Kirin Brewery Company Ltd.

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Kirin Brewery Company Ltd.

26-1, Jingumae 6-chome
Shibuya-ku, Tokyo 150

Public Company
Employees: 7,519
Sales: ¥1.225 trillion (US$7.699 billion)
Market value: ¥2.020 trillion (US$12.694 billion)
Stock Index: Tokyo Osaka Nagoya Kyoto Hiroshima
Fukuoka Niigata NASDAQ

Ranking as both the largest brewery in Japan and the third largest in the world, the Kirin Brewery Company Ltd. is internationally renowned. With over 100 years of experience in the brewing business, Kirin now applies its fermentation technology to areas such as plant genetics, pharmaceuticals, and bioengineering. While the brewing operation still remains the core of Kirins activities, the company anticipates a large future market for these research-intensive projects.

William Copeland, a naturalized U.S. citizen of Norwegian descent, arrived in Yokohama in 1864. Japan had recently reopened its ports to Western commerce, and Copeland hoped to make his fortune there. He first established a drayage business and later a dairy firm; both of these ventures were modestly successful. However, in 1869, responding to the large foreign contingents demand for domestically brewed beer (Japan had no brewing industry to speak of at this time), Copeland opened the Spring Valley Brewery. In 1872 Copeland left Yokohama temporarily to search for a bride in Norway; later, he returned with his wife, but she died in 1879. Shortly thereafter Copeland, who seemed dogged by misfortune, found that he lacked the necessary capital to improve and expand the business. By 1884 he closed the brewery and sailed for the United States.

A year later W. H. Talbot and E. Abbott, both foreign entrepreneurs, entered into partnership with two Japanese businessmen, Yonosuke Iwasaki and Eiichi Shibusawa, to reopen Copelands brewery. With sound financial backing, the newly formed Japan Brewery soon became a profitable enterprise. And by 1888, all its beer carried the Kirin label. According to ancient Chinese legend, the Kirin, which is half horse and half dragon, heralds good fortune to those able to catch a glimpse of it.

Although Copelands association with the company that would one day control a major share of the Japanese beer market was relatively short and difficult, he is credited with founding the only Yokohama brewery that has survived until the present with some degree of continuity. Copeland returned to Yokohama during the late 1880s to open the Spring Valley Beer Garden next door to his old brewery. He operated his establishment with a new wife, but it was not a success and he again left Yokohama. He returned once more in 1901 and died a year later. But to this day, employees pay tribute to the founder by leaving cans of Kirin beer at his grave.

Initially, many foreigners were involved with the company: Americans and Englishmen filled the executive ranks while German technicians supervised the brewing process. Over the years, however, their presence gradually diminished. By 1907, when the firm was incorporated under its current name, management had been taken over entirely by the Japanese.

It was not long before Kirin began rapidly to expand; in 1918 the company constructed a brewery in Amagasaki and later built another facility to house the operations of the Toyo Tozo company which Kirin had taken over. On the eve of World War II, Kirin even ran its own bottling factory. Clearly, the novel attraction of beer had developed into a large market demand; the company achieved record sales figures during the mid-1930s.

With the start of World War II, the government imposed strict controls over the entire brewing industry. Sales of Kirin beer dropped drastically. Despite a reduction in operations, however, Kirin established the foundation for its future research and development efforts. In January 1943 the company created the science laboratory at the Yokohama brewery and the research department at the Amagasaki brewery.

Over the years, Kirins research and development activities outgrew the original facilities. Consequently, in order to co-ordinate long-term projects and centralize its scientific investigations, the firm built a new laboratory in Takasaki. The General Research Laboratory, completed in 1967, placed Kirin in the forefront of brewing technology. At Kirins Takasaki laboratory scientists offered the first explanation for the mechanics of diacetyl formation in the brewing process. Based on this discovery, Kirin devised a way to control metabolism during the period of fermentation. Another noteworthy research effort included the development of the Amagi-Nijo strain of malting barley which today commands over a 50% share of the worldwide market. More recently, company bacteriologists have learned how to control a virus known to destroy the bitter flavor of hops.

Sales improved dramatically after the war; during the 1950s the average increase was 17% a year. By the end of the decade, beer had replaced sake as Japans most popular beverage and Kirin had established itself as the nations leading brewery. A little more than 10 years later, Kirins sales figures were exceeded by only one other brewery in the worldthe St. Louis-based Anheuser-Busch company. Much of Kirins success is attributed to its controlling over 60% of Japans beer market which was itself growing by an annual rate of eight percent.

During the early 1970s Kirins management decided to diversify into new areas. A partnership was announced with Joseph E. Seagram & Sons Inc., the U.S. subsidiary of the Montreal-based liquor company; Kirin-Seagram operated a distillery to produce scotch whisky. The company also launched a variety of new soft drinks, and Kirins Lemon Fizz and Orangeade were generating large sales. Later, dairy items and fruit juices were added to its product line. Additionally, using its expertise and knowledge acquired from years of developing fermentation technology, Kirin introduced new drugs to the health care field.

Kirins beer sales reached a record high in 1977. But threatened with an antitrust suit, the company president, Yasusaburo Sato, initiated a temporary program of self-imposed regulation. The plan was to control production, ration distribution, and tone down the advertising campaign. By the following year, Kirin achieved a stabilization in beer sales and still increased revenues because of its successful diversified businesses.

Kirin suffered a setback in the fiscal year of 197980. Following the yens depreciation, import costs for barley and fuel reduced the companys operating profits by 22.2%. Moreover, the increased price of domestic barley and wheat, which Japanese brewers are forced to use by government decree, contributed to Kirins unimpressive performance. The company had to raise the price of its beer; two years later Kirin reported an increase in operating profits.

Kirin had been deterred from selling its beer in foreign markets because of high transportation costs. But in the early 1980s a licensing contract was arranged with Heineken N.V., the Netherlands-based brewing company, whereby Kirin produced Heineken for the Japanese market and Heineken produced Kirin for the Dutch market.

As Japanese cuisine became popular with Americans, the demand for Kirin beer increased. The firm established the Cherry Company Ltd., a wholly owned subsidiary in Hawaii to supervise Kirins U.S. market distribution. Kirin USA was then established in New York to promote sales.

By 1986 Kirins international operations encompassed Europe, North America, South America, Asia, and Australia. In West Germany, Kirin contracted Krones A.G. to market empty bottle inspection machinery. (This equipment marked the introduction of intelligent robots to the brewing industry.) In Brazil, Kirin holds a majority interest in a food and beverage company; in China, the company is constructing a soft drink production factory; in Australia, the Kirin Australia Pty. Ltd. subsidiary manufactures and supplies Kirin products to the Australian market.

In the 1980s, management initiated major changes in Kirins research and development program. The companys laboratory was divided and reorganized along three major fields of investigationbrewing science, pharmaceuticals, and plant bioengineering. New departments were also added at the administrative level to coordinate fund-raising activities for research projects.

Lately, a number of joint ventures established with American companies have increased Kirins participation in the field of biotechnology. In 1984 Kirin completed a 5050 venture with Amgen, a California-based company, to develop and market a synthetic human hormone to treat anemia. This pharmaceutical, called Erythropoietin, was created to help patients undergoing kidney dialysis. In the past, many patients commonly became anemic and required blood transfusions during treatment. Another potential application is as a drug for cancer patients suffering blood-cell reduction from chemotherapy. Kirin also combined its resources with an agricultural biotechnology company, Plant Genetics Inc. Together, the partners plan to develop synthetic seeds for a variety of agricultural products.

Kirins most recent expansion activity includes a successful chain of beer pubs called Kirin City. Started in the Roppongi district in 1983, the company now controls 11 pubs across Japan. Similarly, the Kirin Food Service Company Ltd., another recently established subsidiary, operates a restaurant franchise. Kirin has also constructed a number of health clubs and sports complexes across the nation. The latest addition to Kirins list of subsidiaries is the Flower Gate company which produces African violets developed by an innovative tissue culture process.

According to industry analysts, Kirins profits will continue to rise with the purchase of inexpensive raw materials from overseas and the growth of the companys diversification program. While the company actively pursues a wide variety of applications for its biotechnological investigations, the business of brewing beer will remain the most important of its operations.

Principal Subsidiaries

Kirin-Seagram Ltd. (50%); Kirin Lemon Services Co., Ltd.; Hokkaido Kirin Lemon Service Co., Ltd.; Tsurumi Warehouse Co., Ltd.; Nagano Tomato Co., Ltd.; Koisai Products Co., Ltd.; Kirin Echo Co., Ltd.; KCB Food Service Co., Ltd.; Serealia Co., Ltd.; Kinki Coca-Cola Bottling Co., Ltd.; Kirin City; Kirin Food Service Co., Ltd.; Flower Gate Inc.; Kirin Sports Club; Kirins Seaside Tennis Club; The Cherry Co., Ltd. (Hawaii); Kirin USA; KW Inc.; Industria Agricola Tozan SA (Brazil); Kirin Australia Pty., Ltd. (Australia); KBB Malting Company Pty., Ltd.