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 1Asahi Beer Profile, 1990

Income(Y) mil

Sales OperatingProfit

CurrentProfit

NetProfit

EarningsPer share

Dividend per Share

December 1987 345,112 3,507 9,388 2,509 Y 9.3 Y 5.0December 1988 544,866 14,547 14,962 4,750 Y15.6 Y 8.0December 1989 655,073 11,124 18,705 6,034 Y16.9 Y 8.0December 1990 730,800 15,059 17,246 6,119 Y 14.8 Y 8.0Financial Data (Y mil, December 1990)Capital stock 125,669Total assets 1,167,200Shareholders’ equity

270,967

Bank borrowings 249,126Number of shareholders

29,845

Sales breakdown (1990Beer 82% (79% in 1987)Soft drinks and other

18% (21% in 1987)

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 2Kirin Beer Profile, 1990

Income(Y mil)

Sales OperatingProfit

CurrentProfit

Net Profit

EarningsPer Share

Dividendper Share

January 1988

1,266,349 69,574 80,824 34,059 Y 37.7 Y 7.5

December 1988

1,178,849 41,077 64,691 29,013 Y 32.1 Y 7.5

December 1989

1,199,804 39,345 64,616 28,270 Y 28.2 Y 7.5

December 1990

1,355,787 63,133 84,919 35,841 Y 35.8 Y 8.0

Financial Data ( Y mil, December 1990)Capital stock

102,004

Total assets 1,205,260Shareholders’ equityBank borrowingsNumber of shareholdersSales Breakdown (1990)

493,06418,091111,975

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 3Sapporo Beer Profile, 1990

Income(Y mil)

Sales Operating Profit

Current Profit

Net Profit

Earnings per Share

Dividend per Share

December 1987

467,046 14,514 13,050 5,250 Y 15.8 Y 6.5

December 1988

489,655 5,011 13,503 6,137 Y 18.4 Y 5.0

December 1989

463,591 -(3,710) 7,454 8,448 Y 25.3 Y 5.0

December 1990

492,628 5,367 8,432 4,006 Y 12.0 Y 5.0

Financial Data (Y mil, December 1990)Capital stock 41,167Total assets 562,849Shareholders’ equity

124,315

Bank borrowings

95,143

Number of shareholders

28,168

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 4Suntory Profile, 1990

Income (Y mil) Sales Net Profit Dividend per Share

Reported per Share

December 1988 630,962 6,795 Y 1.5 7,596December 1989 777,008 6,159 Y 2.5 16,055December 1990 796,445 4,865 Y 1.5 15,009Financial Data (Y mil, December 1990Capital stock 30,000Total assets 1,006,224Net assets 220,507Bank borrowings

426,393

Number of shareholders

50

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, medicineEmployees: 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 RemarksLow High

1 2 3 4 5CompetitorsIndustry growthFixed cost

DifferentiationSwitching costOpenness of terms of salesExcess capacityStrategic stakes

Table 2: Barriers to exit

Attractiveness RemarkLow High

1 2 3 4 5Asset specializationCost of exitGovernment Restrictions

Table 3: Barriers to entry

Attractiveness RemarksLow High

1 2 3 4 5Economies of ScaleProduct differentiationBrand identitySwitching costAccess to channels of distributionCapital requirementAccess to technologyAccess to raw materialGovernment protection

Table 4: Threat from substitutes

Attractiveness RemarksLow High

1 2 3 4 5Availability of substitutesSwitching costSubstitute’s price-valueProfitability of the products of substitutes

Table 5: Bargaining power of buyers

Attractiveness RemarksLow High

1 2 3 4 5Number of buyersAvailability of substitutesSwitching costBuyer’s threat of backward integrationIndustry’s threat of forward integrationContribution to qualityContribution to costBuyer’s profitability

Table 6: Bargaining power of suppliers

Attractiveness RemarkLow High

1 2 3 4 5Number of suppliersAvailability of substitutesSwitching costSupplier’s threat of forward integrationIndustry’s threat of backward integrationContribution to qualityContribution to costIndustry’s importance to supplier

Table 7: Government actions

Attractiveness RemarkLow High

1 2 3 4 5Industry protectorIndustry regulation (pollution, etc.)Customs and tariff restrictions abroad

Table 8: Overall assessment

Attractiveness RemarkLow High

1 2 3 4 5Barriers to entryRivalry among competitorsBarriers to cutPower of buyersPower of suppliersThreat of substitutesGovernment actionOverall 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 industryb. The important forces causing them to changec. 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 yearOther 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 YearbookPrime Investors’ HandbookBusiness India Directory of South Indian CompaniesStock Exchange-related publications

Good on basic information; relatively weak on quantitative data

6. Company Documents

Quarterly financial reportsAnnual reportsChairman’s speech at AGMWebsite Advertisements

7. Major Government Sources

Annual Survey of IndustryEconomic SurveyPlanning Commission reports MRTF Commission reports

8. Others

Credit rating agencies’ reports – CRISIL, ICRASpecialized 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. ContactsBetter by telephone, but in India sometimes a letter necessary

2. Lead TimeGive as much time as possible

3. Quid pro quoWhat can you offer in return?

4. AffiliationNeed to disclose; serious ethical issues involved

5. PerseveranceImportant: often interviewees warm up after interview starts

6. CredibilityGo well prepared, display knowledge subtly

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

8. QuestionsAsk unbiased questions, don’t “signal”

9. NotesWrite down observations about the process, surroundings, etc.

10. RelationshipsBuilding relationships is critical

11. Formal vs. InformalTry to move away from work setting?

12. Sensitive data Start with non-threatening questions; ask for “ball-park” figures

13. Pursuing leadsAsk for suggestions of peace, publications, and conferences

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