Asahi Breweries, Ltd.

INTRODUCTION

In a noisy Tokyo pub in late 1991, Yasuo Matsui, head of Asahi-Beer’s

Marketing Department, took a long, slow drink from his mug of Asahi “Z”
draft beer and pondered his company’s product strategy. The previous five
years had been the most successful in company history. A revamped
product development system had produced in 1989 the most successful new
beer in industry history, Asahi Super Dry, whose record-breaking sales had
more than doubled Asahi’s market share and lifted the brewer past rival
Sapporo into second place in the industry for the first time in over two
decades. Success had created its own problems, however, as by 1991 Super
Dry accounted for 95 percent of Asahi beer sales. Subsequent new product
introductions, Super Yeast (1989) and “Z” (1991), had not met sales
expectations, and with Asahi’s rivals responding with upgraded product
development efforts and some new hit beers of their own, the question for
Matsui was how to maintain and further build on the success his company
had gained with Super Dry.

COMPANY HISTORY: POSTWAR TO EARLY 1980s

Today’s Asahi Beer was created in 1949 when the occupation forces, headed
by General Douglas Macarthur, introduced Japan’s anti monopoly law to
break up dominant companies in excessively concentrated industries. Dai
Nippon Breweries, which at the time controlled 75 percent of the beer
market, was split in half, with its breweries and distributors in western Japan
becoming Asahi Beer and those in eastern Japan becoming Sapporo.

The story of Asahi Beer from its postwar origin until the early 1980s
was essentially one of steady decline, from a market share of 36.1 percent at
the time of the breakup of Dai Nippon Breweries to a low of 9.5 percent
(barely above the 9.3 percent of last-place Suntory) by 1985. Four reasons
are commonly given for the company’s poor performance:

1. Asahi developed the complacency that often characterizes large,

established companies.
2. Because of the way Dai Nippon Breweries was broken up, Asahi
was strong in western Japan but weak in the higher-growth eastern
Japan (which includes Tokyo).
 3. Asahi was strong in the commercial market but weak in the
growing home-consumption market.

4. Asahi allowed whiskey maker Suntory to share its distribution

network when Suntory entered the beer market, thereby losing
sales to the financially more powerful distiller.

Asahi hit bottom in 1981, when poor performance forced the company to
implement an early retirement program for 550 employees and a stock
repurchase rescue by Sumitomo Bank and a friendly chemical company
were needed to save Asahi from a “greenmail” attempt. Sumitomo was
Asahi’s main bank, and since 1971 all Asahi presidents had come from
Sumitomo. In 1982, continuing this tradition, Tsutomu Murai was sent from
Sumitomo Bank to become Asahi’s new president. Murai had a reputation
as a turnaround manager, previously having been dispatched by Sumitomo
to save car maker Mazda from bankruptcy following the 1973 oil crisis.

The organization that Murai found when he arrived at Asahi was rigid,
risk-averse, and dominated by the accounting department and a cost-cutting
mindset. Employee morale was low and there was a high degree of
“sectionalism,” or mistrust between the different functional areas. Relations
were especially bad between the production and sales divisions, with each
blaming the other for the company’s poor performance. Production people
felt: “No matter how good the beer we make is, it doesn’t sell because the
sales force does such a poor job that it sits in the distribution channels and
the taste deteriorates. “Salespeople felt: “If the production people were less
egocentric and more in touch with consumer tastes, our beer would taste and
sell better.”

To revitalize the company, Murai initiated a corporate identity (CI)

program which produced a new corporate philosophy trademark. He also
sought to improve cross-functional relations within the company by forcing
managers from different areas to work together. Cross-functional task
forces, made up of seven to eight managers from different departments, were
put in charge of designing and carrying out the corporate identity activities
and given responsibility for dealing with issues such as data use, employee
suggestions, and customer complaints.
 Company retreats were also used to break down functional walls.
Asahi’s 600 managers of section chief or higher rank were split into six
groups of 100 and sent on four-day, three-night outings of business
(discussion about Asahi and what was needed to revive company fortunes)
mixed with pleasure (eating, drinking, hot spring soaking). Participants
reported that production and sales-people, thrown together, were at odds the
first day or two but by the end had come to understand each other better and
to feel closer, more like fellow Asahi employees and less like mistrustful
adversaries.

NEW PRODUCT DEVELOPMENT AT ASAHI

By industry standards, Asahi had been relatively active in product

innovation prior to the 1980s. Industry “firsts” by Asahi included Japan’s
first canned beer in 1958 and the mini-barrel that touched off the “container
war” in 1977. Due to strong brand loyalties and rapid imitation by
competitors, however, these innovations tended to cannibalize Asahi’s own
products rather than boosting Asahi’s market share. Looking back at this
type of innovation, Asahi product development manager Makoro Sugiura
said, “It’s significant that this was niche marketing, competing around the
edges, not a frontal attack at the center of beer taste range.”

The taste of Asahi beer prior to the 1980s was the exclusive domain of the
“production side,” that is, the brew masters in charge of R&D and brewing
at the beer plants. This was territory that was off limits to marketing, as
Makoro Sugiura explained.

“When it came to the matter of our beer’s taste, production was in

charge and we marketing people couldn’t say anything. The
production people were the specialists, the pros, and they used a lot of
technical terms for analyzing beer that we didn’t know. When we did
ask them something concerning taste, they would pull the wool over
our eyes, speaking in a technical language that we couldn’t
understand. They had a monopoly on the matter of what good taste
was; they’d say “This is good taste, this is Asahi beer.” The system
was they’d make it and we’d try our hardest to sell it. The measure,
or criterion, for how Asahi beer should taste was the personal
preference of a certain high-level manager on the production side.
 Everyone adjusted to him; if he said a certain kind of beer was
delicious, then that became, for Asahi, what delicious beer was”.

While such a system may have been adequate for “niche marketing” or
packaging-based innovation, it completely stymied the kind of consumer
needs driven product development that Asahi’s marketers, sensitive to
changing consumer tastes and behavior, felt was called for in the
marketplace of the 1980s.

The door to marketing’s participation in new product development at Asahi

was opened by the CI campaign and new corporate philosophy that president
Murai established in 1982. The basis of the new philosophy was to
“consider the wants and needs of our customers.” Sugiura explained.

The CI concept itself was to give the consumer what he wants most,
so from this point on making delicious beer was something both the
production and marketing sides were deeply involved in. For the first
time, we had a voice; we were the consumer.

In order to implement marketing’s involvement in the development of new

beers, a new product development system was established, which remained
in use in 1991. Managing director Hisashi Usuba explained how it was set
up:

There are two ways we could have changed the organization. One
was to create three separate departments; one in charge of brewing
beer, one in charge of selling, and one in charge of product
development (see Figure 1B). But if you do this, and I’ve experienced
this a number of times, this sort of thing happens. The product
development people, for example, would get completely involved
only in new product development and wouldn’t think much about
production or sales. They would end up creating their own world.
Sales and production people would feel that the product development
people know nothing about what’s going on in the marketplace or at
the plants and are just following their own whims in product
development. As a result, the product development department would
get no cooperation from sales or production.

So instead we created a larger Production Division and Sales

Division and within each set up an independent section in charge of
product development: the Production Project Section within the
Production Division, and the Marketing Department’s Producer
Planning Section within the Sales Division (see Figure IC). New
product development is carried out by these two sections “playing
catch with each other.” This way the Production Division is one
sphere, and the feeling among production people is that Production
Project Section people are “part of us” likewise, the Sales Division is
one sphere, whose workers feel that Product Planning Section people
are “part of us.” This makes the cooperation of production and
salespeople much easier to get.

The biggest change that this brought about was that market and taste
surveys were now done not just by the production people but by the
Production Project Section and the Product Planning Section in
concern. This is important. When you do a taste survey, the data is
not always clear, not easy to interpret, so different people read it quite
differently. So if, as before, production does the surveying, they read
the results in a way that is most convenient for them, that matches
their beliefs and thinking. The change was made to prevent this;
having marketing and production carry out surveys together resulted
in a change from a “what suits production” to a “what do consumers
want” approach to product development.
Figure 1

Change in Asahi’s Product Development Organization

(A) Pre-1992

Production division – Sales division

• Brew masters in charge *Marketing shut out
of product development of product development

(B)

Production division Sales Division Product development

Division

(C)

Production division Sales division

Production department Sales department

Marketing department

Sales Promotion

Advertising

Production Project selection Product planning

The core product development team was made up of about a dozen players,
five from the marketing side (Product Planning Section) and seven from the
production side (Production Project Section). Sugiura commented:

It’s no good to get a larger number of people involved; with more than
this it would be too messy and cumbersome. As for creating the
product concept, the decision to make “this kind of beer; 95 percent of
this is done by the marketing side. The idea was, if we got it wrong, if
the new product flopped, we would be replaced.

One feature of the new system was that much of the hierarchy that once
stood between those working on new products and top management was
removed. Sugiura explained:

Now, we dozen or so people of the Product Planning Section and the

Production Project Section can go almost directly to the top with our
ideas. Before, we needed a lot of “hankos” (seals, the equivalent of a
superior’s signature of approval) before our ideas got a hearing at the
top. This speeds things up. Timing is extremely important in putting
our new products, so the quicker you can go from proposal to action
the better.

Re-drawing the lines in an organizational chart was an important first

step toward creating a better product development system, but that alone did
not guarantee that product development would work smoothly. A more
difficult challenge was to build effective communication between
the marketing and production personnel who now found themselves working
together on the development of new beers. Hisashi Usuba talked about the
importance of good marketing-production communication for product
development and some of the barriers that must be overcome to achieve it:

Good new product development depends very much on effective

communication between the marketing and production people
involved. The characteristics of a beer are hard to measure and state
clearly, unlike, for example, the specs of an automobile. Some people
are good at describing a beer; some aren’t. To create a “product plan”
 for a new beer, words are needed that capture and convey acutely the
product concept. Marketing people are not especially good at this;
production people have the technical vocabulary to express a beer‘s
characteristics much more precisely.

Marketing people generally have a broad view of the world and are
tuned in to the customers, to opinions out in the street. Production
people, by contrast, spend more time shut up inside the plant and are
more conservative. They’re often called “technology crazy,” meaning
they’re locked up in their own world, and don’t know what’s going on
in the real world. The two groups even drink differently after work ;
technical people stick to one or two bars they know while marketing
people drink around, try a lot of new places, and are therefore quick to
pick up trends and information.

To create successful new products, the input of both sides is needed,

and so good communication between the two is essential. They need
to build a common vocabulary for describing and creating beers, and
the production people need to be made aware of trends in the
marketplace. One thing we do a lot of to achieve this is “nomi-
nication” (drinking communication; “nomi” is Japanese for drinking).
People from the Product Planning Section and the Production Project
Section get together in the same room to drink beer and analyze data.
In Japanese companies, there’s a wall between marketing and
production, but with this organizational set-up and our efforts to build
communication and understanding, we’ve been very successful in
tearing down this wall.

Beginning in 1984 Asahi product developers from the marketing and

production sides met together every Monday evening to taste and talk about
beer. The difficulty of bridging the language and orientation gap between
the two groups was arrested to by a product planner who said in 1990,
“We’ve been having these Monday meetings for four or five years now, and
only recently have we come to be able to communicate effectively.”

ASAHI SUPER DRY

The payoff from Asahi’s revamped product development system came in

1987 when Asahi Super Dry hit the market, breaking all records for sales of
a new beer in Japan. The development of Super Dry illustrates how the new
product development process worked.

The product concept that resulted in Super Dry originated in a

decision by Asahi’s marketing side product planners to compete not around
the edges but at “the dead center of the consumer taste range.” Sugiura
talked about this decision:

In 1984-85, when we were considering giving up competing around

the edges and instead going for the dead center of the taste range, this
was a big risk. The case of Coca-Cola changing the taste of Coke
shows what can happen when a food or beverage maker changes the
taste of its main product. Since this would be a big frontal attack, if
we failed it would be all over for Asahi. But our market share had
dropped to under 10 percent, so if we did nothing there would be a
good chance of Asahi disappearing from the market anyway. So for
this very reason, we were able to do the bold marketing we did,
changing the taste of our beer and shooting for what we hypothesized
was a new taste center.

Asahi marketers hypothesized that the center of the taste preference range
had shifted away from where it was generally said to be – that is, away from
the bitter, strong flavor that characterized Kirin’s lager beer. The hypothesis
was based on a change that had occurred in the Japanese diet. In the first
two decades of the postwar period, the Japanese diet was relatively bland,
and this produced in the people a craving for strong tastes to supplement
their diet in beer, this meant that Kirin’s strong, bitter taste was considered
delicious. But in the 20 years from 1966 to 1985, the Japanese overall diet
had become richer (the amount of oil and fats purchased per household
approximately doubled), while there was a trend in drinks and side dishes
toward a lighter, plainer taste (the amount of sugar and salt used by Japanese
dropped by about 50 percent).

To try to determine where the dead center of the taste range was, Asahi in
1984 conducted the first of what became an annual 5,000 person taste
preference survey. (Previous to this, the only surveying of consumers
carried out at Asahi consisted of giving out questionnaires to people going
on tours of Asahi breweries.) The survey confirmed that consumer
preference was in fact shifting away from Kirin’s bitter and rich flavor to a
more refreshing, sharper taste. The survey also produced a product blueprint
that would lead to the reformulation of Asahi’s standard draft and the
eventual creation of Super Dry. As part of the taste survey, beer drinkers
were asked what makes a delicious beer, and their answers (excluding
“bitterness,” which Asahi believed consumers had been educated by Kirin to
equate with good taste) fell mainly into two groups. One was koku, which
means rich taste, and the other was kire, which means refreshing, sharp,
stimulating to the throat when swallowed. Koku and kire were generally
considered to be incompatible – a beer could have a rich taste or a sharp
refreshing taste, but not both. Asahi’s marketing side Product Planning
Section challenged the conventional wisdom and asked its production side
counterparts to try to create a beer that was a little more koku than the most
koku beer on the market, which was Kirin’s lager, and at the same time a
little more kire than the most kire beer on the market, Sapporo’s Black
Label draft. Such a beer, they reasoned, would be close to the center of the
taste range. The Production Project Section took the product concept,
translated it into a “product plan” written in the technical language that was
meaningful to brewers and R&D people, and asked the company’s R&D
laboratory to create a test beer according to the plan.

Test beers were made and sent back to the Product Planning and Production
Project Sections where they were evaluated. R&D was then requested to
“try making it more this way, can you give it more of this characteristic, and
less of that?” This continued, with R&D experimenting with various
ingredients and brewing method variations. Product Planning Section and
Production Project Section members met together frequently to discuss the
product, and it was during these meetings, which were sometimes amiable,
sometimes quite heated, that the two sides reached a common understanding
of what “koku” and “kire” meant. Repeatedly, the R&D people would
make a beer and the two groups would sample it together, asking, “Is this
more “koku” than Kirin, is it more “kire” than Black Label?” When they
had what they thought filled the bill, that beer became Asahi’s new draft, Put
on the market in place of Asahi’s existing draft in 1986 (and advertised with
the slogan “rich in taste, yet also sharp and refreshing”), it sold well and
helped produce a 12 percent growth in Asahi sales for that year.

Encouraged by the success of the new Asahi draft and feeling it was moving
in the right direction taste-wise, the Product Planning Section next
hypothesized, again based on taste preference surveys, that consumer tastes
in beer were moving further away from koku and more toward kire.
Accordingly, the taste concept for Super Dry was created similar to the new
draft but with an even sharper, clearer, more refined taste.

Super Dry was put on the market in March 1987, originally envisioned as a
“support” product for mainstay Asahi draft, which had been successfully
reformulated the year before. The new brand proved such a hit, however,
that it quickly overtook Asahi draft as the company’s best seller. Production
could not keep up with demand, and at one point Asahi prohibited its
employees from buying Super Dry in order to save it for customers. Kirin,
Sapporo, and Suntory, hoping that Super Dry was a fad that would fade
when winter came, were slow to respond with their own versions of dry
beer. Then, when they finally had their dry beers ready to launch in early
1988, Asahi further delayed their market entry, forcing them to make last-
minute labeling and advertising changes by threatening to take legal action
for copyright infringement. By the time Asahi’s rivals got their dry beers in
stores, Super Dry had become synonymous with dry beer in the minds of
consumers, and it continued to far outsell its imitators.

In 1987, 13.5 million cases of Super Dry were sold, causing the industry
definition of a hit new product-up to that time it was one that sold a million
cases in its first year – to be rewritten. Asahi sales for 1987 jumped 33
percent, and by 1989, thanks almost entirely to Super Dry, Asani’s market
share had risen to 24.8 percednt from just 10.3 percent three years earlier.
THE CONTRIBUTION OF LEADERSHIP AND CORPORATE CHANGE
TO NEW PRODUCT SUCCESS

While the taste of Asahi’s new draft and Super Dry, carefully developed to
match changing consumer taste preferences, was a central reason for the new
beer’s success, an important role was also played by top management
leadership and corporate change that had been carried out at Asahi. In 1986,
Hirotaro Higuchi (like Murai from Sumitomo Bank) took over as president,
bringing to Asahi an active hands-on management style that was well suited
for leading a company that had been put back on track by Murai’s efforts to
improve employee morale, activate middle-level managers, and create a
customer focus. Personnel section chief Ninomiya spoke about the
contribution that Murai and Higuchi made to product development:

The biggest thing in my opinion was the leadership of top management.

They emphasized quality and originality and demanded these of workers.
For the new product development people, a tremendous motivator was top
management’s willingness to use the fruits of their labor, to market the
products they developed. Under the old system, the young people
developing new products were stymied; their proposals had to be evaluated
and decided on by a series of upper managers, who made judgments based
on their own established values. The new things that younger people tried,
as they rose toward the top, were rejected in favor of the old and traditional.
What Higuchi did when he came in was to start actively and directly using
ideas and proposals originating in lower levels of the organization. The
distance between the people actually doing new product development and
top management became shorter.

It was Higuchi who made the decision to launch Super Dry, over his initial
concern that putting out another new brand so soon after the new Asahi draft
would only cannibalize the draft. The product development team had kept
pushing. And after drinking the new beer and finding it tasted good, Higuchi
gave Super Dry the go-ahead. Higuchi also increased R&D spending and
strongly supported “Asahi’s new products with enlarged budgets for
advertising and promotion.

The customer focus and improved marketing production relations that Murai
had worked to achieve also paid off, as explained by Marketing Department
head Matsui:
At the time that we in marketing created the product concept for our new
draft and asked the production/R&D people to produce this beer, a top
production-side manager said to me: “In order to brew the kind of beer you
are asking us to make, it will be necessary not just to change ingredients, but
to re-do the entire production process from start to finish. We’ll even have
to develop a new yeast. That will be very tough. “At that point I thought
there was no way he would agree to what we were proposing. But to my
surprise he continued: “But, let’s give it a try” At this moment I strongly
felt the effect of our CI campaign, a main theme of which was to throw out
certain old ways and values and to respond to consumers by making
products that meet their needs.

COMPETITORS’ RESPONSE: AN INTENSIFIED NEW PRODUCT

WAR

With Super Dry demonstrating the potential effect of a single new beer on a
company’s performance, Asahi’s competitors geared up their own product
development efforts. Like Asahi, the other Japanese brewers modified their
product development processes, creating systems with features such as joint
leadership by marketing and production/R&D at the core; increased
gathering and use of consumer information; a shorter route to top
management approval; and earlier involvement in the process of all the
various functions (design, packaging, legal affairs, advertising, sales,
engineering, the brewing plants), whose cooperation would be required at
some point before a new beer could be marketed. They stepped up their
frequency of new product introduction and increasingly aimed for “home
runs” like Super Dry as opposed to niche products.

The biggest change took place at Kirin, whose sales had been most hurt by
Super Dry. Traditionally, the industry leader had followed a conservative
approach to introducing new products, in order to defend its dominant brand,
Kirin lager. Kirin president Hideyo Motoyama explained: “It’s definitely
true that we responded slowly to the trends toward canned and draft beer.
But you must remember that Kirin’s red label bottle Lager accounted for
over half the beer drunk in Japan. Our number one priority was to avoid
hurting sales of our main, dominant product.”

After experiencing significant market share loss to Super Dry and other new
offerings, however, Kirin did an about-face and launched a “full-line”
strategy. Three new Kirin beers were introduced in 1988, followed by five
in 1989. Then in 1990 Kirin brought out Ichiban Shibori (sold as “Ichibar.”
outside Japan) which began with a first-year sales target of 10 million cases
but ended up selling 35 million cases, breaking the record that Super Dry
had set. Not resting on its laurels, nor on a first-time in six years market
share gain, Kirin introduced two more new brands in 1991, including the
seasonal Aki Aji (Autumn Taste), a 6 percent brew sold only during the fall.
Aki Aji sold well in its first months on the market.

Neither Sapporo nor Suntory, by 1991, had hit a home run to match Super
Dry or Ichiban Shibori, but Sapporo had the top-selling new launch of 1991
in its Ginjikomi, and Suntory had created a hit with its Beer Nouveau series
(a takeoff on Beaujolais Nouveau, the French wine made from just-harvested
grapes that was popular in Japan.) Indications were that all four companies
had plans for further new product launchings in 1992. (See Exhibits 1,2,3,
and 4 for profiles of the four beer companies).

ASAHI’S FUTURE PRODUCT STRATEGY

While Super Dry had improved Asahi’s fortunes tremendously, its

dominance of the Asahi lineup had Matsui and the company’s other product
planners worried: With Asahi so dependent on sales of Super Dry, what if
“dry” beer lost its popularity? Watching arch-rival Kirin, now with two
sturdy “pillars” (Lager and Ichiban Shibori) around which to anchor its
lineup, Matsui strongly felt the need for another Asahi bestseller to back up
Super dry. Asahi’s major new product intros for 1989 and 1991, Super
Yeast and “Z,” had been attempts to balance the Asahi lineup with one
major brand that could carry the load should a “post-dry” era arrive. But
those two brands, though supported by major promotional and advertising
campaigns, had not sold as well as hoped.

An important but unanswered question was how long these new product
wars would last. Asahi had more new beers in the pipeline, but was it wise
to launch them? Did the potential still exist for a monster new hit, or
Exhibit 1
Asahi Beer Profile, 1990

Income Sales Operating Current Net Earnings Dividend per Share

(Y) mil Profit Profit Profit Per share
December 1987 345,112 3,507 9,388 2,509 Y 9.3 Y 5.0
December 1988 544,866 14,547 14,962 4,750 Y15.6 Y 8.0
December 1989 655,073 11,124 18,705 6,034 Y16.9 Y 8.0
December 1990 730,800 15,059 17,246 6,119 Y 14.8 Y 8.0
Financial Data (Y mil, December 1990)
Capital stock 125,669
Total assets 1,167,200
Shareholders’ 270,967
equity
Bank borrowings 249,126
Number of 29,845
shareholders
Sales breakdown
(1990
Beer 82% (79% in 1987)
Soft drinks and 18% (21% in 1987)
other
Export ratio 0% (0% in 1987)
Areas of diversification: non-alcoholic beverages, wine, medicine, restaurants,
Nikka whiskey (subsidiary)
Employees: 4,260 (Average age : 36.2)
Exhibit 2
Kirin Beer Profile, 1990

Income Sales Operating Current Net Earnings Dividend

(Y mil) Profit Profit Profit Per Share per Share
January 1,266,349 69,574 80,824 34,059 Y 37.7 Y 7.5
1988
December 1,178,849 41,077 64,691 29,013 Y 32.1 Y 7.5
1988
December 1,199,804 39,345 64,616 28,270 Y 28.2 Y 7.5
1989
December 1,355,787 63,133 84,919 35,841 Y 35.8 Y 8.0
1990
Financial Data ( Y mil, December 1990)
Capital 102,004
stock
Total assets 1,205,260
Shareholders’ equity 493,064
Bank borrowings 18,091
Number of shareholders 111,975
Sales Breakdown (1990)
Beer 89%(93% in 1987)
Soft drinks 9% (6% in 1987)
Other 1% (1% in 1987)
Export ratio 0% (0% in 1987)
Areas of diversification: non-alcoholic beverages, whiskey (Seagram’s) wine, restaurants,
dairy products (Koiwai farms), medicine, biotechnology (plant genetic engineering)
Employees: 7,686 (Average age 39.5)
Exhibit 3
Sapporo Beer Profile, 1990

Income Sales Operating Current Net Earnings Dividend

(Y mil) Profit Profit Profit per Share per Share
December 467,046 14,514 13,050 5,250 Y 15.8 Y 6.5
1987
December 489,655 5,011 13,503 6,137 Y 18.4 Y 5.0
1988
December 463,591 -(3,710) 7,454 8,448 Y 25.3 Y 5.0
1989
December 492,628 5,367 8,432 4,006 Y 12.0 Y 5.0
1990
Financial Data (Y mil, December 1990)
Capital stock 41,167
Total assets 562,849
Shareholders’ 124,315
equity
Bank 95,143
borrowings
Number of 28,168
shareholders
Sales
Breakdown
(1990)
Beer 92% (94% in 1987)
Soft drinks 5% (4% in 1987)
Other 4% (2% in 1987)
Export ratio 0% (0% in 1987)
Areas of diversification: non-alcholic beverages, wine, imported liquor, real estate
Employees: 4,035 (Average age: 41)
Exhibit 4
Suntory Profile, 1990

Income (Y mil) Sales Net Profit Dividend per Reported per

Share Share
December 1988 630,962 6,795 Y 1.5 7,596
December 1989 777,008 6,159 Y 2.5 16,055
December 1990 796,445 4,865 Y 1.5 15,009
Financial Data (Y mil, December 1990
Capital stock 30,000
Total assets 1,006,224
Net assets 220,507
Bank 426,393
borrowings
Number of 50
shareholders
Sales
Breakdown
(1990)
Liquor, wine 56.3%
Beer 26.2%
Foods 17.5%
Areas of diversification: liquor and wine, non-alcoholic beverages, food processing,
restaurants, publishing (TBS Britannica), entertainment, medicine
Employees:
5,089

Were consumers getting tired of the constant parade of new beers showing
up in outlets and on television? Perhaps the company’s resources should be
focused on supporting Super Dry, instead of on creating and promoting more
new beers for a market already flooded with them.

Some of Matsui’s thoughts may have been echoed in he comments of

Product Planning Section chief Makoto Sugiura concerning the new product
boom:

This new product competition has only been going on for a few years, it
could be a temporary phenomenon. There’s no history in this industry of
new products being long-run stars. Super Dry is the first new beer to top
100 million cases. Ali the others that have started out well have faded after
3 or 4 years. Most of Kirin’s new beers aren’t selling well, even its draft,
which looked like it would be a big hit. Now Ichiban Shibori’s doing great,
but it could disappear in five years. It could be that in 5 or 10 years, the only
surviving beers will be our Super Dry, Kirin’s Lager, Sapporo’s Black
Label, and Suntory’s Malt. Then, after another 10 years, people will get
bored or there might be a shift in taste preferences, and another new product
war will start. Looking over the long term, people and beer don’t change
that much; stability is sought. Right now people are enjoying all the new
products, but if it gets to the point where the new beers don’t taste better or
different, and the only thing new is the name and the package, then people
will get sick of it all. I see that coming sooner or later. So it’s your main
product, the one or two that are going to survive, that count.
 INSTRUCTION NOTES TO THE CASE

A Template for Structural Analysis of an Industry

You can use the following templates for analyzing the structure of an
industry. It requires you to rate the attractiveness of an industry on a 5-point
scale for several factors relating to each of the five forces in Porter’s (1980)
model. (A 7-point or a 10 point scale would perhaps be even better in that it
would allow finer discrimination between two businesses with different
levels of attractiveness. But the 5-point scale is relatively much easier to
use). To help you in the ratings, the template provides the anchors at the
two ends of the scale for each factor with examples of industries
corresponding to the anchors.

You will note that we have included separate sections in the template
for exit barriers and government. The former contributes to rivalry among
competitors (and is, therefore, not a sixth force). The latter, according to
some, should be treated as the sixth force, although Porter says the effect of
government on an industry is felt through one or more of the five forces.

If you want, you can attach different weights to different forces and
also to different factors within each force, if an industry has different
segments that are structurally different, you can separately analyze the
attractiveness of each segment. You can also analyze the changes in
industry structure by using the template at two different points of time (for
instance, today and five years from now) to obtain greater insight into likely
opportunities and threats that you can expect from the industry environment.
To reduce the element of subjectivity, you can get the attractiveness
evaluated by several colleagues and arrive at average scores. Even the
weights of different factors and forces could be based on the opinion of your
colleagues and you could attach greater weight to the opinion of colleagues
with greater expertise. Use your creativity to benefit from this tool.

You can use the remarks column to annotate your ratings. For
instance, consider the first factor in Table 1 (number of competitors). As a
rule of thumb, industries in which the combined market share of the largest
four firms (called 4 firm concentration ratio) exceeds 70% are very
profitable. Concentration ratios between 60%-70% are associated with
 average and those below 60% with low profitability. The 4 firm
concentration ratio in the wide-bodied jetliner industry is 100% and in the
grocery store business almost zero. Thus, you can support the evaluation of
your industry by giving the 4 firm concentration ratio.

Table 1: Rivalry among competitors

Attractiveness Remarks
Low High
1 2 3 4 5
Competitors
Industry
growth
Fixed cost
Differentiati
on
Switching
cost
Openness of
terms of
sales
Excess
capacity
Strategic
stakes
 Table 2: Barriers to exit

Attractiveness Remark
Low High
1 2 3 4 5
Asset
specialization
Cost of exit
Government
Restrictions
 Table 3: Barriers to entry

Attractiveness Remarks
Low High
1 2 3 4 5
Economies
of Scale
Product
differentiatio
n
Brand
identity
Switching
cost
Access to
channels of
distribution
Capital
requirement
Access to
technology
Access to
raw material
Government
protection
 Table 4: Threat from substitutes

Attractiveness Remarks
Low High
1 2 3 4 5
Availability
of
substitutes
Switching
cost
Substitute’s
price-value
Profitability
of the
products of
substitutes
 Table 5: Bargaining power of buyers

Attractiveness Remarks
Low High
1 2 3 4 5
Number of
buyers
Availability
of substitutes
Switching
cost
Buyer’s
threat of
backward
integration
Industry’s
threat of
forward
integration
Contribution
to quality
Contribution
to cost
Buyer’s
profitability
 Table 6: Bargaining power of suppliers

Attractiveness Remark
Low High
1 2 3 4 5
Number of
suppliers
Availability
of substitutes
Switching
cost
Supplier’s
threat of
forward
integration
Industry’s
threat of
backward
integration
Contribution
to quality
Contribution
to cost
Industry’s
importance
to supplier
 Table 7: Government actions

Attractiveness Remark
Low High
1 2 3 4 5
Industry
protector
Industry
regulation
(pollution,
etc.)
Customs and
tariff
restrictions
abroad

Table 8: Overall assessment

Attractiveness Remark
Low High
1 2 3 4 5
Barriers to entry
Rivalry among competitors
Barriers to cut
Power of buyers
Power of suppliers
Threat of substitutes
Government action
Overall attractiveness
 Reference:

Porter Michael R. (1980) Competitive Strategy, New York: The Free Press

How to do Industry Analysis

Objectives

a. The key structural features of the industry

b. The important forces causing them to change
c. Strategic information about competitors

First, obtain an overview

• Who is in the industry?

• Look at published industry studies
• Look at company annual reports

It may also help to get into the field early.

Published sources for Analysis of Industry and Competitors

In general, published information is better if industry is:

• Large
• Old
• Changing slowly

In each source, look for other sources/bibliography

Maintain a thorough bibliography

1. Industry Studies

Some books (often out-of-date)

Securities or Consulting Firms (McKinsey report on food processing;
Arthur D. Little on automobiles; many studies reported in the financial
press written by securities analysts)
Specialized firms (INFAC, EXIM Bank, IDC for IT industry)
Many of these are priced publications

2. Trade & Industry Associations

Some have comprehensive publications – like NASSCOM publishes a

strategic review of the software industry every year
Other active associations. IDMA, ICMA often have directories (e.g. CII has
a comprehensive directory)

3. Trade Magazines

Often a rich source of contemporary information, particularly about new

products and strategic moves
See. For example Express Computer, Dataquest

4. Business Press

The investor-related sections of the Economic Times, Financial Express,

Business Standard and Business Line often report Industry studies. They
also have features on specific companies (e.g. Corporate Dossier of the ET)
The Hindu publishes an annual Survey of Industry.
Problem: Indexing poor; to some extent alleviated by availability of these
publications through the internet.

5. Company Directories

Kothari’s Industrial Yearbook

Prime Investors’ Handbook
Business India Directory of South Indian Companies
Stock Exchange-related publications
Good on basic information; relatively weak on quantitative data

6. Company Documents

Quarterly financial reports

Annual reports
Chairman’s speech at AGM
Website
Advertisements

7. Major Government Sources

Annual Survey of Industry

Economic Survey
Planning Commission reports
MRTF Commission reports

8. Others

Credit rating agencies’ reports – CRISIL, ICRA

Specialized databases like Prowess, IDSS

Gathering Field Data for Industry Analysis

Start by making contact with someone who is knowledgeable about the

Industry but who does not have a competitive or direct economic stake in it.

1. Contacts
Better by telephone, but in India sometimes a letter necessary

2. Lead Time
Give as much time as possible

3. Quid pro quo

What can you offer in return?

4. Affiliation
Need to disclose; serious ethical issues involved
5. Perseverance
Important: often interviewees warm up after interview starts

6. Credibility
Go well prepared, display knowledge subtly

7. Teamwork
Usually better in team of two: eye contact + notes

8. Questions
Ask unbiased questions, don’t “signal”

9. Notes
Write down observations about the process, surroundings, etc.

10. Relationships
Building relationships is critical

11. Formal vs. Informal

Try to move away from work setting?

12. Sensitive data

Start with non-threatening questions; ask for “ball-park” figures

13. Pursuing leads

Ask for suggestions of peace, publications, and conferences

14. Phone interviews: Useful late in a study to fill up gaps