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Coca-Cola returns to alcoholic drinks with Japan 'alcopop'

Company launches lemon cocktail in move beyond core soda market

People line up to sample Coca-Cola's new Lemon-Do "chuhai" drink in Japan's southwestern Fukuoka Prefecture on May 26.

TOKYO -- Coca-Cola has launched an alcoholic drink in Japan, its first move into the adult beverage market in more than three decades.

The new "alcopop" is a big departure for the global soft drink maker as it tries to branch out from its core soda market. It is neither beer nor cola-based, but a fizzy lemon cocktail popular with Japanese drinkers.

Coca-Cola's Japan unit on Monday rolled out Lemon-Do, a spirit-based drink in the southwestern region of Kyushu. At a prelaunch event in Fukuoka Prefecture two days earlier, about 6,000 people tried free samples of the product. "I like the strong lemon flavor," said one visitor. Another called it "refreshing."

This is not Coca-Cola's first foray into alcoholic drinks. In 1977, it bought a New York-based wine company and marketed products under the Wine Spectrum brand, but it sold the business in 1983. It is returning to the adult beverage market for the first time in more than three decades. Coca-Cola is "trying to be more than a soda company," said global CEO James Quincey.

Japan is an ideal place to experiment compared with the U.S., which evolves more slowly. Coca-Cola Japan rolls out 100 new products a year, on average, according to Jorge Garduno, the unit's president. The parent company has said it has no plans to sell alcoholic beverages in the U.S., but Quincey did not rule it out.

The media reported on Coca-Cola's plans to release a canned alcoholic drink in March. Although there was much speculation on social media that the drink would be a cola-flavored whiskey soda, the U.S. beverage maker went with lemon chuhai, a popular choice at izakaya bars.

"In addition to the fact the lemon-flavored drinks make up the largest share of the alcopop market here, we wanted to make the most of Coca-Cola's long-developed know-how on fruit-flavored drinks," said a company official.

Products with a high alcohol content of around 10% have recently dominated the canned chuhai market in Japan, but Coca-Cola opted for a range of 3% to 7% alcohol.

Lemon-Do comes in three varieties: 3%, 5% and 7% alcohol. (Photo by Sotaro Yumae)

The new chuhai product is a high-stakes bet for the Japan unit as well. Japan is the No. 3 market worldwide for Coca-Cola's bottling business by sales. But the Japanese market is mature and Coca-Cola has lost ground over the past 10 years to competitors such as Asahi Soft Drinks and Suntory Beverage & Food. The Japan unit is looking for a breakthrough product.

It chose Kyushu for Lemon-Do's debut "because it's the home of shochu (a distilled liquor made from sweet potatoes)and there's a lot to learn from local consumers," according to another company representative. An insider at a Japanese rival said Coca-Cola Japan may have chosen Kyushu because the retail market there is stable. "People don't move around as much compared with Tokyo and Osaka," the person said, adding, "That may make it easy to conduct test marketing."

The canned chuhai market is expanding in Japan. Tokyo-based Kirin predicts sales will grow 7% on the year in 2018, rising 90% from a decade earlier to 1.13 million kiloliters. That growth is driven in part by new regulations on the discounting of alcoholic beverages. The change pushed prices higher and encouraged some beer drinkers to switch to cheaper alcopop. With the tax on beer and quasi-beer drinks scheduled to rise in stages starting in 2020, alternatives are likely to become still more popular. No upward pressure is expected on canned chuhai prices.

Coca-Cola is taking advantage of the changing environment. And Japan's alcopop market has lower barriers to entry compared with overseas markets. Alcopop also offers greater scope for product development compared with beer, which by law must, for example, meet minimum malt content requirements, to be labeled as such. The company believes its strong Coca-Cola brand will allow it to expand quickly in fizzy alcoholic drinks.

The canned chuhai market is dominated by companies affiliated with Japanese breweries. Suntory Spirits and Kirin, the top two producers, control about 70% of the market between them.

Both are trying to capitalize on the market's growth potential. Suntory plans to increase production of canned chuhai drinks by 15% from a year earlier to around 15 million cases for the peak months of July and August. Kirin plans to raise capacity about 20%, spending some 5 billion yen ($46 million) to expand production lines at a plant in central Japan's Aichi Prefecture.

Asahi Breweries in March introduced Zeitaku Shibori, which it pitches as containing half a fruit's worth of juice in each can, while Sapporo Breweries began selling a new high-alcohol chuhai product.

For now, Coca-Cola Japan will "focus on Lemon-Do in Kyushu and boost its acceptance there," and it has no further plans yet, according to its representative, who left open the possibility that the sales area or the product line might be expanded.

So far, Coca-Cola's alcopop has not been a major challenge to its Japanese rivals. "Coca-Cola is strongly associated with soft drinks. I'm curious how they will go about establishing a new brand image," a source at a rival company said.

Nikkei staff writer Maho Kawachi in New York contributed to this report.

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