professor John Stockmyer

MKT517 WEB/Tuesdays 7:00-9:30

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Asahi Breweries

(Dry Beer Implementation)

Introduction

Asahi Breweries, Ltd. has been in the Japanese beer market since its inception in 1949

where it originated through the post-war breakup of beer conglomerate Dai Nippon, which at

the time had a 75% market share. The only other existing Japanese beer company prior to the

post-war era was Kirin, holding the remaining 25% market share. Asahi is one of four main

beer manufacturers along with its competitors; Kirin, Sapporo and Suntory companies. Kirin,

being the oldest and largest company of beer producers has historically been the leader in

production, sales, and market share at ~ 60%; primarily through its experience enabling the

company to identify market trends and develop expansive distribution centers. The Asahi,

Sapporo, and Suntory companies have generally remained competitive for the remaining 40%

market share.

Traditionally, lager beer as been the choice of Japanese beer drinkers and Kirin has

capitalized on that tradition for decades by producing lager as its primary beer product.

However, by the early 1980’s consumer tastes began to change and they desired more variety in

beer choices. To meet the demand, the three smaller companies developed and marketed their

own brands of draft beer which in turn enabled the market share for that specific product

segment to even out. Karin reluctantly followed while maintaining its position that lager was

still the beer of choice. In order to differentiate itself from its competitors and create a niche for

itself, Asahi has created a new “dry beer” to offer consumers hoping to capitalize on the

changing tastes of beer drinkers. Asahi’s president, Hirotaro Higuchi, has decided to invest in

the implementation of the new product. The decision must be analyzed whether to support the

investment in the strategic development, production, and marketing of Asahi’s new dry beer.
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Asahi’s Recent Strategies

Asahi prides itself on its long history of beer production with continued quality and social

commitment to its customers, employee relationships, business partners, stockholders, and local

communities. Until 1982 change was almost nonexistent as the company continued to operate in

the traditional modus of producing lager beer and was on the verge of becoming extinct in the

market due to declining sales, forced early retirements, and low morale. At that time, Tsutomu

Murai became the president bringing a new horizontal communication philosophy to the

company. He implemented cross functional teams to improve the company’s image both

internally and externally as well as improve quality within the organization. It was determined

from research that consumer beer taste was changing and Asahi needed to respond. Risking

backlash from traditionalists, the Asahi trademark was changed in parallel with the release of the

new Asahi Draft product, demonstrating management’s ability to identify and the willingness to

respond to the changing market environment. This gave the company’s morale a sustained boost,

but a short lived increase in market share and soon it declined.

In 1986, Hirotaro Higuchi became the new president with a top down management

philosophy and very hands on style decision making with the sole mission to increase profit.

Riding the wave of the new draft beer product release and improved organizational functionality,

Higuchi was willing to spend money to ensure the new product was a success and he

implemented three drastic policy changes at the risk of erasing the company’s 1985 net profit

margin of 1.4 billion yen:

 Remove all old products from circulation at a loss to show commitment to the new

product.

 Change raw material (malt) suppliers to German suppliers to improve quality at increased

expense.

 Spend as much money on advertising and promotion until operating profit equaled zero.
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As quality improved and the advertising and promotional blitz increased, distributors realized

Asahi was serious a contender and retailers started to push the draft product resulting in a 9.7%

increase in sales from the previous year. With the direction of its strong leadership and strategic

vision, Asahi’s management and workers were willing to follow and implement change by going

against conventional wisdom and positioning the company in 1987 with an overall market share

of 12% and projected increase of 23% through 1990. Included in this projection, was the latest

Asahi product development, “Super Dry” beer, which at first, Higuchi was reluctant to introduce

into the market so soon after the release of Asahi Draft, but after tasting the product himself he

decided to market the product resulting in a 33% sales increase in 1987. Higuchi now proposes

an investment plan to increase brewing and packaging capacity by 30% at a cost of 230 billion

yen over two years, 1989 -1990.

Demographics

Lager beer has traditionally been the product of choice for most of the pre and post WWII

era consumers, mainly competitor Kirin’s customer base, but that segment has diminished

resulting in a younger generation of beer drinkers preferring a variety of products including draft

and dry beers. This has been proven through consumer research and taste tasting trials. It should

not to be presumed that lager beer is obsolete has demonstrated by Kirin’s dominance of that

market segment from the 1988 average monthly market share data of 42.2%. This does suggest,

however, that Asahi has an opportunity to compound on the market trend and gain market share

in the new dry beer segment and younger demographic by creating a dry beer niche for itself, as

demonstrated by the same data indicating Asahi with a 15.4% average monthly dry beer market

share versus Kirin, the closest competitor at 8.0%. It should be noted that in January of that year,

Asahi’s total beer market share was 11.2 % and by November it had risen to 20.5%; a 9.3 %

upward trend. Kirin’s market share decreased by 9.8% during that same period.
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Competition

As stated in the introduction, Asahi has three competitors in the beer market, Karin,

Sapporo, and Suntory:

Kirin: One of the oldest, largest, and most diversified companies with an extensive distribution

network. Strength in the beer market is lager beer, of which it holds a dominate market share.

Still believes that lager is the Japanese beer of choice. Slow to respond to the trend of recent

changing consumer preferences and promotes the stance that dry beer is a passing fad.

Eventually Kirin released its own dry brand and its moderate success is due to the company’s

size.

Sapporo: Formed at the same time as Asahi after the dissection of Dai Nippon post WWII.

Strength in the beer market is draft beer of which it leads in market share. Sapporo is probably

Asahi’s closest competitor for total market share at 18.8 %. Eventually followed suit and released

a dry beer to compete, although lagging in the market.

Suntory: Focuses on draft and malt beer products, of which malt seems to be declining as

indicated by 0.7 % market share. Suntory released a dry beer as well with minimal success. At

this time the company ranks last in the beer market with a 5.5 % market share.

Legal/Political Factors

 All three competitors released dry products without product or packaging differentiation

in hopes of capturing a percentage of the dry beer market and boosting sales. Asahi has

challenged with intellectual property rights and the media attention has benefitted Asahi

as the original dry beer creator and producer. This will help to secure Asahi has the leader

in the dry beer market segment.

 The Japanese government monitors industries for potential monopolies, therefore Kirin

cannot petition for increased market share at the risk of being divided into smaller

companies.
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 A new license is required to open new production plants. The Ministry of Finance

regulates licenses and may restrict them where there is a potential for industry excess

capacity. This will not be a factor has the competitors production will eventually

decrease as Asahi’s production increases to match sales demand as indicted by market

share trends.

 Distributors and retailers are required to have licenses and new licenses are limited. This

affects all companies.

 The retail price of beer and liquor tax is also regulated by the Ministry of Finance. This

affects all companies as well.

Social Environment

The Japanese beer consumer has been, for the most part, conservative when it comes to

change. This is reflected in the lager beer market share data and the fact that it has taken ~ 30

years to introduce and accept a draft beer into the market. However, as the market has become

global and consumers have been exposed to more options and variety, their tastes and

preferences have changed more rapidly as indicated from recent consumer research and taste

trials. This change in consumer attitude will benefit the company that offers new and innovative

products to the beer market such as Asahi dry beer.

Economics/Financials

Currently, Asahi’s relevant financials ratios are as follows:

1987 1988 1989 1990

Ratio Calculation Total Estimate Projected Projected Scale
Operating billion
Profit Sales – COGS/Sales 3.5 14.0 16.0 20.0 yen
billion
Net Profit Profits after Taxes/Sales 2.5 4.8 6.0 7.0 yen
Current Assets/Current
Current Ratio Liabilities 1.6 NA NA NA ratio
Working Current Assets-Current million
Capital Liabilities 103553 NA NA NA yen
Debt to Assets Total Debt/Total Assets 1.4 NA NA NA ratio
Long-term Long-term Debt/Total
Debt to Equity Stockholders' Equity 0.3 NA NA NA ratio
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At first glance, the proposed investments of 230 billion yen to increase capacity

overwhelms the projected operating and net profits, although the projections of these are trending

positive and are good indicators of a sound company. The current and capital ratios indicate that

Asahi has the ability to pay its current liabilities by using assets and finance inventory expansion

and operations without having to barrow. However, the leverage ratios are stronger indicators of

Asahi being able to take on additional debt. The debt to assets ratio reveals that the company has

not abused debt to finance operations, and the long-term debt to equity ratio indicates Asahi has

the capacity to barrow additional funds when needed. Asahi’s Finance Director, Hiroshi Okada

supports the data by stating that Asahi has undervalued assets worth approximately 700 billion

yen and increased stock prices which secured an additional 100 billion yen enabling the company

to invest with equity thereby reducing the investment risk such as excess inventory, excess

capacity or chance of bankruptcy.

Technology

Technology has enabled Asahi to package and advertise its product in novel ways to

capture consumer’s attention along with the great test of the dry beer product. It is unknown from

the analysis if technology would help with the increase of production and capacity, although it is

reasonable to assume that technological advances would help with construction, manufacturing,

and distribution infrastructures through the use of computers and automation.

Recommendation

In review of the analysis I recommend the proposed investment to increase capacity.

Asahi’s management has proven it makes the right strategic decisions when faced with adversity

while regarding the potential risks involved. The Japanese beer market environment is ripe for a

new product as evidenced by the changing demographics and social environment. The

competition is lagging in response to offering an alternative to beer consumers’ desire for

product variety and the legal and political policies do not constrain Asahi relative to its
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competitors. Ultimately, Asahi’s economic and financial position is found to be in agreement

with absorbing additional debt to expand capacity. Combine the actual and projected upward

trend in sales and market share, and the potential for a positive return is increased even further,

whereas the risk factor for investment loss is reduced.

What will be the likely competitive reaction, and how serious is the threat?

Nice analysis.

Overall Score: 98/100