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Japanese brewers fight for pub contracts

Publication Date : 19-08-2014

 

Beer companies are fighting fiercely for a spot at izakaya pubs, where brand placement can play a role in billboard advertisements and directly affect a brewer’s share in the national market.

Competition is especially heating up in areas where beer brewing companies have relocated their head offices. Brewers are in a heated race to win franchise contracts with izakaya chains, and in some cases, locking out rivals in the process.

At a local izakaya pub in Nakano Ward, Tokyo, that has been in business for more than 10 years, beer dispensers and bottles were quietly switched this spring to make way for products from Kirin Co.

“In the past, our pub offered only products of Asahi Breweries Ltd.,” an employee of the izakaya said. “But we decided to make a deal with Kirin, too.”

The change was prompted by Kirin’s relocation of its headquarters to Nakano Ward last year. In the ward and nearby areas, Asahi and Sapporo Breweries Ltd. had been holding high market shares.

After Kirin moved its offices, Kirin President Yoshinori Isozaki personally made sales calls as the company head, and the brand’s local presence has grown.

For beer brewers, the areas where their head offices are located are considered home turf, where firms refuse to allow themselves to be dominated by rivals. For example, Tokyo’s Asakusa district and nearby areas are Asahi’s home turf, while Tokyo’s Ebisu district is Sapporo’s home turf.

After noticing Kirin’s move in Nakano Ward, an executive of Sapporo said, “We felt we could not sit by idly.” Executives of Asahi also began visiting izakaya pubs with long histories of business deals.

The battle over Nakano Ward will likely to continue for the time being.

The competition to obtain contracts with izakaya chains has likewise been fierce.

Partly due to price wars, smaller izakaya chains have been consolidated into several major ones. For brewers, izakaya contracts have become increasingly important, but are also hard races to be won or lost.

In the first half of this year, Kirin lagged behind its rivals and was the only one among four major companies whose market share fell.

At Torikizoku, a major izakaya chain best known for pricing all menu items at 280 yen (US$2.70), the beer brands had been almost exclusively those of Kirin, namely Ichibanshibori and Tanrei. But this spring, they were replaced by Suntory Liquors Ltd.’s The Premium Malts and Kinmugi brands.

The chain’s change of policy sent shock waves through Kirin, as the chain has rapidly increased the number of its locations from 100 to 350 in five years.

Last year, Suntory suffered lost contracts. Asahi knocked Suntory out of its franchise contract with Colowide Co., a major izakaya chain with which Suntory had maintained business ties for many years. Beer lineups on the Gyukaku yakiniku chain’s menus were changed from Suntory’s to Asahi’s Super Dry brand exclusively.

In March, Asahi acquired a 9 percent stake in the Chimney Group, which operates the Hananomai izakaya chain. As Kirin already holds a 5 percent stake in the company, the major beer brewers now own stakes in the same izakaya chain operator.

Officials of Kirin expressed alarm. One of them said, “It’s unavoidable that our company’s sales share [in the chain] will gradually be taken over by Asahi.”

In the restaurant and bar industries, including izakaya pubs, franchise contracts for alcoholic beverages are multiyear. In many cases, the contract period is about three years.

Izakaya pubs are important not only for expanding market share, but also for maintaining visibility, as brands on menus are seen by a large number of consumers.

While Japan’s population is on the decline and young people have been consuming less beer, an official of a major beer brewing company said, “The number of izakaya contracts we can secure will ultimately decide whether we win or lose the race.”

 

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