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Jan. 25, 2010, 3:09 a.m. EST

Sapporo Sets Sights on Niche Overseas Markets

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By Hiroyuki Kachi

TOKYO—Sapporo Holdings /zigman2/quotes/200413497/delayed JP:2501 -6.25% Ltd. is looking to capitalize on investments in overseas beer markets, such as North America and Vietnam, to cope with ever-increasing pressure in the shrinking home market, where two major rivals are preparing to merge into a single beer giant.

The Japanese brewer, which has more than a 130-year brewing history, has thus far had only limited exposure overseas. Its sales of 414.5 billion yen ($4.61 billion) in 2008 were dwarfed by the combined 3.8 trillion yen sales of Kirin Holdings /zigman2/quotes/201605850/delayed JP:2503 -1.52% Co. and Suntory Holdings Ltd., which are in merger talks.

Despite the popularity of its premium Yebisu brand at home, Sapporo has lost ground domestically. Sapporo was fourth in domestic beer shipment in 2009, behind third-ranked Suntory for the second straight year. Kirin was No. 1.

Sapporo has also lagged behind other major Japanese brewers in emerging markets. The company wasn't among the slew of brewers rushing to build a presence in China in the 1990s, where many foreign brewers are still struggling to earn sustainable profits amid the intense competition.

But Sapporo is looking to go on the offensive in niche markets outside Japan. With its Toronto-based unit, Sleeman Breweries Ltd., it is mapping out a strategy to meet increasing demand in the U.S. and Canada.

"We can expect 10% or more [sales] growth in North America" in 2010, Sapporo Holdings President Takao Murakami said in a recent interview.

Sapporo began selling beer in the U.S. in 1985, targeting Japanese living there. But the 2006 purchase of Sleeman, Canada's third-biggest brewer, has helped Sapporo broaden its customer base and improve its profit margin. Over the past three years, Sleeman's average operating profit made up 10% of its sales, while that of Sapporo U.S.A's was 7%. The figures were well above the 2.6% ratio Sapporo's domestic liquor business registered in 2008.

Sapporo is also feeling the buzz of continued robust demand in Canada for Sleeman's premium and other beer lineups. As well, it expects a pickup in U.S. sales following a 9% decline in 2009 due to the economic slump.

Sleeman's four plants, which also brew Sapporo-brand products for the U.S., are running at full capacity, producing a combined 150,000 kiloliters a year. This suggests demand could reach around 200,000 kiloliters in a few years, Mr. Murakami said.

As an interim solution to meet the rapid increase in demand, Sapporo will outsource production to a local brewery in the U.S., which already produces Sleeman's.

But Sapporo needs to make a more permanent decision soon. It has three options: build new beer facilities on a site it already owns next to an existing plant near Toronto; continue outsourcing production; or acquire existing breweries.

"We will make a decision by the end of this year," Mr. Murakami said.

Mr. Murakami said he was "skeptical" that a beer venture in China would reap quick returns, because of the cutthroat competition there. "We think it's too risky for us to go ahead with proactive investment over next 10 to 20 years," he said.

But Sapporo has recently become the first Japanese beer maker planning a production and sales network in Vietnam, where demand has been growing more than 10% annually. Demographically, the market is promising too, with the largest segment of the population in their mid-teenage years.

After a new plant near Ho Chi Minh City comes onstream in 2012, Mr. Murakami said he expects to reach annual profitability in Vietnam in about three years.

And even before the plant is built, Sapporo will soon start test marketing its flagship Black Label brand in the country, Mr. Murakami said, adding that the company is flexible about adjusting the taste to suit local preferences.

He said Sapporo's products will be priced about double that of the standard products sold by Vietnam's state-run breweries, Saigon Beer Corp and Hanoi Beer Corp.

Further down the road, Sapporo plans to broaden distribution beyond the area around Ho Chi Minh City, which may lead to the establishment of another plant in the northern part of the country.

Write to Hiroyuki Kachi at hiroyuki.kachi@wsj.com

/zigman2/quotes/200413497/delayed
JP : Japan: Tokyo
¥ 1,771.00
-118.00 -6.25%
Volume: 1.07M
Aug. 7, 2020 3:00p
P/E Ratio
N/A
Dividend Yield
2.37%
Market Cap
¥137.96 billion
Rev. per Employee
¥66.04M
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/zigman2/quotes/201605850/delayed
JP : Japan: Tokyo
¥ 2,002.00
-31.00 -1.52%
Volume: 1.72M
Aug. 7, 2020 3:00p
P/E Ratio
17.31
Dividend Yield
3.25%
Market Cap
¥1669.68 billion
Rev. per Employee
¥62.21M
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