Case Study: King of Beers Wants to Rule More of Japan TOKYO Stuck with a lowly market share in Japan for more than a decade, the King of Beers is taking dramatic steps to live-up to its name. Last month, Anheuser-Busch Cos. launched a merger with Kirin Brewery Co., which has about half of Japanese beer market. Under the agreement, Budweiser Kirin Japan Co., as the post- merger is called, will market and distribute Bud through Kirins channels, as well as establish its own, and use Kirins brewing facilities. Kirin says that for its 10% investment, it will learn about the world-wide beer market from the American brewer. The merger is a bold move for the St. Louis-based brewer, whose foothold in the Japanese market for 12 years has been limited to a licensing agreement with Suntory Ltd., the weakest of Japans four major brewers. Through Suntory Ltd, Budweiser has become Japans favourite foreign beer but that doesnt mean much. Last years sales were only 1.2% of Japans beer market or about 10.1 million cases, while Buds US market share was 21.6% or about 330 million cases. For decades, beer has been Japans most popular alcoholic beverage, accounting for more than 70% of the countrys annual alcoholic consumption. The average Japanese consumer drinks 54 litres a year, compared with the 91 litres his American counterpart drinks. We want to make Budweiser into mainstream beer in Japan, says Jeffery Ewins, marketing director of Budweiser, Japan. It has set an ambitious goal of quadrupling its shares to 5% in 10 years. While its unusual for a U.S company in Japan to dismiss a merger partner for a rival, Anheusers is one example of an increasing trend among foreign companies with experience in Japan to try to expand their operational control. But there are risks to such arrangements. Two years ago, when Borden Inc. dissolved a 20 year licensing agreement with Meiji Milk Products Cos. to sell ice cream on its own, its sales declined drastically. Borden found it was more difficult than expected to cultivate new sales channels. It bounced back but still sells below earlier levels. 2 Anheuser believes it can avoid that fate. The merger, in which the brewer has a 90% stake, will give it a wider sales network and more control in marketing its beer. The merger can hold its own promotional campaigns. Anheusers licensing agreement left it completely dependent on Santuorys weak distribution channels and advertising and the Japanese brewer thought Bud didnt need much promoting. The merger company, Budweiser Kirin Japan Co. quickly started an aggressive marketing campaign, beginning with its signature Clydesdale horses pulling a cartful of Buds through downtown Tokyo. Salesmen are handing out the characteristic bowtie-shaped neon signs to restaurants in major cities. And the company started airing its U.S commercial in Japan. The worlds No 1 beer, says the deep-voiced Japanese narrator, as a man dives into a swimming pool. You want to dink more and more. But that line is getting harder to sell because people are drinking less. In the first eight month of this year, beer sales were down 2.2% to 1.19 billion gallons- the first drop in eight years. Budweiser Japan officials expect to sell a flat 10 million cases next year. Promoting the End of a Trend The company is also trying to reinvent Budweisers image. For years, Suntory marketed Bud as a fashionable expensive beer that handsome American actors guzzled in movies, and suggested that young couples sip the drink in chic bars. At one point, Budweisers screw cap bottle became a tool to test how hip college students were. Trend-conscious students laughed at collegues who tried in vain to open a bottle with an opener. But now that Budweisers cachet is fading, the merger says its trying to appeal to a new consumer: heavy-drinking, middleaged men. To reach them, it has launched full page newspaper ads proclaiming that the age when beers became trends and fashion is over. Source: By Yumiko Ono The Wall Street Journal October 28, 1993 REQUIRED:

a) Identify two (2) problems which lead to the merger between Anheuser Busch and Kirin Brewery Co. (10 marks) (10 marks)

b) Elaborate two (2) synergies in relation to the merger in the above case study.

c) Many international mergers are intended to circumvent barriers that normally prevent foreign competition. Explain any three (3) barriers in Japan that Anheuser Busch is circumventing in the merger? (10 marks)

d) Discuss how Anheuser Busch could lose some of its market share in countries outside Japan in this merger and propose a possible solution(s) to solve the problem of lost market share.