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Business trends

Japan whisky makers beef up capacity on global demand growth

Kirin plans first distillery expansion in half a century

Bottles of Suntory whisky at a liquor store in Switzerland. Japanese whisky is increasingly popular around the world.   © Reuters

TOKYO -- Japanese whisky manufacturers are opening up their wallets for a long-term commitment to expand distilleries as demand grows at home and abroad on the international recognition they have won in recent years.

Kirin Brewery, the third-largest player, plans to spend several billion yen (1 billion yen equals $8.9 million) to expand its only domestic distillery in Gotemba, Shizuoka Prefecture, around 2020. This will mark the first such expansion since the facility opened in 1973. The distillery will have a bigger capacity to hold casks to age raw whisky, a key ingredient for finished products.

The Kirin Holdings unit is following market leader Suntory Spirits, which is increasing the capacity to store raw whisky by 20% by investing about 18 billion yen through 2020, as well as the second-ranked Asahi Group Holdings, which has invested around 6 billion yen in subsidiary Nikka Whisky over three years from 2015.

Kirin's whisky business logged a 7% gain in sales to 16 billion yen last year. Although it is No. 2 in beer, Kirin controls less than 10% of the whisky market compared to Suntory's control of more than half and Asahi's 30% share, so it wants to catch up by boosting its distillery capacity. Whisky is made primarily from barley, as is beer, but its significantly higher price points make it a much bigger profit contributor.

The Japanese market for whisky peaked in 1983 when domestic shipments reached 380,000 kiloliters, including imports. Since then, price hikes and competition from other types of drinks such as shochu spirits and wine has eroded whisky demand over the years.

But demand picked up rather unexpectedly over the past decade or so, thanks to the popularity of highball cocktails made with whisky. Since 2009, the market expanded for nine straight years. Shipments in 2017 doubled from 2008 levels to about 160,000 kiloliters. Suntory expects 4% market growth in 2018.

The aging of raw whisky takes many years. So producers need to predict demand far into the future, unlike for beer and soft drinks. Currently the supply of raw whisky is short because producers did not project the demand growth. Suntory suspended the sale of its 12-year-old Hakushu in June and 17-year-old Hibiki in September because of the supply bottleneck.

Kirin expects it will take at least several years after the new facility goes into operation before whisky aged there reaches the market.

In addition to the domestic demand increase, growing recognition of Japanese whisky around the world is driving the capital investments.

Last year, Suntory's Hibiki 21 Years Old whisky won the highest award in the International Spirits Challenge. And Kirin's Jota Tanaka was named the blender of the year in the Icons of Whisky 2017 competition.

Kirin's Fuji Sanroku whisky exports to France are expected to rise from around 10,000 bottles in 2016 to 120,000 this year. The global whisky market likely expanded 60% between 2007 and 2016, according to research company IWSR.

As the global population increases and the economy grows, demand for nonessential goods like alcohol is expected to keep rising.

Product development is key to thriving in the industry. Kirin rolled out in August a premium version of its Fuji Sanroku series, the Signature blend featuring fruity aromas and sweet flavors. Expected to sell for 5,400 yen per 700 ml bottle, this version is more than three times as pricey as another version, Fuji Sanroku 50 Degrees.

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