Entry Barriers and Profitability in the Japanese Brewing Industry

Sandeep Vadnere (36)

Beer Hypothesis

civilization began with the purposeful cultivation

of the earliest farmed grains--wheat and barely

it is believed that beer was discovered accidentally

following settled civilization and the cultivation of barley

formerly nomadic people settled in Mesopotamia because they found it impossible to travel and maintain a steady supply of alcohol or the

grain from which to make it

- Agriculture and civilization grew out of the desire to quench a certain

kind of thirst - Science of brewing beer gave birth to all sciences and possibly

civilization itself

Hypothesis 1 Hypothesis 2

Industry Overview

World’s 4th largest beer market after US, Germany and China: Per-capita consumption of 16 gallons per year

Four Dominant firms – Kirin, Asahi, Sapporo, and Suntory

The industry has enjoyed decades of financial prosperity. After tax returns of about 3 to 4 percent.

Market Structure

Asahi and Kirin have nearly 40 percent market share each

The fifth largest Orion has 1 % share

Herfindahl’s index of roughly about 0.33

Why is the concentration so high when the industry is so profitable?

Structural Barriers

New competitors must invest tens of millions of dollars to achieve the brand recognition enjoyed by the big brands

Entry historically restricted by Japanese government (license only for breweries producing more than 2 million liters annually)

Dominance of “Ma-and-Pa” stores complicate the access to distribution channels

Liberalization

Government reduced the license threshold to 60000 liters.

Small Brewers Association formed

Many Microbreweries opened

How did the big four respond?

Strategic Barriers

Offered own “gourmet” brews which earned them continued loyalty of restaurants and bar owners

Leveraged Cost Advantages of well-established distribution channels

Adopted Clever Marketing strategies

Local “Ma-and-Pa” have little purchasing power and did not stock low-cost beers

Structural Change

Changes in the retailing practices however threatens the major breweries

Discount Liquor Stores have come-up offering savings of 25 percent or more

These stores sell imported beers that cost 2/3rd as much as domestic beers

What was the response of the Japanese?

Japanese Response

Japanese breweries introduced Happoshu beers that sell for 30 percent less than regular beer due to less taxes

These have captured 40 percent of the market.

Although they forestalled entry, these beers have depressed profit

Diversified into hard liquor and other alcoholic beverages

Cheers!!!