Away from Myanmar, Kirin pivots to craft beer in U.S. and Australia

Japanese drinks giant Kirin Holdings is changing its strategy as it withdraws from Asia, looking to focus instead on more profitable craft beer and probiotics businesses in the U.S. and Australia.

Over a span of just three days, Kirin announced it would exit joint ventures in Myanmar and China in decisions underscoring the limits of developing emerging markets that are quick to mature yet plagued by political instability.

In the latest development, Kirin said Wednesday it would sell its stake in China Resources Kirin Beverages. Proceeds from the transaction are expected to be worth 115 billion yen ($995 million), well above the original investment of 33 billion yen.

“As an investment, it was very successful,” said a Kirin executive.

The company expects to book a 39 billion yen gain from the sale for this year’s financial results. Nikkei first reported about plans to divest the shares in January.

China Resources and Kirin formed the 60-40 joint venture back in 2011. The company achieved success with its C’estbon brand of bottled water.

But other products, such as Kirin’s brand of bottled tea, Gogo-no-Kocha, did not gain popularity as anticipated. Although China appeared promising by virtue of its population, the country’s drink market proved saturated. Not only was Kirin competing against local rivals, but it also had to contend with Coca-Cola and Taiwan’s Master Kong.

Kirin’s joint venture in China enjoyed strong sales of bottled water, but Kirin-branded drinks — such as tea products in the bottom right — failed to gain popularity. (Photo courtesy of China Resources Kirin Beverages)

Kirin appeared to encounter problems as it sought brand traction in China. To complicate matters, the market has been heading toward maturation just like Japan’s. Unit prices for drinks are projected to drop, thus squeezing profit margins.

Another challenge emerged in the seemingly low synergy with the health products business that Kirin aspires to develop. The company opted to part ways while the joint venture was still profitable.

In fact, Kirin has been busy culling underperforming assets from its overseas business portfolio in recent years. In 2017, the group sold off the brewery Brasil Kirin. In Australia, Kirin jettisoned its cheese and drinks operations in 2019 and 2021 respectively.

The beer business in Myanmar, however, was one of the few exceptions.

In 2015, Kirin bought a controlling stake in Myanmar Brewery. The joint venture partner, Myanma Economic Holdings, is linked to Myanmar’s military. Another joint venture deal in the country, this time for Mandalay Brewery, followed two years later.

At the time, Myanmar’s economy was enjoying rapid economic growth and beer consumption was booming. Myanmar Brewery alone dominated about 80% of the beer market.

The operating margin stood at a lofty 43% prior to the military takeover. In comparison, Kirin’s Japanese operations generate margins of about 10%.

But the abrupt takeover presented an undeniable in-country risk for Kirin. The company had little choice but to abandon its cash cow in Myanmar. Kirin said Monday it would terminate the joint venture partnership, aiming to complete the process by June.

Now Kirin seeks to redirect the proceeds from the asset sales toward developing its craft beer and health products business, particularly in the U.S. and Australia.

In December, Kirin completed a 40 billion yen acquisition of Australian craft beer maker Fermentum Group. A month later Kirin purchased the American craft beer company Bell’s Brewery for the same price.

So while Kirin has decided to pull out of Myanmar, its global ambitions remain undimmed. Its offshore craft beer sales account for roughly 10% of groupwide beer revenue. North America’s craft beer business is forecast to reach a profit margin of about 20%.

Craft beer, with its added value, is regarded as one of the few growth areas within the slowing global beer market.

“We’ll consider mergers and acquisitions, but we’ve run out of significant options in Southeast Asia,” Yoshinori Isozaki, Kirin’s president and chief executive, told investors during a briefing Wednesday. “Craft beer is promising and we will actively consider it.”

Kirin’s quest for profit involves a deeper investment in the health business as well. The company is expanding sales routes in Western markets for its proprietary plasma probiotics, and the products will go on sale in Southeast Asia this year.

In Thailand, for instance, Kirin is spending 7 billion yen to manufacture human milk oligosaccharides, an additive said to boost immunity. Production will start this summer.

Subsidiary Kyowa Hakko Bio is extending its overseas business of making raw material for pharmaceuticals. The company is collaborating with other businesses to develop high value-added ingredients.

Isozaki plans to establish a contract development and manufacturing business for drugmakers at an early date.

“We aim to reach 100 billion yen in scale in the future,” said Isozaki.

In terms of pursuing an overseas strategy, Kirin has enjoyed a head start over domestic rival Asahi Group Holdings. But Asahi is establishing a lead overseas through splashy purchases in Europe and Australia and by concentrating on high-end drinks. Kirin will be tested on how quickly it can profit from its craft beer and health products operations.

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