Team Spirit : The case of Asahi Breweries illustrates how bank rescues of struggling firms help the Japanese economy. But there is no guarantee of success.
Tsutomu Murai is a banker by profession and a specialist in rescuing ailing companies. As a result, three of his last four jobs have been with an auto manufacturer, a brewery company and a railroad.
“Defeat in the war destroyed everything,” Murai said in a recent interview. “Both banks and companies were stripped naked. They had to rescue each other to grow together. It was unavoidable that good communications between banks and corporations developed.”
But if bank rescues of struggling corporations have become a hallmark of the Japanese economy, the experiences of Murai, a former vice president of Sumitomo Bank, indicate that there is no guarantee of success.
Indeed, before he took over Asahi Breweries, which is 12% owned by the Sumitomo Group, two other Sumitomo Bank executives had served as president of the big beer company for a combined 11 years but had failed to halt what ultimately became a 37-year decline in its market share.
Sumitomo’s financial assistance was not needed at Asahi, which, despite its market decline, has never operated at a loss.
But such help was the key factor at Toyo Kogyo, now named Mazda Motor, when Murai was sent there as executive vice president. That move came after the 1973-74 oil shock had transformed the auto firm’s unique rotary engine into a gas-guzzling albatross, plunging the company into red ink.
Loans by Sumitomo, which is a part owner of the auto firm, development of a new fuel-efficient rotary engine, introduction of new models, diversification of export markets and Ford Motor’s purchase of a minority share brought the company back to financial health by 1980.
But the West Japan Railway Co., in which the government still holds 100% of the shares, faces yet another set of problems.
In addition to $8.3 billion in debts, the company, one of seven created in 1987 when the privatization of the unwieldy government-run Japan National Railways began, also has to rid itself of a bureaucratic mentality, said Murai, who became its chairman when the company came into existence.
The one problem common to Mazda, Asahi and West Japan Railway, Murai said, was lethargy. “They were all resting on their oars,” he said. The key at each firm, he added, was to restore vitality.
At its peak in 1949, Asahi’s market share was 36%. When Murai took over in January, 1982, it was 10%. And by 1985, it had fallen to 9%--a plateau at which “companies usually start behaving strangely,” he said.
The industry as a whole was in a morass.
Unlike the United States, with 86 beer brewing companies, Japan has only four, three of them with a century-long history of brewing essentially same beer, according to Hirotaro Higuchi, another Sumitomo banker who succeeded Murai as president of the brewery in August, 1986.
“Kirin is a little more bitter,” Higuchi said in a recent speech, “but all four taste virtually the same. You couldn’t tell the difference if you were blindfolded.”
But when growth in the industry halted in the 1980s, partly because of tax reforms that penalized beer at the expense of other drinks, a traditional belief that changing the taste of beer would invite disaster induced the brewers to focus competition on creating novel containers.
“It approached suicidal proportions,” Higuchi said. The cost of containers rose to as much as 75% of the price of the beer. Customers, he said, would try out a beer in a new container once but then switch to something else.
Murai, who still serves as Asahi’s chairman, started the company’s rejuvenation by carrying out the same kind of reorganization he had implemented at Mazda to promote communication between departments.
‘Didn’t Mimic Products’
He then made Asahi the first beer company to sell malt beer in Japan through a licensing agreement with the West German firm Lowenbrau. Contracts to obtain technology from American, British and German breweries also were signed.
“We didn’t mimic their products,” Higuchi said, “but their knowledge helped our technicians greatly.”
A policy of buying in Japan as much as 70% of the wheat and hops used in beer-making was scrapped in favor of buying the best raw materials--whatever the cost and origin.
“I’ll harass people about the cost of electricity,” Higuchi said, “but not about the cost of raw materials.”
To ensure that its beer remained fresh, Asahi bought back all of its product that had aged, unsold in stores, for more than three months.
“We threw away more than 2 billion yen ($16.7 million) worth of beer,” Higuchi said. (Murai’s estimate of the cost is much lower--but is still about $6.7 million.)
Asahi sales personnel were ordered to visit 50 stores a month, whether they received any new orders or not, to ensure that Asahi beer bottles were kept clean, with their labels in place and that none of the beer was older than three months.
In a market survey that Murai ordered, 98% of beer drinkers “advised us to change the taste of our beer,” Higuchi said. “They said it was no good.”
But the survey also showed that drinkers wanted a beer that was both rich and left no aftertaste, a combination that Asahi’s technicians insisted was chemically impossible.
Murai said he gave the technicians the same advice he handed Mazda’s engineers when they proposed abandoning the gas-guzzling rotary engine: “Nothing is impossible.”
And just as Mazda improved the engine’s fuel consumption, Asahi came up with a new beer that enhanced richness while sharpening the taste.
The result was a new draft beer with a new label that Murai put on the market in 1985. It finally halted the decline in Asahi’s market share, which recovered to 10.4% in 1986. And in March, 1987, the company came up with another new brand--"Super Dry"--by increasing alcoholic content to 5%, compared to 4.5% for other Japanese beers.
Asahi had only $12.5 million--about 30% of the cost of promoting a new product nationally--to spend on advertising, Higuchi said. “So we spent it all in the Tokyo area. People elsewhere learned about it by word of mouth.”
The response was explosive. Now, Super Dry accounts for about 40% of the beer sold in Japan and all four of the big breweries are making it. In the first 10 months of this year, the industry’s overall sales grew 7%--with Asahi reaping the biggest benefits. Its sales rose 71%.
Asahi’s market share has more than doubled in the last two years--to more than 20%, bringing it up even with No. 2 Sapporo. Kirin, the leader, has fallen to slightly more than 50% and Suntory to under 10%.
Super Dry has been such a hit that Murai has been unable to achieve his hope that the company could diversify so that half its sales could be derived from non-beer products. Although Asahi runs 93 subsidiaries, four times the number when Murai took over, beer now accounts for 80% of sales--thanks to the Super Dry boom.
Higuchi made it clear that he has no intention of resting in the glow of the company’s success. In the past two years, he said, Asahi has increased the amount it spends on print media advertising sevenfold and quadrupled its TV advertising.
Murai predicted that Asahi would topple Kirin and gain more than 50% of Japan’s beer market within three years. Kirin, he said, has dominated the industry for so long that it is now “resting on its oars.”
But when asked when he thought West Japan Railways would eliminate its $8.3-billion debt, he would say only, “That’s another subject.”