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Changes on Tap for Japan Brewers

The beer makers hope to reverse sliding sales as looser controls allow more retail outlets to stock their products.

September 01, 2003|From Bloomberg News

Japan today eased controls on liquor sales that had protected family-run businesses from competition, prompting new license applications from convenience store chains that plan to use beer sales to lure more customers.

Seven-Eleven Japan Co., the country's biggest convenience store chain, and its largest competitor, Lawson Inc., said they planned to sell liquor at more stores because it would help draw customers from rivals. Kirin Brewery Co. and other brewers are vying for the new shelf space as demand for beer shrinks.

"It will allow convenience stores to increase revenue, because they will steal customers from other retailers," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments Ltd., which manages the equivalent of $8.5 billion in Japanese equities.

The change is unlikely to bolster beer sales in Japan. Rather, it means that convenience store chains will become bigger customers for Japan's beer makers.

Kirin and rivals including Asahi Breweries Ltd. are seeking closer ties to the retailers, including making exclusive brands for sale in their stores.

Today's revision abolishes a regulation limiting the number of alcohol licenses issued based on the population of a given area. The rule had the effect of preventing new retailers from gaining approval to sell liquor where older, family-run businesses existed.

"We are aiming to get licenses for all our stores," said Seven-Eleven Japan spokeswoman Mayumi Ito.

The retail chain, which is 51% owned by Ito-Yokado Co., Japan's largest supermarket operator, has more than 10,000 stores, 70% of which sell beer and other alcoholic beverages.

Lawson, which runs about 7,700 shops nationwide, also plans to increase the number of outlets with liquor sales licenses next year. The company, an affiliate of Mitsubishi Corp., Japan's largest trading company, aims to raise the proportion of such stores to 80% from 63% of its total in the year starting March 1, spokesman Takashi Fujii said.

The surge in convenience store openings in recent years has intensified competition between Seven-Eleven and its rivals. Japan's eight major convenience store chains in July said sales slipped that month in part because unseasonably cool weather hurt sales of drinks, ice cream and other products.

Sales at Seven-Eleven fell 4.9% in July, while Lawson's sales shrank 6.1%. In the last three months, Lawson's shares have fallen 5%, compared with a 7% gain for Seven-Eleven Japan.

For Japan's brewers, forging business ties with these retail chains may help them cope with sliding beer sales.

"We have to make this into a business opportunity," said Kazuyasu Kato, the general manager of alcoholic beverages at Kirin. "We don't expect any improvement in the beer market. The key will be to engage the convenience stores and supermarkets that will be the major players of the future."

Competition among beer makers has intensified in recent years because a weak economy and aging population have damped demand for beer. Cool summer weather and higher taxes have accelerated the decline. Beer shipments by Japan's five major breweries dropped 12% in July. The easing of regulations may mean thousands more outlets for their products.

"The change to licensing laws may add another 25,000 stores to the 170,000 outlets in Japan already selling liquor," said Shinichi Gosho, manager of sales development at Kirin, Japan's second-biggest beer maker.

Kirin and other brewers began forging closer ties to convenience stores ahead of the changes.

Kirin already makes the Honey Brown low-malt brand for the Lawson chain. Sapporo Holdings Ltd., Japan's third-biggest beer maker, has developed Pilsner Premium jointly with Seven-Eleven Japan.

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