---
title: "The Great Defeat of Japanese Beer Brands in China"
description: "In response to a 30-year consumption recession, Japanese beer brands launched an offensive into the Chinese market. Over the past three decades, their performances varied, but they have uniformly faced a collective defeat in China. Buffett believes consumer stocks are time's best friend, but Japanese beer provides a counterexample with its 30-year decline."
author: "金梅"
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published: "2023-02-14"
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# The Great Defeat of Japanese Beer Brands in China

> In response to a 30-year consumption recession, Japanese beer brands launched an offensive into the Chinese market. Over the past three decades, their performances varied, but they have uniformly faced a collective defeat in China. Buffett believes consumer stocks are time's best friend, but Japanese beer provides a counterexample with its 30-year decline.

In response to a 30-year consumption recession, Japanese beer brands launched an offensive into the Chinese market. Over the past three decades, their performances varied, but they have uniformly faced a collective defeat in China.

Buffett believes that consumer stocks are time's best friend. As people's living standards continue to rise, consumption naturally increases, making consumer stocks the best track to traverse bull and bear markets. Japanese beer, however, offers a counterexample with its 30-year decline.

Japan is a pioneer in Asian beer brewing, with its beer industry starting 31 years earlier than China's. Beer was once Japan's most popular alcoholic beverage, accounting for nearly two-thirds of Japan's alcohol consumption. In 1981, Japan's beer production reached 4.648 million tons, ranking first in Asia and fifth in the world.

But since then, Japanese beer has experienced a 30-year decline. To cope with this, Japanese beer companies began diversifying their businesses and expanding into the Chinese market. However, the Chinese beer market has now stabilized, and Japanese brands have failed to secure a place. Why are Japanese beer brands facing a collective defeat in China?

**The Rise and Fall of Japanese Beer**

Japan's consumer industry began with the Meiji Restoration (1868) and evolved over more than a century, with a single theme: consumption upgrading. After the Meiji Restoration, farmers left their fields and flocked to big cities for work, sparking urbanization.

Most of Japan's consumer leaders were born during this period. New citizens were full of admiration for the Western world and advanced products. Early Japanese consumer brands mostly relied on introducing Western technology, imitating and making localized innovations to become leaders, such as Kao (soap), Shiseido (toothpaste and lotion), and Suntory (wine). In 1873, Japan imported equipment and built its first brewery in Yokohama, causing a sensation. But it wasn't until 1906 that Japan's 20-plus breweries produced only 1,804 tons in total. After nearly a decade of rapid development, by 1918, Japan's beer production rose to 91,000 tons (including 22,000 tons for export), and small breweries were consolidated into the three major groups: Kirin, Sapporo, and Asahi.

World War II brought great disaster to Japan's beer industry. Due to the warlords' aggression against China, war expenditures strained Japan's economy, leading the government to control domestic industries. After WWII, Japan's beer industry entered a ten-year recovery period, reaching 409,000 tons by 1955. Beer, due to its low price and accessibility, became the top alcoholic beverage in Japan after 1959, commonly used for social celebrations. With post-war reconstruction and the demographic dividend from the baby boom, society flourished, urbanization rose from 28% to over 70%, and Japanese beer entered the fast lane. Giants like Sapporo, Kirin, Asahi, and Suntory rose successively.

From 1960 to 1973, Japan's per capita GDP rose from $400 to $4,000, and per capita beer consumption increased from 19.8 liters to 42.0 liters. In 1973, 90% of Japanese households owned the three major appliances (washing machine, refrigerator, TV), and beer in the fridge became a household staple, with production reaching 3.3 million tons. Kirin seized the opportunity to promote canned beer, surpassing Asahi to become a giant with a 60% market share. After the oil crises of 1973 and 1979, Japan's economic growth slowed, but due to successful industrial upgrading and yen appreciation, consumer purchasing power continued to rise. At that time, the yen was strong, and Japanese even boasted of buying up New York. With soaring incomes, luxury consumption among the wealthy exploded, and Japan entered a phase of extravagance, with beer consumption rising in both volume and price. In 1981, production further climbed to 4.648 million tons, making Japan the top beer producer in Asia and fifth in the world.

In the mid-1980s, foreign brands like Budweiser and Lake entered the Japanese market, prompting a sense of crisis among local companies. Additionally, as job opportunities increased, women entered the workforce, dining out increased, and the foodservice channel rapidly grew, subtly changing Japan's beer consumption. In 1987, Asahi leveraged this change by developing and launching Super Dry, an upgraded product tailored to younger Japanese tastes, along with a fresher consumption experience, reclaiming the market leadership. After half a century of technology introduction and imitation, Japan's consumer industry gradually developed its own characteristics, forming a Japanese-style consumer culture.

**Until the 1990s, price increases, upgrades, and increased concentration of leaders were natural steps on the path of consumption upgrading.** However, no one anticipated that after 1996, Japan's economy would peak and decline. Especially under the multiple blows of the Asian financial crisis, aging population, declining working population, and collapse of the real economy, the consumer industry entered a prolonged recession. Japan's consumption tax rose from 3% in 1989 to 5% in 1994 and 8% in 2011, burdening the masses and dampening consumption willingness, leading to the rise of discount brands like Uniqlo, Muji, and Daiso. From 1996 to 2016, Japan's alcoholic beverage consumption fell from 9.66 billion liters to 8.41 billion liters, a decline of 12.89%, and beer's share also declined due to diversified choices.

Facing consumption downgrading, Japanese consumer giants adopted four strategies: **low pricing, premiumization, diversification, and going global.** With Japan's consumer market ceiling low and penetration peaking, simply lowering prices couldn't solve the problem; many companies that relied solely on price cuts eventually faded out. Many consumer leaders seized the opportunity of structural upgrading within the downgrading trend, adopting premiumization and diversification strategies with good results. In response, Japanese beer's main strategies were threefold: **focusing on high-end craft beer; expanding into beverages; and entering overseas beer markets.** But after decades of effort, craft beer still held only about 1% market share, hardly significant. When internal growth is insufficient, expansion outside the industry and abroad becomes more important. Therefore, the ability to go global has become a decisive factor for the stock price growth of leading Japanese companies in the 21st century. Although Japanese beers, except Suntory, lacked quality beverage products, and outward expansion was difficult due to lack of overseas channels and brand influence, they still accelerated their layout in China.

**Entering China**

China is the world's largest beer market and a major battleground for foreign beer mergers and acquisitions, with fierce competition. Breaking through requires a hard test of strength and endurance. At the end of the last century, foreign brands like UK's Bass and Hong Kong's China Strategic Holdings collectively fled the Chinese beer market. Japanese beer, however, bucked the trend and aggressively entered China during the foreign retreat. Suntory's vice president Chen Qigang declared: "Don't think all foreign beer brands have fled the Chinese beer market." In 1984, when international phone lines were still unreliable, Suntory entered the Chinese market. Starting beer production and sales in Shanghai in 1996, Suntory captured over 30% market share in four years. In 1999, its sales in China reached 5 billion yen (about $39 million), becoming the best-selling foreign beer brand in Shanghai. Besides Suntory, Asahi entered China in 1994, establishing joint ventures in Yantai, Quanzhou, Hangzhou, and Shenzhen. In 1996, Kirin established a joint venture in Guangdong.

**They developed by leveraging the inclusiveness and openness of China's coastal markets, which had weaker local protection than inland areas.** In 2000, an industry insider commented: "The climax of Japanese beer companies' counterattack on the Chinese market has arrived." But it was no easy task for Japanese beer brands to capture the Chinese market. Aside from the fierce offensive of international beer giants, domestic Chinese beer brands were also strong: Tsingtao had brand advantages, China Resources had capital advantages, and Yanjing had unshakable regional advantages... 2000 was also the hottest and most lively year for the Chinese beer market. Tsingtao acquired Shanghai Carlsberg and various small breweries, while China Resources Beer invested nearly 10 billion yuan to sprint for industry leadership. Tsingtao then took the fight to Yanjing's stronghold in Beijing and China Resources' stronghold in the northeast. Zhujiang Beer's pure draft concept, Chongqing Beer and Blue Sword Beer's western development... were also in full swing.

**Although Chinese beer brands were aggressive in their conquests, they were still backward in marketing, and marketing-savvy Suntory found a way to outflank them.** In 2005, with a powerful marketing offensive, it secured the top spot in the Shanghai beer market and held an absolute advantage in the Yangtze River Delta. Despite the aggressive attacks from domestic and foreign beer brands, Suntory remained remarkably calm. Beer was only a strategic supplement to Suntory's spirits business, not a life-or-death venture, so it chose to cultivate the Yangtze River Delta carefully without increasing investment to consolidate and develop the market. This laid the groundwork for its later failure in China.

As the leader of Japanese beer, Asahi also reaped significant rewards in the Chinese market. In January 2004, at the bottom of the bear market after the financial crisis, Asahi, together with Itochu, acquired a 50% stake in the beverage business of China's beverage leader Master Kong for $380 million. Subsequently, China's economy entered a golden era with 10% annual GDP growth, and Master Kong's stock price rose 14-fold by 2011. In 2006, having tasted success in diversification, Asahi invested in a 1,500-mu demonstration agricultural base in Yantai, planting organic vegetables like strawberries and sweet corn and raising dairy cows. To meet organic standards, the land Asahi leased was left fallow for 10 years, overgrown with weeds, in a "soil-nourishing" state, inevitably leading to continuous losses.

From 2009 to 2012, using this super bear market, Asahi continued its buying spree. In 2009, it purchased a 19.99% stake in Tsingtao Brewery for $666.5 million. Having completed a diversified defensive layout through acquisitions, Asahi's beverage business ranked second only to Coca-Cola and Suntory in Japan, and it became a beverage leader in Australia and Malaysia. But the complacent Japanese beer brands soon faced a collective defeat.

**The Great Defeat**

As domestic beer competition intensified with the entry of brands like China Resources Snow and AB InBev, Suntory's sales in Shanghai were challenged. High advertising, marketing, and operational costs led to severe losses in China in 2010 and 2011. The oligopoly effect in the Chinese beer market became increasingly evident, making it difficult for small and medium breweries to survive. In 2012, Suntory and Tsingtao, which wanted to enter the Yangtze River Delta, formed a joint venture to resist "foreign enemies," but with little effect. The pincer attack from China Resources and AB InBev, from low to high prices, gradually made Suntory lose confidence in the Chinese beer market, so it shifted more attention to its higher-margin spirits business. In 2014, Suntory acquired American spirits company Beam for $16 billion, completing the largest international M&A in Japan's consumer sector. This huge financial expenditure plunged Suntory into a debt crisis. In October 2015, it sold its 50% stake in the joint venture to Tsingtao for 823 million yuan (about $123 million), ending its beer business in China.

In 2014, China's beer production saw its first year-on-year decline. Starting in 2015, Tsingtao's revenue declined by about 5%, and Asahi, as the second-largest shareholder of Tsingtao, also felt the chill. That year, aggressive foreign beer brands like AB InBev and Carlsberg poured massive resources into China and international markets to quickly seize high ground. With the international beer market structure basically stabilized, opportunities for Japanese beer to gain advantageous positions internationally were dwindling.

In 2016-2017, AB InBev, to acquire SABMiller, was forced to sell some European assets due to regulatory requirements, and Asahi finally got a chance to pick up bargains. At the peak of the bull market, it spent about $11 billion to acquire a series of European breweries, raising its overseas revenue share from 6.4% to 29.8% and jumping to become Europe's third-largest beer company. From 2003 to 2017, Asahi's stock price rose 7-fold. Despite the rising stock price, Asahi, buying at high levels, was far from the "shrewdness" of bottom-fishing in the early days of overseas expansion.

In 2017, seeing that the Chinese market had been "divided up" by the five giants—China Resources Snow, Tsingtao, AB InBev, Yanjing, and Carlsberg—and the market was settled, Asahi transferred its Tsingtao shares to Fosun and focused on consolidating its advantageous markets. In 2019, it bought Australia's largest beer brand, Victoria Bitter, from AB InBev for $11.3 billion. By 2021, Asahi's overseas revenue share had reached 45.5%, and profit share was as high as 64%, effectively grabbing a lifeline in the wave of consumption downgrading. However, its Chinese business was not focused enough, failed to achieve scale advantages, and gradually retreated. This is similar to the retreat of Molson Coors, the second-largest US brewer, from the Chinese market.

Compared to Asahi, the leader of Japanese beer, and Suntory, the leader of Japanese spirits, Kirin, lacking brand and capital advantages, faced greater difficulty in going global. Although it established a joint venture brewery in China in 1996 and launched new beer brands, the abundance of cheap local beer made it hard for Kirin to break through. To escape the fiercely competitive mid-to-low price beer market, Kirin launched "Japanese Quality" in 2011, entering China's high-end beer market. But Japanese beers had limited presence in supermarket channels, low consumer purchase rates, and foodservice channels concentrated in Japanese restaurants. Additionally, domestic and foreign brewers, leveraging their existing brand and channel advantages, intensified their high-end offerings, suppressing Kirin again, whose market share remained around 0.1% for a long time. Moreover, Kirin's lack of innovation and its erroneous stance in past Sino-Japanese disputes almost sealed its fate. By 2022, the five major brands—China Resources Snow, Tsingtao, AB InBev, Yanjing, and Carlsberg—held a combined market share of over 90%, leaving Kirin little room to make waves.

The collective defeat of Japanese beer in China is now a foregone conclusion.

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