Asahi Breweries Ltd SWOT Company Analysis Report

Asahi Breweries Ltd SWOT Company Analysis Report

 

Asahi Breweries Ltd

Strategic Evaluation

Swot analysis

Strengths

·         The change of management over the last few years has fostered strong cost competitiveness, the ability to respond flexibly to changing market environments and high profitability.

·         Brand extension and health-related product innovation will contribute to the soft drinks business exploiting dynamic new and existing markets.

·         Asahi has been consistent in implementing its business strategies by strengthening its core brands, focusing on marketing and sales and reforming of its production.

·         Market entry to China and South Korea in recent years is expected to bear fruit in the years to come. Its global shares in the soft drinks market are likely to grow over the long run through its expanding operation in these countries.

Weaknesses

·         The company's strong reliance on the Japanese market and its limited global presence affect its current global market position.

·         Competitors such as Suntory and Kirin have been able to gain valuable footholds in dynamic markets both within and outside Japan due to Asahi's relatively slow response to entry, a problem the company will need to overcome.

·         The company's expansion in the soft drinks business relies on the cash generated from the beer business and this can be a challenge as the consumption of beer has peaked and the competition is fierce in the beer market in Japan.

Opportunities

·         Group synergies and consolidation of the brewing and soft drinks divisions will drive down production costs and allow more resources targeting the soft drinks portfolio.

·         Functional soft drinks will continue to offer growth potential in Japan. Given the strong research and development in functional products such as RTD tea, Asahi will continue launching niche products to maintain its position in the soft drinks market.

·         With strong links and production facilities in Asia (especially China) and North America, Asahi's brewing division is well placed to similarly extend the company's soft drinks products in these particular regions over the long run. In the short to medium term, the establishment of Tingyi-Asahi-Itochu Beverage Holding (TAI) in China and the consolidation of Haitai Beverage Co Ltd (Haitai) in South Korea will offer Asahi a great opportunity to expand revenue stream at a group level and a platform to grow in these high-growth markets.

Threats

·         Product innovation and brand extension by rival companies, particularly The Coca-Cola Company, Kirin and Suntory, is intensifying in the already highly competitive Japanese marketplace.

·         The maturity of the soft drinks market and the competitive landscape makes product launches increasingly costly and potentially squeezes the profit margin.

Prospects for the Soft Drinks Business

·         Being one of the major players in Japan, Asahi is in a good position to benefit from the compound annual growth rate (CAGR) of 2% by volume over the 2005-2010 period despite the maturity of the soft drinks market. The change of consumption pattern of beverages means that Asahi still has the opportunity to grow its sales of soft drinks on the back of the sustainable beer business.

·         With regard to growth categories, bottled water and RTD tea in Japan are each set to see a strong volume CAGR of around 5% over the 2005-2010 period. The successful launch of natural mineral water recently and the consistent performance in market share terms mean that Asahi will continue to exploit the high-growth sectors in the years to come.

·         The undergoing group synergies and cost cutting may improve operational efficiency during the medium to long term. These group activities will eventually benefit the operations of both its alcoholic and soft drinks businesses which make the businesses more sustainable and competitive in Japan.

·         Furthermore, Japan is experiencing a falling birth rate and an ageing population. The population, now at about 120 million, is expected to slip to 100 million or less by 2050. This means that elderly citizens, who tend not to be big drinkers, will make up a large portion of the population while the bigger-drinking younger generations will account for a smaller percentage. As a result and in theory functional drinks will prosper.

·         Although Asahi appeared cautious in expanding its soft drinks business overseas compared to its Japanese counterparts, the recent strategic partnerships in China and the consolidation of Haitai in South Korea have signalled Asahi's long-term strategy in overseas expansion. Currently, Asahi has no concrete plans to launch products under the Asahi brand on a large scale in overseas markets, as the company's immediate priority is to expand sales and profits of TAI and Haitai. Corporate takeover and brand acquisition are likely to be part of strategies adopted by local partners to expand market shares.

·         Currently, Asahi has no immediate plan to expand its soft drinks business beyond South Korea and China in Asia. However, it is not impossible the company will leverage its operations for beer in Thailand for its regional expansion of its soft drinks business in the long term. Asahi's active movement in the beer market in the UK also signals the company's ambition to become a true global player in the beverages market. It remains to be seen how the company enters these markets.