Asahi and rivals prepare for drier times in Asia

Roppongi is suffering — and with it Japan’s drinksmakers.

Bars in the popular Tokyo nightlife district must close at 8pm under a central government-imposed state of emergency to tackle the coronavirus, which is squeezing alcohol sellers. But the greater long-term problem for Japan’s brewers and distillers might be seen in the name of one Roppongi bar: 0% Non-Alcohol Experience.

When 0% opened its doors last summer it was billed as Japan’s first nonalcoholic and vegan bar — and was a big hit. “As soon as we opened in July, it got fully booked. It was unexpectedly popular,” a representative of operator The Human Miracle told Nikkei Asia. Most of the customers at 0% are in their 20s and 30s — a generation that doesn’t imbibe the same as previous ones and would not normally have gone to Roppongi.

“People who cannot drink alcohol just want to drink something high quality and have a variety of products, not just orange juice or nonalcoholic substitutes for alcoholic drinks,” Kentaro Takahashi, a 22-year-old student at 0%, told Nikkei.

How drinks companies go about appealing to such customers is a challenge but also an opportunity for Asia’s drinks giants as they deal with damaging long-term trends in their core alcoholic beverage business.

Fewer drinkers, changing consumer tastes, tightening restrictions on alcohol and, of course, the pandemic are a sober reality for the industry. But companies have the chance to capture a new generation of customers if they can mix the right cocktail to appeal to changing tastes.

Asahi Group Holdings, a Japanese beverage maker, said in December that its beer subsidiary would increase nonalcoholic and low alcoholic drink sales volumes to 20 per cent of its portfolio by 2025, or more than three times their share in 2019.

“[The number of] consumers who want to drink nonalcoholic [beverages] is increasing,” Akiyoshi Koji, chief executive at Asahi Group Holdings, said in an interview with Nikkei, suggesting the trend was accelerating as virtual social gatherings replace physical get-togethers during the Covid-19 pandemic.

“There was an atmosphere in Japan where people had to drink alcohol at parties due to peer pressure. But when it comes to online drinking parties, consumers start to drink what they really want,” Koji said, adding that he was considering nonalcoholic wine and whiskey highball in addition to nonalcoholic beer.

Low or nonalcoholic products can be highly profitable for drinksmakers as they are less heavily taxed. “The marginal profit margin is very high but the nonalcoholic beer market is still small and there is ample room for growth,” Kiyokazu Shibukawa, a partner at EY Advisory and Consulting in Tokyo told Nikkei. “If the nonalcoholic beer category grows in the overall portfolio, it will be a factor to boost the overall profit margin for large alcohol companies.” Shibukawa envisions a shift to a structure where profit margins are centred on nonalcoholic beer.

Companies such as Asahi must do something — Japan’s beer market shrank for the 16th straight year in 2020. And the business environment will remain “harsh even after the coronavirus”, Satoshi Fujiwara, an analyst at Nomura Securities wrote in an October report. Beer demand by restaurants and bars will only return to 80 per cent of its pre-pandemic level even in fiscal year 2022, Fujiwara said, with trends such as teleworking expected to persist even if the Covid-19 crisis is overcome.

According to Euromonitor International, just 6 per cent of millennials are daily drinkers in the Asia Pacific region compared with about 14 per cent of baby boomers. The report also said that 63 per cent of millennials are trying to reduce or quit drinking alcohol. Reasons vary but most simply want to feel better and avoid long-term health risks.

Yoshinori Isozaki, president of Japanese drinks group Kirin, said his company was focused on healthier living trends. “Alcohol will not be eliminated, but it is not healthy,” he told Nikkei. “Demand for nonalcoholic beverages is increasing because people want to refresh their working from home routine.” Isozaki acknowledged that World Health Organization alcohol warnings had also pressured beverage makers.

In 2020, its Kirin Brewery beer unit saw a 10.4 per cent increase in its nonalcoholic drink sales volume, while beer volume dropped 18.6 per cent. The company this year aims to increase nonalcoholic sales volume by 23.2 per cent from the previous year.

Although Kirin’s wine business is small, it aims this year to double sales volume of low alcoholic wine from last year in response to the growing demand for nonalcoholic options. It will also develop nonalcoholic wine.

Investors too see promise in nonalcoholic drinks.

Hiroshi Saji, a Mizuho Securities analyst told Nikkei that “investors’ interest in the nonalcoholic business is higher than before.” Saji cited an increasing emphasis on proper drinking practices from the perspective of environmental, social and governance investment principles. “Nonalcoholic drinks are becoming a more important business for both Asahi and Kirin as the domestic beer market is not growing,” he said.

Despite population growth, total consumption of alcoholic beverages in the Asia Pacific region is expected to fall to 85.5bn litres in 2024, down about 4.7 per cent from 2014, according to Euromonitor International. It forecasts that demand for nonalcoholic and low alcohol beer will rise by 18.9 per cent to 395.5m litres in 2024 compared with 2014.

In South Korea, makers of soju, or distilled liquor, are coping with changing market trends by increasing mildness. Hitejinro, the biggest soju maker in the country, has been lowering alcohol by volume, or ABV, almost every year recently for its benchmark soju brand Chamisul Fresh, to 16.9 per cent in 2020 from 19 per cent in 2012. Lotte Chilsung Beverage, the second biggest, also trimmed ABV of its Chum-Churum soju to 16.9 per cent from 17 per cent last year.

Soju makers also cut ABV to lower costs. Producers can save Won6 (0.5 US cents) to Won7 a bottle by shaving one percentage point off ABV, local media reported.

Hitejinro said the company cut ABV as consumers say they want milder liquor they can enjoy at home during the pandemic. Homemade soju cocktails are increasingly popular, especially among millennials — a contrast with their elders who enjoyed strong liquor at company dinners.

The trend comes as South Korea has been tackling a culture of overwork with legislation that slashed the maximum workweek to 52 hours from 68 for some large companies. That means fewer late toiling office workers, thus decreasing opportunities for company dinners with heavy drinking.

The country’s nonalcoholic beer market is expected to double by 2024, according to Euromonitor International, as local and international brands such as Oriental Brewery and China’s Tsingtao Brewery release more products, analyst Oryoon Lee at Euromonitor International told Nikkei. She said another growth driver was that nonalcoholic beers were available online during the pandemic, whereas South Korean bans online sales of alcohol.

The remarkable economic growth of Asian countries such as South Korea and Japan was fuelled by long working hours. But in recent years, the culture of increasing camaraderie and relieving stress by drinking has hit social headwinds, while widespread telework during the coronavirus adds pressure.

In contrast to ageing and shrinking markets in developed countries in north-east Asia, drinksmakers had seen big potential in south-east Asia, especially Vietnam, with a young and increasingly middle class population. But there are signs of change.

“The shocks to the market this year have forced us to look very hard at our core mission statement and how we go about doing our business.” Stanley Boots, founder of Vietnam’s 7 Bridges Brewing Company, told Nikkei in December.

Hardest hit were local companies that depend on tourism, such as 7 Bridges Brewing, which said revenues plunged 80 per cent when Vietnam sealed its borders to contain the virus. With no sign of an end to the travel ban, 7 Bridges and other businesses that rely on nightlife must pivot. Boots said the downturn pushed him to focus on Vietnamese drinkers. For example 7 Bridges has introduced beer recipes catering to locals, who prefer lagers to ales.

Ho Chi Minh City-based SSI Securities Corporation forecast Vietnam’s beer consumption could rise 20 per cent in 2021, in contrast to a drop of 12.7 per cent in the first half of 2020 from the year-earlier period. But it doesn’t necessarily mean a return to previous growth due to the rise of concerns about health, alcoholism and road fatalities.

Government regulation is also casting a shadow. In January last year, Vietnam introduced Decree 100, ratcheting up fines and prison terms for drunken drivers. Alcohol is one of the top three causes of vehicle accidents, costing Vietnam the equivalent of 1 per cent of gross domestic product, according to the government. The decree pushed beer consumption down 25 per cent that month versus January 2019, according to Rabobank Research.

Bars and brewers have responded by arranging rides home for drinkers, as well as encouraging them to bring in growlers for take away refills. Heineken, which has a 23 per cent market share according to S&P Global, added alcohol-free beer to its Vietnam line-up in March, joining low alcohol options such as Sagota and Asahi’s Dry Zero.

Jarred Neubronner, senior analyst at Euromonitor International, expects Vietnam’s non-alcohol beer market to maintain double-digit growth until 2025. “This will be driven by leading brands Heineken and Sagota, and the entry of other international brands looking to compete for a share of the growing pie,” Neubronner said. He sees Heineken as a strong player not only in Vietnam but also in nearby markets such as Thailand, Malaysia and Singapore. “Heineken stands to benefit from marketing and production synergies across its markets,” he added.

Investors and industry giants are also paying attention to alcohol-free beverage start-ups. The world’s largest spirits producer Diageo last year announced that it has invested in US-based Ritual Zero Proof, the first American spirit alternative start-up.

As competition in nonalcoholic drinks intensifies in south-east Asia, young entrepreneurs have sniffed an opportunity.

Lorin Winata, a 27-year old from Singapore, said she often felt pressure to drink. “This was particularly so during my time working in investment, as I would often be expected to attend networking events after work,” Winata recalled.

In response, she launched Melati, which makes nonalcoholic drinks. The Singapore-based company released its first product, an aperitif crafted from 26 different Asian botanicals, in October.

For Winata, these are exciting times. “Now more than ever people are concerned with what they are putting into their bodies — from the health benefits of each product, to how it is sourced and made,” she said.

A version of this article was first published by Nikkei Asia on January 29 2021. ©2021 Nikkei Inc. All rights reserved

Related stories