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July 2015 | www.selectasset.com
A big head for small beer in Japan

Japan’s beer market is in many ways a microcosm of the nation’s fortunes as a whole. Fuelled by a post-work drinking culture that boomed along with the rest of the economy in the 1980s, it rose to a head in the early 90s, before turning flat during a long period of stagnation and decline.

Currently, the nation’s beer market sits at a level around 20% lower than its 1994 peak.  However, one area of optimism for the industry has been the growth of craft breweries. It’s a shift that goes back to the same year, 1994, when the Japanese government loosened the restrictive minimum production thresholds that shut out small brewers and effectively handed a monopoly to Japan’s four main brewers: Asahi, Kirin, Suntory and Sapporo.

How the craft beer boom went down, and how it’s coming back up

The ’94 legislation spurred a boom in small breweries, mostly trading off their local roots and using locally grown ingredients. In fact, in Japanese, the term ji-biiru or “local beer” is often used to describe craft beers, and the roots of the term lie in the ‘90s boom. The boom, however, was short-lived, with many of the new breweries going dry, perhaps due to a lack of the knowledge and skills needed to produce high quality beer. But that same boom laid the foundations for an industry that is increasingly catching the public’s imagination. Small brewers like Echigo Beer, the Baird Brewing Company and Otaru Beer have carved a small but growing niche in a market that’s mostly dominated by pilsner-type lagers.

Tapping into the U.S. menu

The craft beer industry in Japan has many parallels with its larger counterpart in the United States, but also many key differences. Craft beer in America has its roots in the deregulation of home brewing by the Carter administration in the late 1970s, along with lower tax rates for brewers on the first 60,000 barrels. In Japan, tax rates remain high, making craft beer comparatively expensive, while home brewing remains strictly illegal under laws dating back to the Meiji Period.

Japan also has little of the friction between small and large brewers that characterises the U.S. beer industry. In fact, The Japan Beer Times reports that some large brewers were instrumental in helping foster the growth of craft breweries in the ‘90s by providing training and even equipment.

Heading off distribution risks

Japan and the USA also exhibit key differences in distribution systems. America has a legally enforced three-tier system that places distribution companies as middlemen between brewers and retailers. This system proved vulnerable to pressure from large breweries in 1996 when the giant Anheuser-Busch brewing company used its influence over distributors in an attempt to shut out smaller brewers. However, it also meant that craft breweries, such as the successful Boston Beer Company (maker of Samuel Adams beer), gained access to a much wider market when they were eventually able to break through the distribution barriers.

Japan has no such three-tier system, meaning that craft breweries are able to deliver their beer directly to bars and retailers, or even sell directly to customers themselves. However, it also means that they must build their distribution networks gradually, which has an effect on the pace of growth of both individual companies and the industry as a whole. Nevertheless, a significant breakthrough in that regard happened towards the end of 2014 when the retail giant Aeon began to stock a range of 90 craft and imported beers in its network of 250 stores throughout Japan.  This availability in stores is complemented by the growing popularity of brewpubs in the Tokyo area, where there are now nearly 80 , including such places as Popeye in Ryugoku, Goodbeer Faucets in Shibuya and Craft Beer Market, which now has six locations throughout the city.

Brewing with the big boys

Perhaps the most exciting news in the Japanese craft beer scene in recent years has been the advances of the big four breweries into the craft segment. So far, Kirin has been the most active and daring, establishing its own Spring Valley Brewery, a subsidiary that operates independently as a craft brewery while making use of some of its parent company’s production facilities. Kirin also made an early move by taking a minority 30%+ stake in the Nagano-based Yo-Ho Brewing Company, makers of the popular Yona Yona Ale, which has subsequently begun outsourcing some of its own production to Kirin.

Whether the growing interest of industrial brewers in the craft beer market will have a positive or negative effect on choice and quality remains an open question. Their greater advertising muscle could help raise the profile of craft beer, and their deeper pockets could fund innovation in the field. However, some smaller brewers fear the meaning of the term “craft beer” may soon become as diluted as a Bud Light and the industrial brewers’ commercial power could end up crowding out some smaller companies. As it stands, however, relations between the major and minor players remain relatively conflict-free, and with the market still growing rapidly, craft beer is providing an amber glow to the beer industry in Japan.

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