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Hamilton Shields, co-owner and partner at Mikkeller in Tokyo, shows off one of the bar's craft beers.
Business

Japan drinks to craft beer revival

After nearly fizzling out in 2001, microbreweries are staging a huge comeback

TOKYO -- Nobuhisa Iwamoto says his family played an indirect role in persuading the Japanese government to loosen its restrictive brewing laws in 1994 -- a move that saw hundreds of microbreweries sprout across the country, eventually bubbling into the nation's first craft beer boom.

Now Iwamoto, owner of SanktGallen Brewery, one of Japan's oldest craft breweries, is witnessing an Asia-wide thirst for artisan brews and a craft beer revival in Japan after the first craze ran dry. This time, he hopes the good beer keeps flowing.

Nobuhisa Iwamoto, owner of SanktGallen Brewery in Atsugi, Kanagawa Prefecture, poses in front of one of his tanks.

Back in the early 90s, Iwamoto's family operated a chain of dim-sum restaurants in and around Tokyo, with an overseas branch in San Francisco. During a trip to California, his late father entered a pub in Fresno and ordered a pint of pale ale. He was immediately struck by the hoppy, complex flavor of the beer, something he felt was fundamentally different from the crisp, pilsner-style lagers mass produced by the major brewers in Japan. Intrigued, he decided to make his own.

Since Japanese law at the time did not allow small-scale production of beer, Iwamoto's father began brewing at his San Francisco restaurant, and started exporting his beers back to Japan to be sold in one of his dim sum joints.

This caught the eye of American media, which saw it as symbolic of Japan's excessive regulatory environment. Japanese media soon picked up the story, and as the lore goes, lawmakers took notice and a movement began. In April 1994, the government reduced annual beer production requirements for would-be brewers from 2 million liters to a more manageable 60,000 liters, opening the door for smaller breweries to enter the market.

The deregulation was a chance for Japan to experiment with the more rich and flavorful styles of beers that were becoming increasingly popular in the U.S. But the excitement surrounding jibiru, or "local beer" as it was called at the time, was relatively short-lived.

Iwamoto takes a sample of his craft beer.

"The first boom was killed by amateurs lacking brewing expertise producing poor-quality beer, often for tourist souvenirs," Iwamoto said during a recent interview with the Nikkei Asian Review at his brewery in Atsugi, southwest of Tokyo.

At its peak in 1997, 117 microbreweries opened in a single year in Japan, according to Kita Sangyo, a bottling and packaging company. The number of new breweries shrunk to single digits by 2001 as sales plummeted and many closed shop. Iwamoto was also forced to temporarily stop brewing when his license was revoked due to mounting debt.

Another round

Thanks to the perseverance of die-hard brewers like Iwamoto and bar owners that kept craft beers on tap, the scene is now seeing a revival. In recent years, craft beer pubs have mushroomed in cities across the nation while craft beer festivals draw crowds in the tens of thousands. The number of microbreweries has steadily grown to over 250, and Japan-made brews are featured regularly in international beer competitions.

The Fuji Keizai Group estimates that the market of restaurants serving craft beer grew to 25.2 billion yen in 2016 from 23.6 billion yen the previous year. Kirin, one of Japan's five major beer makers, estimates the amount of craft beer produced in Japan will double from around 24 million liters in 2014 to between 44 and 48 million liters in 2017.

The global trend has caught on in other Asian economies like China, South Korea and Thailand. While the scale is still tiny compared to the U.S., where craft beer accounts for over 20% of the beer market in terms of value, craft breweries and bars have been popping up in regional cities.

"What we saw in the 90s were people making boring German style beers -- basically pilsners or weizens -- that weren't all that different from the regular beer you could get. It really started to change when people started to make [India pale ales] and more American-style beers," said Mark Meli, professor of cross-cultural studies at Kansai University in Osaka and author of "Craft Beer in Japan: The Essential Guide."

"Now it's really young people with disposable income and people in the gourmet scene who are into beer, so I think it's a different scene. It's working much better, and the beer is much better too," he said.

Japan's early deregulation of brewing laws has also given it a head start experimenting with craft beer compared to its Asian neighbors, he said.

"I think Japan has by far and away the best craft beer scene in Asia."

Tomoyuki Ishii opened a small craft beer pub in Tokyo's northeastern Taito Ward four years ago, serving domestically brewed beers on tap. On most nights his place is packed with locals and tourists sipping IPAs and porters that cost anywhere from 1,000 yen to 1,300 yen a pint -- around five times the price of a can of beer produced by Japan's major beer makers.

Atsushi Nozawa, a 34-year-old university researcher and a regular at Ishii's pub, said the experience is worth the price tag. "It simply tastes good, and it's fun to drink and imagine the story behind each brew," he said.

Foreign craft beer brands are also spicing up the scene. Scottish craft brewery BrewDog opened a bar in Tokyo in 2014, its first in Asia. Danish microbrewery Mikkeler followed with its own branch in 2015.

"I think the scene right now is at a really interesting turning point, with some of the older craft breweries growing into larger distribution, and lots of smaller breweries with brewers who have experience and influence working abroad, that are pushing the envelope in other ways," said Hamilton Shields, co-owner and manager of Mikkeler's Tokyo bar.

Shields draws himself a pint.

"It's a cool time to be here because things are happening differently, and it's interesting to compare to how things are progressing in the U.S. and Europe."

Crashing the party

Craft beer still accounts for less than 1% of market share in Japan. But some see it growing to 3 to 4% in the coming years. And with beer consumption falling due to changing demographics, tastes and drinking habits, major beer makers are eyeing for a piece of the pie.

Kirin, Japan's second largest beer maker, has been the most aggressive of the lot. In 2014, it bought a minority stake in Yo-Ho Brewing, Japan's largest craft brewery. It then opened its own brew pub, Spring Valley Brewery, in 2015, and last year acquired a 25% stake in U.S. craft brewery Brooklyn Brewery.

"The Japanese beer market is experiencing long-term stagnation, and that's a reflection of how beer isn't as attractive as it was for consumers," said Tatsuro Makihara, a Kirin manager responsible for the company's craft beer strategy.

According to the Brewers Association of Japan, the volume of beer sold by the five large beer brewers has fallen to 2.67 billion liters in 2016 from 3.5 billion liters in 2006, a 24% slide.

China, the world's largest beer market, has also seen big beer stepping up investments in this area, with giants like AB InBev muscling into the domestic market for craft beers in a bid to get more people to drink its high-end brews.

"Craft beer has the potential to change beer's image, especially among the younger generation. And there are signs the movement is growing globally, which gives us an incentive to invest," Makihara said.

But these moves by beer conglomerates are alarming craft brewers like Iwamoto, who has bitter memories of having to deal with the big players wanting to keep his beers out of the market.

"Kirin and others can do what they want, but I'd rather they keep their heads out of craft beer," he said.

There are still issues that need addressing for Japan's craft beer scene to continue to thrive: Japan has one of the most expensive beer taxes in the world, charging 220 yen for every liter of beer. Shipping costs are high. Home brewing, which is allowed in the U.S., is technically illegal in Japan, meaning brewers have to rely on inexperienced workers.

But Iwamoto believes the current scene is different from what it was two decades ago. There are old hands who continue producing quality craft beers. Younger brewers who grasp global beer trends are entering the scene. Expat brewers who set up shop in Japan offer knowledge and inspiration.

Above all, Japanese beer drinkers are embracing microbrews like never before.

"Do you like sumo?" Iwamoto asked as he opened a brown envelope addressed to his brewery. He pulled out a carefully folded document listing the rankings of professional sumo wrestlers.

"There's a sumo wrestler who always sends me these charts before tournaments," he said.

"He's not very high up yet in the rankings. But he's a big fan of our beer, and I think it's his way of showing his appreciation."

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