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Business deals

Asahi makes biggest splash yet in premium beer market

Japanese brewer pours another $11bn into high-end strategy via Carlton deal

Asahi's Super Dry beer enjoys strong sales along with other premium brands in the Japanese brewer's portfolio.   © Reuters

TOKYO -- The agreement by Asahi Group Holdings to purchase Anheuser-Busch InBev's key Australian operation punctuates the Japanese brewer's strategy of capturing the promising premium beer market.

The buyout of Carlton & United Breweries announced Friday represents a marriage between the biggest brewers in Japan and Australia. The deal, valued at 16 billion Australian dollars ($11.3 billion), is also the largest outbound purchase by a Japanese beermaker to date.

But even when this megadeal closes by the end of March, Asahi will be hard-pressed to catch global leader AB InBev in terms of scale. Instead, Asahi has decided to pursue quality over quantity.

Asahi has been on a tear of high-profile acquisitions. During 2016 and 2017, the Japanese company grabbed multiple high-shelf European brands from AB InBev for a total of 9.85 billion euros ($11 billion in today's money). This May, Asahi acquired the premium beer business from British brewer Fuller, Smith & Turner for 250 million pounds ($312 million).

A large gap remains between Asahi and AB InBev. The Belgium-based group known for its Budweiser brand generates revenue topping $50 billion along with a lofty 39% profit margin, and its market value stands at $190 billion. Asahi's sales in 2018 totaled just over 2 trillion yen ($18.6 billion), while the profit margin stalled at 10%.

Asahi ranks seventh worldwide in sales by volume with a 3% market share, a far cry from AB InBev's lead at 26%.

Facing this disparity, Asahi is taking cues from Dutch brewer Heineken. Instead of promoting mass market beer along with high-end product like AB InBev, both Asahi and Heineken are focusing investments on the premium market.

Asahi is driven toward acquisitions by a sense of crisis over the shrinking domestic market.

Thanks to the best-selling Super Dry label, group subsidiary Asahi Breweries leads the Japanese beer market with a share approaching 40%. But the trends toward thriftiness and health consciousness among consumers have caused Japan's beer market to shrink for 14 consecutive years through 2018.

Asahi Breweries also is struggling to repel domestic competitors. Kirin Brewery, the closest rival, trailed in volume sales by only a 1.5 percentage-point share during the first six months of the year.

Asahi's rivals are pouring resources into new growth businesses outside of beer. Kirin Brewery parent Kirin Holdings is expanding its health food segment, while Suntory Holdings concentrates on whisky abroad.

Yet Asahi is pressing forward with beer, at least those of the high-end variety. "The global premium market is growing," President Akiyoshi Koji said.

The view appears to be supported. Along with Super Dry, the Italian Peroni brand and Czech label Pilsner Urquell are enjoying strong global sales.

Carlton generated about $1.6 billion in sales last year, roughly one-seventh of Asahi's purchase price. The Japanese brewer accepted such a high value because Carlton controls a nearly 50% share in an unusual market, a developed nation that is growing in population.

Carlton also developed sales channels with a heavy penetration among restaurants. Though Australia's beer market as a whole has matured, the demand for premium beer is rising. Asahi recently began producing Super Dry and other products locally, and the purchase of Carlton will secure a sales network.

AB InBev let go of Carlton amid pressure to pay down the $100 billion debt incurred from its 2016 acquisition of SABMiller, then the second-leading brewer. AB InBev last week scrapped a planned initial public offering of its Asian business in Hong Kong, which would have raised up to $9.8 billion. Instead, AB InBev will embark on this asset sale.

AB InBev's losses frequently have been Asahi's gains, but this global strategy is not guaranteed to go smoothly. In 1990, Asahi bought a stake in Foster's, Carlton's predecessor company, but the lack of synergies forced the Japanese brewer to sell off the remaining shares in 1997.

Kirin took a 300 billion yen gamble on Brazilian beermaker Schincariol in 2011. But poor performance combined with a price war compelled the parent to sell the unit to Heineken for just 77 billion yen in 2017.

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