Japan’s brewery ‘cartel’ did not collude enough

An investigation into Japan’s four largest brewers by the Fair Trade Commission raises a more important question: Why did they not work together before?

• By Gearoid Reidy / Bloomberg Opinion

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Visitors to Japan know the simple joys of a local beer — a mug of lager that, regardless of the brand on the label, is consistently tasty and familiar.

That consistency might be a problem, says the Fair Trade Commission (FTC), which has launched an investigation into the four major brewers. The regulator suspects that they colluded to fix the timing and level of price hikes for wholesalers, Bloomberg News said. Further reports suggest the regulator has been looking at the practice for decades.

The collusion is problematic; if the allegations are true, customers have been paying more than needed for years.

Illustration: Yusha

However, the bigger problem might be that they did not get even closer — and build the scale to compete globally. The four have been fighting over a shrinking domestic beer sector that is about 40 percent smaller than its mid-90s peak while overseas rivals, riding a wave of consolidation, have become substantially larger. A failure to form national champions big enough to take on the likes of Anheuser-Busch InBev and Heineken NV is something Japan might come to regret.

The companies, Asahi Breweries, Kirin Brewery, Sapporo Breweries and Suntory Spirits, make up an oligopoly that controls 90 percent of the country’s beer sales. Prices and products are largely similar, each shipping one or more flagship variations of the 5 percent or so ABV lager favored by local palates. The firms have, in the past few years, raised prices at similar times as energy and input costs have climbed.

Rather than consistently moving in lockstep, there is a tendency for an innovation by one to be quickly copied by the others.

All four have said they are fully cooperating with the FTC investigation; the president of Asahi Group Holdings Ltd defended the need for price rises citing ￥100 billion (US$632 million) in cumulative cost increases in its business over the past several years.

Kirin dominated for decades until Asahi Super Dry came along in 1987. The innovative lager not only changed the taste profile of Japanese beer, but turned its maker into the industry leader. Rivals have been chasing that high ever since, launching dozens of new products and seasonal variations in an attempt to capture, or just maintain, market share. It is true that this endless variety is one of the joys of life here, from the high-malt Aki Aji autumn beer to brews using regional hops. I do not want to see that go, but we should also consider the alternative.

When Asahi overtook Kirin around the turn of the century, the breweries were among the world’s larger makers. Now, they are distant also-rans to overseas rivals that have become substantially bigger, and operate at a vastly different scale. Combined, the big four have just 20 percent of the production of AB InBev, which controls brands such as Budweiser, Corona and Stella Artois.

Excessive fragmentation is not limited to beer. The country has seven automakers and nearly 100 regional banks. Despite the declining population, they often prefer to compete for a shrinking audience rather than join forces to take on a global one.

Local banks are combining in droves. And, the failed merger of Honda and Nissan aside, the automobile industry is slowly starting to concentrate around two poles. However, when it comes to beer, it is remarkable how little discussion there has been of a broader consolidation despite the broader challenges the sector faces, including a declining population, shifting drinking habits among young people and a trend for cheaper alternatives.

The one exception was the 2009 merger talks between Kirin and Suntory, a potential food-and-beverage behemoth that, at the time, would have been in the world’s top five. However, like many of the proposed combinations of Japanese firms following the financial crisis, talks broke down over control.

As the market has shrunk, each of the big four has attempted a different strategy. For two, beer has become something of an afterthought: Alcohol makes up less than half of annual revenue for Kirin, which has accelerated a push into healthcare, most recently with the US$1.4 billion purchase of Canadian vitamins and supplements maker Jamieson Wellness Inc, while Suntory pushed into liquor with its acquisition of brands including Jim Beam.

Meanwhile, Sapporo made disastrous deals for US craft beer makers Anchor Brewing and Stone Brewing. Subsequently, it was pressured by activist 3D Investment Partners, which accused the company of being “severely mismanaged,” into divesting its real estate holdings. Sapporo is now focusing again on beer, allying with Carlsberg to form a venture to sell in Southeast Asia. Only Asahi has found real success by expanding its portfolio overseas, acquiring brands including Peroni and Pilsner Urquell. Nonetheless, its scale remains well below rivals.

Failure to consolidate on Japanese terms might eventually mean consolidation on someone else’s. In price, taste and format, the consistency of Japanese beer shows that, cartel or not, the country’s brewers knew how to coordinate. It is just a shame they never took that to its logical conclusion.

Gearoid Reidy is a Bloomberg Opinion columnist covering Japan. He previously led the breaking news team in North Asia, and was the Tokyo deputy bureau chief. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.