Kirin Holdings Co. Ltd in Beer - World · Kirin Holdings - Beer Kirin Headquarters Tokyo, Japan Major Regional Involvement Asia Pacific, Australasia Category Involvement Beer, Wine,

Kirin Holdings Co. Ltd in Beer -World

June 2010

© Euromonitor International

2

Kirin Holdings - Beer

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Scope

Scope of the Report

• 2009 figures are based on part-year estimates.

• All forecast data are expressed in constant terms; inflationary effects are discounted. Conversely, all historical data

are expressed in current terms; inflationary effects are taken into account.

• Alcoholic Drinks coverage:

Alcoholic Drinks

235 billion litres

Wine27 bn litres

Beer184 bn litres

Spirits19 bn litres

RTDs/ High-strength

Premixes4 bn litres

Cider/perry1.5 bn litres

Note: Figures may not add up due to rounding

http://www.euromonitor.com/




3


Strategic Evaluation

Competitive Positioning

Market Assessment

Category and Geographic Opportunities

Operations

Brand Strategy

Recommendations




4


Kirin

Headquarters Tokyo, Japan

Major Regional

InvolvementAsia Pacific, Australasia

Category

InvolvementBeer, Wine, Spirits, Soft Drinks,

World Beer Volume

Share 2009 1.9%

Beer Volume Growth

200947.0%

Kirin has looked for overseas expansion

• Kirin has expanded its presence internationally,

particularly in Asia Pacific and Australasia.

• It has acquired total control of the Australasian brewer

Lion Nathan and has expanded its equity holding in the

Pilipino brewer San Miguel. It also owns the Four Roses

distillery in the US.

• The company has acquired operations in Australia and

China in soft drinks and food.

• Kirin has stated it intentions to increase its revenues from

sources outside Japan, to counteract a declining and

highly competitive domestic market.

• Kirin also owns Coca-Cola bottler Coca-Cola Bottling

Company of Northern New England, USA.

Complete beverage portfolio in Japan

• Kirin has operations in beer, soft drinks, wine and spirits

in Japan.

• It is also one of several Coca-Cola bottlers in the country.

• In 2009, Kirin announced that it was forming a joint

venture with the global spirits producer Diageo in Japan.

Kirin Company Facts


0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Vo

lum

e (

litre

s m

n)

Kirin Beer Volumes 2000-2009




5


Alcoholic Beverages

69%

Soft Drinks and

Foods5%

Pharmaceuticals23%

Other3%

Operating Income (after goodwill amortization) by Segment, 2009 Yen

bn

Note: This excludes Corporate and Eliminations deductions that

in 2009 totalled ¥19.6 bn.

Financial Assessment


Alcoholic Beverages

48%

Soft Drinks and Foods

32%

Pharmaceuticals

9%

Other11%

Sales Breakdown by Segment, ¥ bn, 2009

• Kirin has been hit by the strength of the yen,

particularly against the Australian dollar in 2009. The

company has substantially increased its exposure in

alcoholic drinks, food and beverages since the

acquisition of National Foods and gaining control of

the brewer Lion Nathan.

• Alcoholic Beverages made up the largest proportion

of sales and income in 2009 and should continue to

do so.

Kirin Group FY 2009 Financials

¥ (bn) (% growth y-on-y)

Sales 2,278.4 (-1.1)

Operating Income (after

goodwill amortisation)128.4 (-12.0)

Net Income 49.1 (-38.7)

EBITDA 212.8 (-19.6)




6


Strengths

Opportunities

Weaknesses

Threats

• A wide beverage and food

portfolio in Japan and

Australia could limit the

impact of a poor

performance in its

alcoholic drinks business.

Wide Beverage & Food

Portfolio

• Asia Pacific is the fastest

growing region for beer.

Kirin is well placed to

benefit from this increase

with operations and equity

stakes in China and the

Philippines.

Operations in Asia

Pacific

• Kirin has operations and

equity holdings in China

but these are small. The

dynamic Chinese market

is set to drive the majority

of global beer growth.

Small Presence in China

• The Japanese market is in

decline with an ageing

and declining population

being the major factors of

this decline.

Exposure to the

Japanese Market

• Asia Pacific is expected to

be the largest growing

region in absolute volume

terms for beer over the

2009-2014 period. Kirin

and its equity holdings are

in a good position to

expand in the region in

their existing and

potentially new markets.

Strength of Growth in

Asia Pacific

• The current strength of

the Japanese yen against

other currencies in Asia

Pacific and Australasia

gives it greater buying

power for acquisitions.

Strength of the Yen

• Japan‟s fiercely

competitive market could

prove an issue if Kirin

does not keep on

innovating as well as its

rivals. With other large

brewers looking for growth

in Asia Pacific, it may also

come under threat from

new entrants.

Competitive Threat

• The increasingly

consolidated nature of the

global beer market could

limit the number and/or

push up the costs of

acquisitions.

Consolidation of the

Beer Market

SWOT - Kirin





7


Internationalise the group

Build the health and functional

food business as

a new business

pillar.

Implement strategies to become an integrated beverage

group.

Operating income ratio of over 10%

Achieve ¥3 trillion in sales (including alcohol tax). ¥2.5 trillion in sales (excluding alcohol tax)

Overseas sales ratio of approximately 30% (sales excluding alcohol tax and operating income)

Overview

• Kirin has developed a strategy – Vision 2015 - for the company as a whole, based around three core strategies

against three group consolidated targets.

• This strategy has been implemented to increase Kirin‟s revenues and profits and to protect it from declining markets

and intense competition in its domestic Japanese market.

Kirin Vision 2015 Strategy Plan


Core Strategies Consolidated Targets:

Three targets for entire

Kirin group to achieve by 2015




8


Recent Acquisitions

• Kirin has acquired several assets and equity stakes since 2006 in several sectors including alcoholic drinks, packaged food and soft drinks in several markets in Asia Pacific and Australasia. These acquisition are to mitigate the declines in its domestic Japanese market and lay foundations for future growth.

Non-Alcoholic Drinks Acquisitions

• Kyowa Hakko Group – Kirin has acquired a 50.1% stake in Japanese pharmaceutical group in a strategic alliance. Kirin and Kyowa Hakko then merge both companies‟ pharmaceutical companies under the Kyowa Hakko Kirin Group.

• Kirin has acquired National Foods from San Miguel Corporation for US$2.52 billion in December 2007. National Foods is a large Australian producer of diary foods and beverages.

• Kirin has increased its stake in Shanghai Jinjiang Kirin Beverage & Food, a soft drinks company based in China, from 57.6% to 93%.

Alcoholic Drinks Acquisitions

• In 2006, Kirin acquired a 50.12% stake in Japanese wine company Mercian Corporation. Mercian is a leading wine and RTDs company and will look after Kirin‟s Japanese wine portfolio, while Kirin will manage Mercian‟s RTDs and shochu operations.

• Kirin acquired the Two Dogs RTD brand in Japan from Pernod Ricard Australia in 2006. Kirin had been importing the Two Dogs brand since 1996.

• Kirin acquired a 25% stake in brewer Hangzhou Qiandaohu, for US$38.1 million.

• Kirin acquired a 49% stake in San Miguel Brewery from parent company San Miguel Corporation for US$1.19 in January 2009. San Miguel is the leading brewer in the Philippines, with a near 90% market share. San Miguel Brewery then acquired its international brewing arm from parent company San Miguel Corporation in December 2009, for US$300 million. The operation has six breweries in China, Hong Kong, Indonesia, Vietnam and Thailand. Kirin swapped a stake in San Miguel's parent company, San Miguel Corporation, for an increased stake in the brewing operation. It is also in the process of acquiring San Miguel‟s spirits business. The parent company San Miguel Corporation still has control of San Miguel Brewery and is currently in the process of divesting several operating units to fund the acquisition and development of new business in power generation, mining and heavy industry, Kirin has deepened its exposure to San Miguel Brewery in the last tranche of divestments.

Driving Growth Through Acquisition





9


• In October 2009, Kirin acquired total control of Lion Nathan, the number two Australasian brewer, for US$2.6 billion.

Kirin already held a substantial 46% equity stake in the brewer, which was acquired in 1998. Lion Nathan had

operations in Australia, where it was the second ranked brewer with a 41% market share in 2008, and was New

Zealand‟s leading brewer, with 52%. Lion Nathan also has a small fine wines, spirits and RTDs business operating in

Australasia, including a joint venture with Bacardi for the distribution of its spirits portfolio in Australia.

• The acquisition added nearly 940 million litres, equal to a 50 basis points increase in Kirin‟s global market share in

beer. At Australasian level this give Kirin a 41.1% market share in 2009 in beer.

• In addition, in January 2008, Lion Nathan (then 46% owned by Kirin) purchased J. Boag & Son, a Tasmanian brewer,

for US$302.8 million, from San Miguel Corporation, further extending it presence in Australia. Increasing its

Australian volumes by 24 million litres or 110 basis point market share increase in the Australasian region.

• Beer volumes in Australasia are expected to grow at a CAGR of just 2% over the 2009-2014 period, equal to an

additional 201 million litres, with a general trading up trend to premium beers. However, this compares favourably

with the Japanese beer market, which is forecast to decline at a CAGR of nearly 1%, equal to a decline of 160 million

litres, with a trading down trend to trend to economy lager.

Lion Nathan Acquisition


0

500

1,000

1,500

2,000

2,500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Vo

lum

e (

litre

s m

n)

Major Brewers in Australasia by Volume 2000-2009

Foster's Group Ltd Kirin Holdings Co Ltd Lion Nathan Ltd Others




10


Enters into a joint venture with Diageo in Japan

• Kirin has ended its agreement with Pernod Ricard, the world‟s number two spirits producer.

• Kirin enters into a joint venture with Diageo after Diageo dropped its previous Japanese distributor Sapporo for the

Guinness, Kilkenny and Smirnoff Ice beer and RTD brands. Diageo will hold a 51% stake in the venture, with Kirin

holding the remainder. The deal also includes Diageo‟s Captain Morgan, Crown Royal, Godiva, Myner‟s Rum,

Seagram‟s Seven Crown, Seagram‟s VO and Gilbey's Gin and Vodka, which Kirin already distributed. In addition, 13

more brands were added, including Tanqueray Gin, Bailey‟s, I W Harper and Johnnie Walker Black and Red Labels.

• Diageo‟s luxury and super luxury malt and blended Scotch whisky brands stay with its 50/50 joint venture in Japan

with MHD Diageo Moet Hennessy. Diageo also owns a 34% stake in Moet Hennessy.

Disposes of several small operations

• In addition to Kirin‟s acquisitions in alcoholic drinks, the company has made some disposals:

• Raymond Vineyards and Cellars: US Napa Valley-based winery to Boisset Family Estates, the US division of

French wine producer Boisset.

• Stake in Pernod Ricard: Kirin divested its 3.7% voting right stake in Pernod Ricard after entering the joint

venture with Diageo.

• Kirin Agriibo Businesses: In 2010, Kirin agreed to sell its Agriibo business units to H2 Equity Partners, a Dutch-

based private equity company. The deal is due to complete in March 2010.

Enters Into Joint Venture, Makes Small Disposals





11


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000V

olu

me

(lit

res m

n)

Chinese Beer Market by Volume 2004-2014

Kirin Holds Several Equity Stakes in Other Brewers


Increased stake in San Miguel Breweries

• Kirin acquired a 49% stake in the Philippine company

San Miguel Breweries, which in turn has acquired

control of San Miguel Breweries International. This

has extended Kirin‟s Asia-Pacific presence with

increased access notably to Hong Kong, China and

Vietnam.

• In total San Miguel Breweries and International

generate 1.6 bn litres of beer sales in 2009.

• San Miguel Brewery is also currently in the process

of acquiring Ginbera San Miguel, San Miguel

Corporation‟s gin business, which is the leading

spirits company in the Philippines.

Stakes in Chinese brewers

• As well as it own operations in China, Kirin owns two

equity stakes in Chinese brewers:

• A 25% stake in Dalian Daxue Brewery, acquired in

November 2004 for ¥3.87 billion. It is based in North

East China and operates in three provinces.

• A 25% stake in Hangzhou Qiandaohu Brewery, which

is based in Zhejiang Province in China.

0

500

1,000

1,500

2,000

Vo

lum

e (

litre

s m

n)

Philippine Beer Market by Volume 2004-2014




12


Broadens Japanese

Brand Portfolio

Increases International

Presence

Australasia

Asia Pacific

Broadens Japanese brand portfolio

• Volume sales of vodka, rum, stout, RTDs and cream-

based liqueurs all grew over the 2004-2009 period in the

Japanese market against the general decline in spirits

volumes led by the decline in whisk(e)y, with large

declines in Japanese whisky, bourbon/other US whiskey

and blended Scotch whisky.

• Mercian‟s position in wine combined with Kirin‟s existing

distribution of international wine brands has

strengthened the latter‟s presence in the wine market.

Increases international presence

• The acquisition of Lion Nathan and increasing its equity

stake in San Miguel widens Kirin‟s revenue generation

base outside of the declining Japanese market.

• The proposed acquisition by San Miguel Breweries of

Ginbera San Miguel, the spirits arm of parent company

San Miguel Corporation, is also beneficial to Kirin, as

Ginbera is the leading spirits company in the Philippines.

Volume sales of spirits in the Philippines grew by a

healthy 32% over the 2004-2009 period and are

expected to grow at a CAGR of more than 3% over the

2009-2014 period.

• Kirin has increased its exposure to Asia Pacific beer

markets including China, Hong Kong, Indonesia,

Vietnam and Thailand, which are generally performing

better than Japan.

Deals Strengthen Presence Domestically and Internationally


Gains Control of Lion Nathan

Australasian alcoholic drinks

market

Increases equity stake in San

Miguel

Increases exposure to Asia

Pacific markets, spirits and beer

in the Philippines

Gains equity stakes in Chinese

brewers

Increases presence in growing

Chinese beer market

Diageo Kirin JV

RTDs, Spirits, Beer

Mercian

Wine, RTDs, Shochu

Two Dogs

RTDs




13


• In 2009, Kirin and Suntory had discussions regarding combining their operations, but revealed in early 2010 that they

had failed to reach terms, which both parties were happy with.

• Both companies have similar operations - alcoholic drinks, non-alcoholic drinks and food, with some overlap in

geographic reach. A combined entity would have had greater buying power.

• With Kirin being the number one brewer and Suntory the number three brewer in Japan, the combined entity would

have a combined market share of nearly 46% (based on 2009 data), and thus dominate the Japanese market. In

China also, the combined entity would hold a volume share in beer of almost 2%; closer to 2.5% when including

Kirin‟s equity holdings in that market and thus enhancing its prospects in the world‟s largest and fastest growing

volume beer market.

• The deal is thought to have failed, because both companies could not agree on their stakes in the combined entity.

• The deal did make strategic sense, as increased volumes in Japan would allow for synergies to be developed from

overlapping operations, which would increase economies of scales in the different business segments. Outside

Japan, this would have strengthened both companies‟ operations in several markets including the Chinese beer

market, where both are relatively small players.

Proposed Merger with Suntory Fails





14




Market Assessment


Operations

Brand Strategy

Recommendations




15


• Over the 2003-2008 period, Kirin under-performed the global beer market, due to its major presence being in the

mature, declining and competitive Japanese market.

• Increasing its equity holding and thus gaining control of Lion Nathan in 2009 was the major reason for Kirin

outperforming the global market in 2009 and the only reason for its growth in the year.

• Gaining control of Lion Nathan should help partially mitigate the volume decline in the Japanese market.

Kirin Under-Performs the Global Beer Market


-10

0

10

20

30

40

50

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Vo

lum

e G

row

th Y

-on

-Y%

Global, Japanese and Kirin Volume Beer Volume Y-on-Y 2003-2009

Global Beer Average Kirin Japanese Market Average




16


Rise in Global Rankings Through High-Growth Markets


Rise of emerging brewers and consolidation

• Carlsberg has strengthened its global position with its

part in the Scottish & Newcastle acquisition, with the

company becoming the fourth largest brewer in 2008.

• Heineken‟s part in the Scottish & Newcastle acquisition

and InBev‟s acquisition of Anheuser-Busch improved its

ranking by one place, to third, in 2008.

• InBev‟s acquisition of Anheuser-Busch strengthened its

position as the global leader by volume. This has been

reduced to some extent by divestments to pay off the

debt accrued by the deal.

• Brewers with exposure to Latin American, Eastern

European , Middle East and African and certain Asia

Pacific markets grew faster than companies absent from

these markets over the 2005-2009 period. This is due to

the faster growth in these markets compared to the

mature markets in Western Europe, North America and

Australasia.

• The leading Chinese brewers in particular have seen

their volumes boom with the growth of the Chinese

market, and several have entered the global top 10

rankings.

• Kirin has strengthened its position, particularly through

gaining control of Lion Nathan in 2009, but also through

extending its equity holdings in China and in San Miguel.

This has deepened its exposure to markets with better

growth prospects than its domestic Japanese market.

Beer - Top 12 Global Companies, 2009

Rank Brewer % volume share

5-Year

Ranking

Trend

1 A-B InBev 19.0

2 SABMiller 9.6 -

3 Heineken 6.7

4 Carlsberg 5.9

5 China Resources 4.5

6 Tsingtao 3.2

7 Modelo 3.0

8 Molson Coors 2.8

9 Beijing Yanjing 2.5

10 FEMSA 2.3

11 Kirin 1.9

12 Asahi 1.6 -




17


Competitive Activity Overview 2008-2010

Corporate Positioning

SABMiller

• Acquires Grolsch.

• Joint venture in the US with Molson Coors, creating MillerCoors.

• Extends import operations in Western Europe.

AB InBev

• InBev acquires Anheuser-Busch.

• Makes several divestments in South Korea, US, UK and Eastern Europe to pay down debt accrued in the acquisition.

Molson Coors

• Joint venture in the US with SABMiller.

• Acquires 5% of Foster‟s, the number one ranked Australian brewer.

• Acquires 50.1% stake in Cobra beer outside India.

China Resources

• Snow now the largest global beer brand.

• Acquires four more breweries in China.

Heineken

• Acquires elements of Scottish & Newcastle.

• Announces joint venture with Anadolu.

• Acquires assets in Africa, Western and Eastern Europe.

• Announces proposed acquisition of FEMSA.

Modelo

• Objects to InBev‟s takeover of Anheuser-Busch and starts arbitration proceedings.

Anadolu

• Forms a joint venture with Heineken in several markets; venture looks to jointly acquire Uzbek operation.

• Acquires assets in Georgia.

Asahi

• Acquires a 19.9% stake in number two ranked Chinese brewer Tsingtao.

• Buys Cadbury Schweppes‟s Australian beverage unit for A$1.2 billion.




18


2008 acquisitions increase volumes, 2009 growth is hit by wider economic issues

• The acquisitions in 2008 increased volumes, but growth in 2009 is hit by the global economic crisis.

• Brewers with exposure to both Western and Eastern Europe have been hit the hardest by the declining volumes in

key markets. A-B InBev‟s disposal programme to pay down debt has also had a negative impact on its volumes.

M&A Activity Boosts Leading Brewers’ Volumes


0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000

Oetker-Gruppe

Guangzhou Zhujiang

Suntory

San Miguel

Henan Jinxing

Empresas Polar

Schincariol

Diageo

Anadolu

Asahi

Kirin

FEMSA

Beijing Yanjing

Molson Coors

Modelo

Tsingtao

China Resources

Carlsberg

Heineken

SABMiller

Anheuser-Busch InBev

Volume (litres mn )

Leading Global Brewers Volumes 2007-2009

2009

2008

2007




19


• All the current major brewers took part in the

consolidation, which has marked the beer industry for

over a decade.

• Out of the top 10 brewers in 2000, only Modelo and

Heineken still had a place in the top 10 rankings in 2009

without a name change due to merger or acquisition.

• In the emerging markets of Middle East and Africa, Asia

Pacific and Latin America, brewers have rushed to

capture volume growth there. In mature markets, the

consolidation took place in the value markets of North

America and Western Europe, with brewers looking to

balance their portfolios between value and volume

markets.

• This has led to a dramatic increase in the volumes of the

top 10 brewers, which have captured an increasing

proportion of the global beer market since 2000.

• This consolidation activity has left relatively little scope

for acquisitions in some major markets and has pushed

up the value of the independent breweries left.

• The acquisition of FEMSA by Heineken will increase the

percentage of global volumes owned by the top 10

brewers by 190 basis points (based on 2009 volumes) to

61.8%. This is due to FEMSA being included in

Heineken‟s share and Kirin becoming a top 10 global

brewer.

Consolidation Rush Amongst the Top Brewers


13.6%

Consolidation Within the Global Beer Market:

% Volume Share

Top Five Next Five Others

Inner ring: 2000

Middle ring: 2004

Outer ring: 2009 provisional




20


• The declining and ageing Japanese population

shook the large Japanese brewers from their inward

focus to look abroad for new markets in the last

decade to combat the certain decline in Japan. The

favourite acquisition targets seem to be beverage

(both brewers and soft drinks) and food companies in

Asia Pacific and Australasia, with one large notable

exception of Suntory‟s acquisition of Orangina in

Europe.

• This is a much needed defensive move by the

Japanese companies, which had not participated in

the acquisition activity driven by the large Western

brewers since the end of the 20th Century. The

realisation that Japan is a market in decline with

heavy competitive activity and that acquisition targets

were being snapped up by Western companies

required them to act quickly and decisively. It is no

wonder that the majority of activity has been in Asia

Pacific and Australasia, due to the similar time zones

and trading links. The majority of Asia Pacific

excluding Japan offers growth prospects especially

China, and Australasia offers a cash cow as befits a

mature market.

Japanese Brewers Look Internationally


Overview of Japanese Competitors Acquisitions

2006-2010

Company Target Notes

Kirin Lion NathanAcquires total control of

Australasian brewer

KirinSan Miguel

Brewery

Acquires 49% of San Miguel

Brewery, which in turn

acquires international

breweries from parent

company

Kirin National FoodsAcquires food company in

Australia

Suntory OranginaAcquires European rights and

production

Suntory TipCo F&BAcquires 50% stake in Thai

soft drinks company

SapporoKronenbourg

Vietnam

Acquires Kronenbourg

Vietnam from Carlsberg

Sapporo SleemansAcquired control of Canadian

brewer

Asahi Tsingtao

Asahi acquires 19.9% stake in

second-ranked Chinese

brewer




21




Market Assessment


Operations

Brand Strategy

Recommendations




22


• Kirin has a strong presence in Asia Pacific and Australasia, but a small presence in other markets like North America

and Western Europe.

• Its presence in Asia Pacific particularly in Japan is mitigated by the sheer size of the Chinese beer market in volume,

where it is relatively small player.

• It has no major presence in the fast growing markets of Latin America and the Middle East and Africa.

Strong Presence in Australasia and Asia Pacific

Market Assessment

WE

EE

NA

LA

AP

AUS

MEA

-2

-1

0

1

2

3

4

5

6

7

8

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000

% C

AG

R 2

00

9-2

01

4

Market size in 2009 (litres mn)

Kirin Beer Regional Presence in 2009 and Growth Prospects

Bubble size indicates 2009 company volume share range: 4.1-41.1%

Black bubbles: Western Europe, Eastern Europe, Latin America, North America and Middle East and Africa indicate no or limited presence

(less than 0.1% regional market share).




23




Market Assessment


Operations

Brand Strategy

Recommendations




24


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2004 2005 2006 2007 2008 2009

Vo

lum

e (

litre

s m

n)

Changing Face of Japanese Lager Market 2004-2009

Premium Lager Standard Lager Economy Lager

Japanese Market in Long-Term Decline, Trading Down


Unusual beer duty system creates unusual market conditions, drives trading down

• In Japan, beer is taxed on malt content unlike most other nations. A heavy tax is applied to drinks containing malt

content of over 66.7%.

• This has led to the development by all the major brewers of low-malt (Happoshu) and non-malt beer (New Genre)

alternatives. Happoshu has a lower tax rate than full beer, and New Genre beer even lower than that.

• Happoshu and New Genre beers have both driven growth in the economy segment, with consumers trading down

due to the lower prices of these products. New Genre and Happoshu are mostly consumed at home, with consumers

preferring to trade up to standard and premium beers in the on-trade.

• Imports of cheap economy beer from Korea and other markets and the launch of private label beer by Japanese

retailers could threaten Kirin‟s and the other large Japanese brewers‟ current grip on the market.

Japanese Beer Market Overview 2009

Market Size - mn litres 7,042.5

% CAGR 2009-2014 -0.5

Per Capita Consumption - litres 55.2

Off/On- trade split % volume 82/18

Kirin - Volume Share (Rank) 34.5% (1)




25


Four main brewers do battle in a declining market

• With the top four brewers accounting for 88% of beer

volume sales, the Japanese market is very competitive.

• Recently, small local brewers akin to the craft brewers of

the US and the real ale brewers in the UK have sprang

up in Japan and started to capture market share from

the top four brewers with unique beers. The growth of

the small brewers is illustrated by the increase in share

for “Others”, up from 5% in 2000 to 11% in 2009. This

was after the Japanese government lowered the

minimum amount of beer needed to become a licensed

brewer from two million litres to 60,000 litres in 1994.

Long-term decline in beer due to population

trends

• The declining and ageing population in Japan is the

main cause of the overall decline in beer in Japan, with

volumes expected to fall at a CAGR of nearly -1% over

the 2009-2014 period, equal to 160 million litres.

• Another factor is younger consumers moving away from

beer to RTDs. Volume sales of RTDs are predicted to

grow at a CAGR of 1% over the forecast period, but this

will only add 19 million litres.

Fierce Competition in Japanese Market


Kirin35%

Asahi32%

Sapporo10%

Suntory 11%

Others12%

Japanese Major Brewers Market Shares, 2009

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Po

pu

latio

n (

„[0

00

s)

Declining Population and Key Beer Demographic in Japan 2004-2014

Population Aged 20-40 Population Aged 0-19, 41+




26


Duopoly market being threatened

• The beer market in Australia has traditionally been

dominated by Foster‟s and Lion Nathan, which is

now owned by Kirin. This duopoly became

threatened recently by Pacific Beverages (a joint

venture between Coca-Cola Amatil and SABMiller),

which grew its share to 1.4% by 2009, focusing on

the premium segment.

• Woolworths, a leading retailer, has also

strengthened its portfolio of private label beers and

in 2009, it acquired a 25% stake in boutique brewer

Gage Road. Woolworths has a near 35% share of

grocery retailing in Australia and this could help

increase private label sales in this market.

Australia Looks Set for Steady Growth, Trading Up


Australia Beer Market Overview 2009


% CAGR 2009-2014 1.9

Per Capita Consumption –

litres89.7



13%

70%

17%19%

69%

12%25%

65%

10%

Australia Beer Segment Breakdown 2004, 2009, 2014

Premium Lager

Standard Lager

Others

0

500

1,000

1,500

2,000

2,500

2004 2005 2006 2007 2008 2009 2012 2014

Vo

lum

e (

litre

s m

n)

Major Brewers Volumes in Australia 2004-2014

Lion Nathan Kirin Fosters Other Total




27


New Zealand Beer Market Overview 2009

Market Size - mn litres

% CAGR 2009-2014 0.8

Per Capita Consumption – litres 73.8



New Zealand Strong Premium Growth Forecast


0

50

100

150

200

250

300

350

2008 2009 2010 2011 2012 2013 2014

Vo

lum

e (

litre

s m

n)

New Zealand Beer Market Volumes by Segment 2008-2014

Others Dark Beer Economy Lager

Standard Lager Premium Lager

Near duopoly market in New Zealand

• The two largest brewers Kirin (Lion Nathan) and Asia

Pacific Breweries DB Breweries, which is part owned by

Heineken accounted for almost 80% of beer volumes in

2009.

Domestic brands more popular

• The majority of beer volumes are accounted for by the

brewers‟ own labels, with licensed volumes playing only

a small part. Kirin distributes several A-B InBev, Diageo

and the Corona beer brands in New Zealand.

Strong Premium Growth

• Premium lager is expected to be the major driver of

beer growth in New Zealand over the 2009-2014 period.

In 2009, Kirin lead the segment with a 37% volume

share.

New competitor targeting premium segment

• Recent entrant Pacific Beverages has captured a 2%

volume share in the premium segment in just 2008-

2009.

• Pacific Beverages is a 50/50 joint venture between

Coca-Cola Amatil and SABMiller in Australasia, and is

focused on the premium segment of beer and other

alcoholic beverages.




28


Standard lager dominates market

• Standard lager accounted for nearly 92% of beer volumes in the Philippines in 2009 and is predicted to be the fastest

growing segment over the 2009-2014 period.

• The imported lager segment is tiny, making up less than 0.1% in 2009.

• Premium lager is also a very small segment of the market, accounting for less than 4% of total beer volumes. This

segment is mostly targeted at the more affluent consumers and is out of the reach for most consumers.

• San Miguel dominates the beer market with its namesake brand and its variants, but also has several other brands

like Gold Eagle, Red Horse and Cerveza Negra supporting its core brand.

San Miguel in the Philippines


Philippine Beer Market Overview 2009


% CAGR 2009-2014 4.1

Per Capita Consumption – litres 17.4


San Miguel* Volume Share (Rank) 87.2% (1)

Notes: * Kirin owns a 48% stake in San Miguel

San Miguel Corporation maintains control

San Miguel,

87.2

Asia Brewery,

5.8

SABMiller , 5.7

Others, 1.3

Philippines Beer Market Major Brewers 2009




29


Several growth factors exist in the Philippines

• The per capita consumption of 17.4 litres in 2009 is

slightly above the Asia Pacific market average of 16 litres.

However it is below China (32.3), Taiwan (20), Vietnam

(18.5) and the world average at 27 litres illustrating the

market still has potential to grow.

• Beer is relatively unaffordable but is becoming less so in

the Philippines, with the average daily disposable income

to beer unit price ratio of 1.9 litres a day in 2009 up from

1.8 litres in 2004.With disposable incomes expected to

rise, beer could become more affordable to more of the

population. Planned infrastructure projects particularly in

transport, power and telecommunications could also

potentially lower distribution and production costs in the

future. A planned excise increase in 2011 of 8% should

mitigate some of the increase by rising unit prices.

• With a young population, the number of potential

consumers is also set to increase. In 2009, almost 60%

of the population were over the legal drinking age of 18;

this is set to increase to 62% by 2014 and 64% by 2020.

• These factors combined show that the potential for beer

and alcoholic drinks in general in the Philippines is great.

• With San Miguel Brewery having a near monopoly of the

beer market it (and Kirin having a stake in the company, it

too) is in a very good position to benefit from growth in

beer in the country.

Philippines Set for Growth


0

20

40

60

80

100

120

1999 2004 2009 2014 2020

Po

pu

lation

mill

ion

Philippine Population Growth1999-2020

Population over 18 Population under 18

0

500

1,000

1,500

2,000

Vo

lum

e (

litre

s m

n)

San Miguel in Philippine Beer Market, Volume 2004-2014

San Miguel Brewery San Miguel CorpOthers Forecast Volumes




30


• The acquisition of San Miguel Brewery International from its parent company by San Miguel Brewery increases its

exposure to markets outside the Philippines. There are opportunities to strengthen its operations further by

acquisition or investment in these markets particularly Vietnam and Thailand.

• The Thai beer market is dominated by the local companies Boon Rawd and Thai Beverage, with a combined share

of 87% in 2009. Volume sales of beer are expected to decline over the 2009-2014 period, due to the recent uncertain

political and economic climate, which has hit tourism. The market dynamics, however, still exist for beer to grow in

the longer term, with low per capita consumption and a relatively young and growing population. Thai Beverages fell

further behind Boon Rawd, as its volumes declined in 2008 and in 2009, so could be seen as an acquisition target.

• Vietnam has a high CAGR of over 7% predicted for beer, driven by a rising middle class, low per capita consumption,

a relatively young and growing population and increased tourism. Vietnam has attracted several large brewers,

including Carlsberg, SABMiller, Heineken and Sapporo, due to the growth opportunities for beer. SABECO is the

leading brewer in Vietnam and could be seen as an opportunity to expand in the Vietnamese market through

acquisition or an equity holding.

San Miguel International Adds More Asia Pacific Options


Beer Market Overview: San Miguel International

Hong Kong China Vietnam Indonesia Thailand

Market Size – litres mn, 2009 165.2 43,001.8 1,623.6 233.9 1,939.4

% CAGR 2009-2014 -0.1 7.3 7.2 1.8 -0.8

Per Capita Consumption – litres 2009 23.4 32.3 18.5 1.0 30.0

Off/On- trade split % volume 2009 47/53 68/32 28/72 40/60 65/35

San Miguel % Volume Share (Rank)

200935.4 0.2

3.031.7 0.5




31


Chinese beer boom set to continue

• The boom in the Chinese beer market seen over the last

decade is set to continue. China will extend its lead as

the world‟s largest beer market.

• The greatest growth is expected in economy lager,

meaning that economies of scale in production and

distribution are key to survival in the Chinese market.

• The quality of infrastructure and the sheer size of the

country are also key to gaining volumes in the Chinese

market, meaning that production has to be relatively close

to consumption. This is heightened because of Chinese

consumers‟ preference for fresh beer.

Chinese Beer Market Expands, but Kirin is a Small Player


Chinese Beer Market Overview 2009


% CAGR 2009-2014 7.3

Per Capita Consumption 32.3


Kirin - Volume Share (Rank)* 0.1% (17)

Note: * Kirin also owns several stakes in brewers in the country

including Miguel, Dalian Daxue Brewery and Hangzhou

Qiandaohu.

China Resources

19%

Tsingtao 13%

A-B InBev 10%

Beijing Jinxing10%

Henan Jinxing

4%

Guangzhou Zhujiang

3%

Chongqing3%

Others 38%

Leading Chinese Brewers 2009

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Vo

lum

e (

litre

s m

n)

Chinese Beer Market, Volume 2004-2014




32


Economy beer dominates in China

• The growth in the Chinese beer market is dominated by economy beer, which are low margin but high volume and

normally purchased in the off-trade. Volume sales of economy beer grew at a CAGR of 9% over the 2004-2009

period and is still expected to grow further, at a CAGR of 7% over the 2009-2014 period.

• Economy beer in China is likely to drive global volumes, and is set to account for 49% of global beer absolute growth

over the forecast period. The Chinese beer market as a whole is predicted to account for 58% of total beer growth.

Trading up to standard and premium beer brands

• In the review (2004-2009) and forecast periods (2009-2014) trading up to standard and premium brands was and will

be apparent, as both segments increase their share of beer sales in China. Standard and premium beers combined

accounted for 9% of total beer sales in 2004, 11% in 2009 and a predicted 12% by 2014. The growth in premium

lager will move China up from sixth in the global rankings in premium lager in 2009, to fifth by 2014.

• Dark beer and stout beer have little penetration in China. Low/non- alcohol beer has minor sales, which are expected

to grow at a CAGR of 10% over the 2009-2014 period, to account for around 0.1% of total beer volumes in 2009.

China: Economy Beer Dominates, But Trading Up Apparent


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Vo

lum

e (

litre

s m

n)

Chinese Beer Market by Segment 2004-2014

Premium Lager Standard Lager Economy Lager




33


Relatively small but increasing presence in China

• Kirin's presence increased in China through its equity

stakes in San Miguel Breweries but this added only a

few production assets. It has in addition to this its own

and other equity holdings present in the Chinese market.

• The main issue with Kirin‟s holdings in China is the

geographical disparity between it and its equity partners‟

production locations and its relatively small scale. This

could hold back its progress in China until it can no

longer viably operate in the market especially against

larger players like Tsingtao and China Resources.

Asahi takes a stake in Tsingtao

• In comparison to Kirin, its nearest Japanese competitor

Asahi acquired a 19.9% stake in the second largest

Chinese brewer Tsingtao in 2009 and has sought to

increase economies of scale in its own business.

• This stake gave Asahi large exposure to the Chinese

beer market through a brewer with established

production, distribution and marketing.

• Kirin announced in 2009 that is was to look at synergies

between its existing Chinese business and Tsingtao,

including the licensed production of Tsingtao in its

facilities.

Kirin runs the risk of losing out in China

• Gain scale through acquisition: this could mean several small acquisitions, due to the high equity stakes in top

Chinese brewers held by other major brewers. Alternatively, Kirin could look to acquire one large acquisition of the

last remaining independent brewers like Henan Jinxing. Purchasing equity stakes in China is expensive, as Asahi‟s

recent acquisition of an equity stake in Tsingtao illustrates, with every 1% share of the Chinese beer market costing

around US$250.8 million.

• Partner: partner with other brewers to purchase raw materials to lower costs. Included in this, could be a joint

venture, with a large brewer like Carlsberg, Suntory, Asia Pacific Breweries or one or several local Chinese players,

to look to acquire/develop new Chinese regional markets to increase presence.

• Look to exit market: this should be a last resort as the Chinese market offers strong growth potential, but if Kirin

cannot gain scale, pulling out and spend its resources elsewhere could be more lucrative.

China Could be a Key Market for Kirin





34




Market Assessment


Operations

Brand Strategy

Recommendations




35


• In 2009, Kirin announced that it was closing two

breweries in Japan, in order „to rectify the discrepancy

between sales and production capacities‟. The decline in

beer consumption in Japan is responsible for this, and

other Japanese brewers may follow suit and close under-

used and older production facilities.

• In Japan, Kirin Brewery operates seven regional sales

and marketing divisions, 44 regional head offices, 16

sales branches, and three research institutions.

• Kirin directly holds a 25% equity stakes in two Chinese

brewers each with one brewery. Increasing its stakes in

these companies maybe an option; alternatively, it could

look to form an alliance with San Miguel Breweries

Chinese operations to extend its reach in China.

• Kirin has increased its 49% stake in San Miguel Brewery

which has operations in several Asian Pacific markets:

• Philippines

• China (2 breweries, one in the South and the other In

the North)

• Hong Kong

• Thailand

• Vietnam

• Indonesia

Expands International, Contracts Japanese Production

Operations

Number and Type of Kirin Production Facilities

Type Country Number

Brewery New Zealand 4

Brewery Australia 5

Brewery Japan * 11

Brewery China * * 2

Spirit‟s USA 1

Spirit‟s and RTDs Australia 1

Spirit‟s and RTDs Japan * * * 2

Spirit‟s and RTDs New Zealand 1

Wineries USA 1

Wineries New Zealand 1

Wineries Australia 6

Notes: * Kirin has announced it is closing its Tochigi and

Hokuriku breweries in Japan in 2010, thus reducing its number of

breweries in the country to 9.

* * Kirin owns or holds several equity stakes in Chinese brewers

either directly or through San Miguel.

* * * Owns two distilleries in Japan but one has ceased

production and been mothballed.




36


Looks to license brands for growth

• Kirin has sought to partially mitigate its lack of presence

in regions where it does not operate through licensing its

brands to other brewers. Licensed volumes in these

markets tend to be small but could develop over time.

Kirin also operates licensed brands in own

markets

• Kirin also holds several licences for other brewers‟

brands in several of the markets it operates in. These

brands give its own portfolio increased depth,

particularly with well-known international brands.

Exports and Licensing for Growth

Operations

Country

Licence

Holder Brand

United KingdomWells &

Young'sKirin Ichiban

Russia Heineken Kirin Ichiban

USA A-B InBevKirin Ichiban,

Kirin Light

Country

Brand

Owner Brand

Japan Heineken Heineken

Japan DiageoGuinness, Kilkenny,

Smirnoff Ice

Japan A-B InBev Kirin Ichiban, Kirin Light

Australia Heineken Heineken, Amstel

Australia A-B InBevStaroprahmen,

Budweiser, Beck‟s

New Zealand Modelo Corona Extra

New Zealand A-B InBev

Beck‟s, Stella Artois,

Oranjeboom,

Boddington‟s, Bass,

Leffe, Belle-Vue,

Hoegarrden

New Zealand Diageo Guinness, Kilkenny




37




Market Assessment


Operations

Brand Strategy

Recommendations




38


International appeal

• Kirin has looked to increase its international presence

with licensed production and marketing with local

partners. Local production and using local partners

allows Kirin to benefit in several ways:

• Cheaper costs than importing the product from Japan

especially in European and US markets.

• Gains access to a local partner‟s distribution network

without having to maintain it own operations.

• Gains local market knowledge from partner.

• In the UK, for example, the brand Kirin Inchiban is

licensed to local partner, the brewer Wells & Young‟s.

The brand is marketed as a high-end premium beer and

its marketing and outlets reflect this.

• It is also aligned with Asian consumer foodservice

outlets linking its Japanese heritage.

• A certain amount of localisation of the brand took place,

with a draft version as well as bottles being made

available due to the high proportion of on-trade sales in

the UK market.

Tough Japanese market driven by innovation

• In Kirin‟s domestic market, new product development

drove volume development. This did help to steal share

and drive new category sales, but also saw some

cannibalisation.

• Innovation is incredibly important in the Japanese

market, with several variants spanning all three types of

beer lager, happoshu and new genre (no malt beer)

Japan and low- and non-alcohol beers.

• Packaging type and size is also important to product

development to try and gain an edge over competitors in

a fiercely competitive market. This has also included

Kirin releasing limited edition versions of previous

heritage branding on its current product range.

• Seasonal variants based on spring, summer, autumn

and winter are also available during the year.

• Kirin has recently changed to more premium ingredients

for its core brands in Japan such as Kirin Ichiban

Shibori. The company has promoted this move and kept

the price at the same level to increase interest in the

brand in what can be a price-sensitive market.

International and Domestic Focus of Brands

Brand Strategy




39




Market Assessment


Operations

Brand Strategy

Recommendations




40


• Kirin‟s operations in other categories of alcoholic drinks,

non-alcoholic drinks, packaged food and other

categories place constraints on the amount of finance

available for expansion. Acquisitions may provide a

higher return on investment than those in beer.

• Every acquisition opportunity should be looked at for the

value it offers Kirin as a group to meet the targets set by

the management in its long-term strategy.

• China dominates the region‟s and the world‟s beer

volume growth, but other markets in Asia Pacific offer

growth opportunities.

• Kirin should look to strengthen its prospects in markets

like Vietnam, Thailand and others. The company could

do this through acquisitions or through its equity holding

in San Miguel Brewery.

• Kirin could look to deepen its international exposure

through taking control of San Miguel Brewery if the

majority owner San Miguel Corporation allows this. San

Miguel Corporation has stated in early 2010 that its

stake in the brewing business is not for sale. But as San

Miguel Corporation looks to move away from fmcg into

heavy industry and infrastructure it may look to divest its

stake to raise capital for new ventures or acquisitions in

the medium to long term.

• Kirin‟s position in China is relatively weak compared to

its major rivals. There are limited opportunities to make

a large acquisition in China unless a competitor looks to

divest its holdings, which seems unlikely.

• If an opportunity arises to acquire, buy an equity stake

or partner with a large Chinese brewer, Kirin should

seriously consider the prospect to take advantage of

growth in the market.

• The company could also look at acquiring smaller

Chinese brewers to bolster its presence.

Increasing stake in San Miguel Brewery Look to China for long-term growth

Look to other Asia Pacific markets for growth Acquisitions for beer face internal hurdles

Look for International Growth to Offset Domestic Decline

Recommendations




41


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Kirin Holdings Co. Ltd in Beer - World · Kirin Holdings - Beer Kirin Headquarters Tokyo, Japan Major Regional Involvement Asia Pacific, Australasia Category Involvement Beer, Wine,