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Brooklyn Brewery Is Kirin’s Ticket To Win Craft-Beer Share

Published on Oct 13 2016 9:03 AM in Drinks tagged: Trending Posts / Beer / Japan / Kirin / Brooklyn

Brooklyn Brewery Is Kirin’s Ticket To Win Craft-Beer Share

A trans-Pacific deal to spread the taste of Brooklyn’s best-known beer globally was inspired by a few chugs of lager in a New York City bar.

Kazuya Horimi, a manager of international business development at Kirin Holdings Co., was on a company-sponsored study trip to Philadelphia when a side excursion led to his first taste of Brooklyn Lager. By January, Horimi was visiting Brooklyn Brewery’s facilities in the New York borough of the same name and setting a partnership in motion.

Kirin, Japan’s second-biggest brewer, will acquire a stake of about 25 percent in Brooklyn Brewery for an undisclosed sum, the companies said Wednesday. They will form a Japanese joint venture in January 2017 to roll out the Brooklyn brand in the country, and also plan to expand to Brazil.

The deal marks a rare investment by an Asian company in the $22 billion U.S. craft beer industry. Japanese breweries including Kirin, which is trying to bounce back from its first annual loss since 1949, have been experimenting with specialty brews as craft beer gains popularity in the country. It’s one of the few bright spots for the industry in Japan, where a declining population has seen consumption slump since 2001.

Despite falling beer consumption in Japan, the demand for premium brews which includes craft beer will continue to grow, Robin Ottaway said in a telephone interview Thursday. Craft beer is now less than 1 percent of the overall beer market in Japan, he said.

“In other parts of the world, craft is growing much more rapidly,” said Ottaway, who attended a briefing with Kirin in Tokyo on Wednesday. “Japanese beer is controlled by the big breweries. Unless one of them embraces craft, it wasn’t going to break through -- now Kirin has.”

Craft Popularity

Under the deal, privately held Brooklyn Brewery will issue new shares to Kirin Brewery, and the U.S. company will remain independent with its management intact. The companies are also considering developing original products for the Japanese market and starting a restaurant business.

Kirin fell 0.2 percent to 1,681 yen at the mid-day break in Tokyo trading on Thursday, after rising as much as 1 percent earlier. The brewer’s share have gained 2.3 percent this year through Wednesday, compared with the benchmark Topix’s 13 percent drop.

Brooklyn Brewery is the 12th-largest U.S. craft-beer maker based on 2015 sales volume, according to the Brewers Association. In the U.S., craft breweries produced 24.5 million barrels of beer last year and posted $22.3 billion in retail sales, a 16 percent increase from a year earlier, according to the group.

New Breweries

Brooklyn Brewery was co-founded by chairman Steve Hindy, a former war correspondent for the Associated Press who was introduced to home-brewed beers in the early 1980s while working in Islamic countries where alcoholic drinks were banned. He began brewing in his Brooklyn home, took on a neighbor as a partner, and together raised $500,000 from family and friends to start the brewery in 1988.

David Ottaway, a former Washington Post reporter and friend of Hindy’s, was another early investor in Brooklyn Brewery. His sons Robin, the president, and Eric, who’s the chief executive officer, together own a majority share of the company.

The company will use the investment from Kirin to build a new beer-making facility in New York, allowing it to brew all of the beer it sells in the U.S. in-house, Robin Ottawa said in the interview. In Japan, Brooklyn’s beers are already available for sale and the deal with Kirin will help them to reach more locals, he said.

Opening Pubs

The Brooklyn Brewery deal follows Kirin’s purchase of a 33 percent stake in Japanese craft label Yo-Ho Brewing Co. in 2014. To draw patrons of specialty beers, Kirin opened two brewpubs last year where beer is brewed on site.

“Craft beer is where the growth is,” said Bloomberg Intelligence analyst Duncan Fox. “Consumers want beer to taste of something, and I’ve been told that Brooklyn -- by an American -- is the best. It’s probably one of the largest still available as AB InBev, Molson Coors and SABMiller have been scooping them up regularly over the last few years.”

Brooklyn Brewery, which last month announced a distribution agreement with Carlsberg A/S in the U.K., is the latest craft-beer maker to attract investment from overseas as larger brewers seek entry into the U.S.’s fastest-growing beer market.

“Brooklyn has been one of the more successful U.S. craft brewers establishing themselves outside of their home territory,” Trevor Stirling, an analyst at Sanford C. Bernstein & Co., said by phone. “It must be a concern for Carlsberg, which distributes Brooklyn in Europe, as 25 percent of their partner is now owned by a competitor.”

Brazil Loss

Kirin is competing against some of the world’s largest breweries for a chance to buy a stake in Saigon Beer Alcohol Beverage Corp., Vietnam’s top brewer. Yet Kirin’s overseas expansion hasn’t always worked out, and its loss in 2015 was due to an impairment on its money-losing Brazilian business.

It’s still keen on growing in Brazil and plans to expand the Brooklyn Brewery brand in the South American country, with details of the business and its roll-out still being discussed, according to Kirin’s statement.

Closer to home, Kirin isn’t alone in jumping on the craft-beer bandwagon. Its three biggest Japanese competitors -- Asahi Group Holdings Ltd., Suntory Holdings Ltd. and Sapporo Holdings Ltd. -- have all sought to invest in craft beers amid their rising popularity in Japan and worldwide. Asahi group president Akiyoshi Koji said he sees potential to boost sales of its Super Dry beer in the U.S. to target craft-beer aficionados.

“The current beer market is in a transition period,” Takayuki Fuse, president of Kirin Brewery, said at Wednesday’s briefing. “We need to vitalize the market, need to make it attractive, or there’s no future.”

News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.

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