Japan, a difficult market for AB Inbev and SABMiller

The Japan is one of the few major beer markets where Anheuser-Busch InBev NV or SABMiller PLC have a significant presence, but a combination of the two giants can boost the sector the country's Brewer.
After the disclosure of negotiations for a potential merger between InBev and SABMiller on Thursday, shares of the two largest Japanese Asahi Breweries Group Holdings Ltd. and Kirin Holdings Co., rose 3% and 2%, respectively — outpacing the 1.4% gain of the Nikkei Index — a sign that investors expect the potential megafusão can shake an industry that faces problems.
Japan beer consumers prefer local brands like Asahi Super Dry or Kirin Ichiban to imported as Budweiser or Miller, and the four main Breweries of Japan — Asahi, Kirin, Suntory Holdings Ltd. and Sapporo Holdings Ltd. — have, together, a slice of more than 90% of the domestic market by volume, according to Euromonitor International. The Kirin and Asahi, in turn, have only a slice of 2.3% and 1.2% of the global market, respectively, occupying the ninth and tenth positions, according to Euromonitor.
Size matters in the production of beer on the basis of the economies of scale in purchasing raw materials, distribution, marketing and other areas. The largest companies have a disproportionately large share of industry profits, say analysts, which encourages the consolidation of an industry where consumers remain faithful to local brands even if they belong to multinationals from outside. Between these marks are Brahma, in Brazil, and Sedrin, in China, both the AB InBev, and the Castle, in South Africa, SABMiller.
In search of global scale, Japanese breweries are at a disadvantage because their population is diminishing and aging; the Japanese population fell for four consecutive years, according to government data, and the number of people over 65 years is now more than double that of children younger than 15. Consumers are also acquiring the habit of tasting wines and other drinks. The four largest in the industry are doing what they can to keep the beer as a desired product among a shrinking number of young adults in Japan. They opened kiosks that sell beer in parks, bought popular craft beers and filled the Tokyo subway with advertising.
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Still, the volume of beer sold in Japan fell more than seven billion liters annually for 15 years to about six billion liters in 2014, according to Euromonitor. In the last ten years, wine consumption has grown about 40% of, according to government statistics.
Analysts say a long time ago that a consolidation is required. Merger talks between Kirin and Suntory have failed in 2010, because they failed to resolve differences on corporate culture and questions about who would control the merged company. Analysts say a merger between InBev and SABMiller could renew pressure for more consolidation of Japanese breweries.
Japanese companies are also trying to grow abroad through acquisitions. In August, Kirin agreed to buy a 55% stake in Myanmar Brewery of Fraser & Neave Ltd., based in Singapore, the latest in a series. The Asahi also has expanded its international portfolio and today owns a slice of 20% on Tsingtao Brewery Co., China.
But modest business as these are not enough to keep up with the global powers, not to mention the potential colossus that would be created if the AB InBev buying SABMiller.
Analysts point out that it is unclear whether the Japanese breweries have been able to obtain some benefit from their international equity widely scattered.
"It's hard to say if all purchases abroad were successful," says Makoto Morita, an analyst at Daiwa Securities.
A merger between the two leaders of the world market of beer could create acquisition targets for other buyers, among them the Japanese breweries. Analysts say that AB InBev and SABMiller probably would have to sell portions of their portfolios of brands in some markets, like the United States, to get approval from competition regulators.
"To get the approval of antitrust authorities, they would have to sell some of its assets and, as a consequence, the largest Japanese companies may regard these assets as a good acquisition opportunity," says Morita.
The spokespersons of the Kirin, Asahi, Sapporo and Suntory would not comment.
Although shares of Kirin and Asahi have registered an increase last week, analysts say it is unlikely that the Japanese breweries to become targets of acquisitions, considering its strong dependence on a domestic market that is shrinking.
At the moment, "the Japanese manufacturers are not very attractive to global giants", says Mariko Takemura, an analyst at Euromonitor.