Mass-market sake brewers fight bad image

The president of Japan’s fourth largest sake brewer, Ozeki Corp., believes his industry has to look close to home for the reasons for its long-term decline.

"The public's opinion of sake has fallen," says Sadayoshi Nishikawa, 59. "The industry itself is probably responsible for more than half the fall in demand."

Recent sales figures have, in fact, brought a ray of sunlight for a sector that has got used to dreadful performance over more than a decade.

In May, the Japan Sake and Shochu Makers Association reported that sake shipments increased 1.2 percent in 2011 compared with the previous year. It was the first rise in 16 years, and seemed to have been largely driven by campaigns promoting sake from the quake-hit Tohoku region.

But for Japan's mass-market sake brewers, the 16 major producers centered around Nada in Hyogo Prefecture and Fushimi in Kyoto that controlled just over half of the sake market in fiscal 2010, it will take more than a one-year bump in sales to shift the pessimism.

"The market is shrinking. It is a tough business environment," says Kenji Kano, 40, president of the country's biggest brewer Hakutsuru Sake of Higashinada Ward, Kobe City. Though Hakutsuru's annual sales increased slightly to 34.5 billion yen ($430 million) in fiscal 2011, they are still only at two-thirds of the peak 30 years ago.

Since changes to the regulatory environment in the 1990s that abolished a licensing system limiting liquor licenses according to the populations of localities, Japan's alcohol market has been opened up, with many supermarkets and convenience stores now selling sake, but that liberalization has not helped the mass-market producers.

Haruhiko Okura, president of the industry's number-two player Gekkeikan Sake Co., admits frankly that many modern consumers are biased against his cheaper brands.

"It has become commonplace for sake sold in cardboard cartons by major brewers to be judged as low-grade, while (people) consider locally brewed sake to be top quality," he says.

Among other concessions, major brewers have been forced to increase the volume of sake in their cartons from 1.8 to 2 liters without raising prices.

There are also grumblings about the industry's classification system.

The government used to tax sake according to a crudely hierarchical grading system, in which drinks were classified as "special grade," "grade one" and "grade two," but that system was abolished when the Liquor Tax Act was reformed in 1992 and the tax rate unified.

That, of course, means that the mass-market sake has no tax advantage over better quality brews and industry watchers also complain that the new system is difficult for consumers to understand. Drinkers have to get their heads around eight "special designations."

Classifications such as "honjozo" and "junmai" (pure rice) indicate whether brewing alcohol has been added, and further sub-classifications such as "ginjo" show how much the rice was polished before brewing. Jargon such as "yamahai" and "jyosen" further complicate the buying decision.

Akira Mandokoro, 47, chief editor for the industry paper Shuhan News, who has been covering the industry for 25 years, says: "Consumers have become alienated due to the use of difficult terms similar to those found in an insurance contract. This is the result of an industry that has tended toward self-satisfaction."

Another factor in the decline in sales, say some industry insiders, has been a conscious policy of keeping firms with sophisticated approaches to promotion and large marketing budgets out of the sector.

An executive of one major sake brewer said: "I heard that in order to protect small and medium-sized sake brewers, the former government didn't grant sake permits to major beer brewers."

Nevertheless, the big players are fighting back. Last year, the No. 3 maker, Takara Shuzo Co., launched Mio, a sparkling sake, and in March this year Ozeki began selling Cold Ozeki, a lower-alcohol sake sold in cans. The company says the brand, with only 7 percent alcohol, has been well received in the under-40 target market and sales are exceeding expectations.

Eleven major brewers in Hyogo and Kyoto established the "Japanese Sake is Delicious!" promotion committee in 2011 and have been promoting the audacious idea of drinking sake with lime juice and ice, a cocktail dubbed the Samurai Rock.

"We must be prepared to offer products in the manner in which young people want to drink them," says Hakutsuru president Kano.

Convenience store chain Seven-Eleven Japan reported that sales of sake rose 2 percent in 2011 from the previous year and recommended stores increase refrigerator space for the drink from one shelf to two this spring.

But Naoki Okada, senior merchandizer in the company's product division, stresses that innovation will be critical to a sustained revival.

"I have started to request that sake brewers develop innovative new products that take appearance, flavor, volume and other factors into consideration," he says.

Kirin Holdings, which has no significant presence in the sake market in Japan, has a sake subsidiary in Brazil where Sake-Pirinha, a cocktail combining sake with fruits like kiwifruit and strawberries, has been popular for over a decade. Due to the cocktail's popularity, shipments to Brazil from Gekkeikan Sake's brewery in the United States are increasing.

Gekkeikan president Okura says: "We must not think stubbornly that Japanese sake is this or that, what is important is making what the consumer wants."