Like most Japanese brewers and soft drinks producers, Osaka-based Suntory sees more potential growth overseas. For years, Japan’s beverage companies focused on winning at home—arguably one of the world’s most cutthroat beverage markets. Their strategy was to flood the market with thousands of new products every year, often putting unit sales before profits. But Japan’s population is graying, and analysts expect the beverage market to shrink in coming years.
So now Japanese dring makers want to enter the global markets, but there they will have to compete with the global giants Coca-Cola, PespiCo, AB InBev and Diageo. To improve their chances of survival, Suntory and Kirin Holdings have been discussing since July the possibility of merging to create a $41-billion behemoth. Together, they could fend off hostile bids from would-be acquirers. At home, their alliance could spur a round of consolidation, with Asahi Breweries and Sapporo Holdings seeking out new partnerships, analysts say.
Few analysts question the wisdom of a Suntory-Kirin merger. But it wouldn’t be easy pulling it off: They would be battling their own lack of experience managing a global work force while attempting to combine their operations and cultures. They also seem to have different ideas about which overseas markets hold the most promise. Suntory's investment in Lion Capital and Blackstones Orangina in 2006 would give them a toehold in Western Europe, where it has little presence. (Last October it agreed to acquire New Zealand-based energy drinks maker Frucor from France’s Danone last year.)
Rating agency Fitch said it wasn’t clear how Suntory would benefit from adding Orangina’s soft drinks brands in Europe. Suntory would likely have a tough time selling beer or teas in Europe or importing Orangina and other soft drinks to Japan’s already-crowded market. “If you can’t do anything better than the previous owner what’s the point of making the acquisition?” says Fitch analyst Frederic Grits. (Businessweek)