Sapporo Breweries
Corporate History & Strategy

Japanese beer brewing began in 1876 with the Kaitakushi Beer Brewery established by the Meiji government as part of its Hokkaido colonization efforts. The government invited technicians from Germany to begin state-run production, and this brewery was later privatized and reorganized in 1887 as Sapporo Beer Company under the Okura zaibatsu. Sapporo Beer early on opened distribution channels to Tokyo and successfully cultivated Hokkaido-grown hops, establishing its foundation as a first mover in both raw materials and production.

In Tokyo in 1889, Japan Beer Brewing Company built a brewery in Shibuya-mura (present-day Mita, Meguro-ku) and launched 'Yebisu Beer' the following year. Yebisu penetrated the market tied to urban consumption and recorded industry-leading shipments by 1896. In Osaka, Osaka Beer developed 'Asahi Beer' from its Suita base, capturing demand in the Kansai region.

Thus by the late Meiji period, a structure emerged in which three companies centered on Sapporo, Tokyo, and Osaka divided the market by region. However, as new entrants and capital expenditure competition accompanied demand expansion, maintaining profitability and managing investment burdens became challenges for each company.

In March 1906, Sapporo Beer, Japan Beer, and Osaka Beer merged to establish Dai Nippon Breweries Co., Ltd. This merger was not a pursuit of scale but an industrial reorganization aimed at settling an overheated competitive structure and stabilizing supply and profitability.

The merger unified production bases stretching from Hokkaido to Kansai, building a supply and sales system covering the entire nation. The wide geographic distribution of factories enhanced logistics efficiency and market reach, establishing the largest beer company in Japan in both volume and coverage.

The major brands 'Sapporo,' 'Yebisu,' and 'Asahi' were not consolidated but maintained in parallel according to region and consumer segment. Operating multiple brands within a single company and absorbing demand fluctuations internally was the defining characteristic of the post-merger business structure.

Through the three-company merger, Dai Nippon Breweries came to hold approximately 77% of the domestic beer market, with competition effectively limited to Kirin Beer alone. Holding the three major brands under its umbrella, the company maintained control over production and distribution throughout the prewar period.

This concentration brought supply stability and capital expenditure efficiency, but also carried the aspect of suppressing market competition. During wartime, beer became subject to rationing, and in 1943 brand usage was discontinued, as Dai Nippon Breweries was incorporated into the controlled economy.

Postwar, this market concentration became a target of economic democratization. Although Dai Nippon Breweries was not a zaibatsu, the Excessive Concentration of Economic Power Elimination Law was applied due to its high market concentration in beer, a nationally consumed product, and in 1949 it was split into Asahi Breweries and Nippon Beer. The merger aimed at market stability followed a trajectory where it formed the premise for its own dissolution.

Dai Nippon Breweries, established through the 1906 three-company merger, was an oligopolistic enterprise holding approximately 77% of the domestic beer market throughout the prewar period. With the major brands 'Sapporo,' 'Yebisu,' and 'Asahi' under its umbrella, its integrated system of nationwide production and sales resulted in a structure that limited competition to Kirin Beer alone.

Postwar, GHQ adopted a policy of fostering competitive environments in economic operations and suppressing market concentration in specific enterprises. Although Dai Nippon Breweries was not a zaibatsu, its high concentration in the beer market—a nationally consumed product—was deemed problematic, and it was designated for application of the Excessive Concentration of Economic Power Elimination Law.

Under the occupation policy, the efficiency achieved through market integration was redefined as concentration that should be separated. For Dai Nippon Breweries, it was a juncture requiring the dismantling of the integrated operating model built over many years and competing in the market as individual post-breakup companies.

On September 1, 1949, Dai Nippon Breweries was dissolved, and two companies—Asahi Breweries and Nippon Beer—were launched. This was not a voluntary reorganization but an institutional decision based on occupation policy.

In the breakup, production facilities were allocated by region. Nippon Beer inherited the Meguro, Kawaguchi, Sapporo, and Nagoya factories, with eastern Japan and Hokkaido as its base. Asahi Breweries inherited the Suita, Nishinomiya, and Hakata factories, adopting a structure centered on western Japan. Production capacity was divided roughly equally.

Regarding brands, Nippon Beer inherited 'Sapporo Beer' and 'Yebisu Beer,' while Asahi Breweries inherited 'Asahi Beer.' Management resources that had been complementary under the integrated structure would now need to demonstrate competitive strength independently after the breakup.

After the breakup, Nippon Beer did not immediately use the prewar-recognized 'Sapporo' and 'Yebisu' brands, instead entering the market with the new brand 'Nippon Beer.' The intent was to build a new nationally unified brand, but the name—unconnected to prewar memories—failed to penetrate with both consumers and distributors.

At the point of sale, explaining the relationship to the former brands created friction, and awareness building took time. Meanwhile, Kirin Beer maintained its single prewar brand and expanded distribution focused on the household market, with the gap between the two companies widening as demand structures shifted.

As a result, Nippon Beer's domestic market share continued to decline, reaching 27.1% and third place in the industry by 1956. Even after reviving the Sapporo Beer trademark in 1957, this ranking remained fixed, and the 1949 breakup and subsequent brand decisions became the starting point that determined Sapporo's long-term market position.

Following the company breakup in September 1949, Nippon Beer restarted as a new company independent of the former Dai Nippon Breweries. With a product strategy befitting the postwar new order required, management was forced to make a brand selection decision for the first product launch.

Nippon Beer had inherited the prewar heritage assets of 'Sapporo Beer' and 'Yebisu Beer.' However, the ideal of distancing from memories of the old order in the postwar market and building a unified brand with national reach led the management decision. There was also an aim to consolidate brand awareness that varied by region into one and improve sales efficiency.

Meanwhile, in the prewar beer market, brand establishment had advanced on a regional basis. In Hokkaido and Tohoku, 'Sapporo Beer' was deeply rooted with both consumers and distributors, functioning as a criterion for product selection. In Kanto, 'Yebisu Beer' was similarly established. The new brand was one that did not connect with these existing recognition structures.

In December 1949, Nippon Beer launched the new brand 'Nippon Beer.' It was a decision to enter the national market under a new name rather than reviving Sapporo and Yebisu.

After launch, the lack of market recognition quickly became apparent. Unable to win brand-loyal purchases, sales representatives routinely had to explain 'we're the former Sapporo.' Director Kurato Uchida repeatedly advocated for reviving Sapporo Beer based on sales realities, but President Kiyoshi Shibata refused to change course. He cited the example of bank name changes, indicating his belief that adoption of the new name was possible.

As a result, Nippon Beer deferred correction of its brand strategy until the mid-1950s. A stance of waiting for market penetration without utilizing the asset of existing brand recognition was adopted, and the gap with competitors widened over time.

Nippon Beer continued to struggle in sales, and Nippon Beer's share declined consistently. By 1956, share had fallen to 27.1%, confirming third place in the industry. Internally, this situation came to be called 'Shibata's great miscalculation.'

Changes in market structure also had an impact. As the center of beer consumption shifted from restaurants to households, Kirin Beer focused on expanding household distribution channels, growing share through retail and mass-market stores. Nippon Beer remained centered on restaurant sales and failed to adapt to the shift in consumption structure.

The failure of the Nippon Beer strategy is a case illustrating the relationship between new brand building and existing recognition. Building a new brand requires time and investment, but the cost of severing the connection to existing memory was underestimated. The market position lost through this decision was never recovered even after the Sapporo Beer trademark revival.

By the mid-1950s, Nippon Beer was beginning to recognize the limits of selling under the 'Nippon Beer' brand. Despite several years on the market, Nippon Beer had failed to sufficiently win consumers' brand-loyal purchases and could not compete against brand preferences based on prewar memory.

The problem was particularly acute in Hokkaido. 'Sapporo Beer' had deeply penetrated the region in the prewar era, tied to local identity, and Nippon Beer was not accepted as a substitute. At the point of sale, the supplementary explanation 'we're the former Sapporo' had become routine, reducing sales efficiency.

In the Tokyo area as well, the memory of 'Yebisu Beer,' which had been established prewar primarily in the shitamachi districts, remained, but Nippon Beer did not connect with it. Consumers strengthened their tendency to return to known brands, and brand-loyal purchases of Kirin Beer, recognized as a nationally unified brand, expanded.

Around 1955, Nippon Beer revived the 'Sapporo Beer' brand in parallel on a limited basis in Hokkaido. This was not a decision organized as a company-wide policy but a response to requests from prominent wholesalers and the realities of the sales front. The result was clear—within just one month of revival, Hokkaido sales switched entirely to Sapporo Beer, with volumes recovering immediately.

Based on this outcome, the policy of continuing with Nippon Beer was forced into revision. The limited regional trial had proven the strength of brand recognition with numbers, making national rollout a realistic option. In March 1957, Nippon Beer revived the 'Sapporo Beer' trademark nationwide.

In 1964, the company name was also changed from Nippon Beer to Sapporo Breweries, aligning the brand name with the corporate name. This was a measure aimed at eliminating the disconnect between brand and company name and improving sales efficiency and market recognition.

The revival of the Sapporo Beer trademark resolved the confusion at the point of sale to a certain extent. However, market share recovery was not achieved. During the approximately eight years it took for revival, Kirin Beer had advanced capital investment nationwide and expanded household distribution, widening the gap in both supply infrastructure and consumer touchpoints.

The revival of 'Yebisu Beer' remained deferred. Because the top executive maintained a negative stance toward reintroduction, brand recovery in the Tokyo market was delayed. Yebisu Beer would not return to the market until 1971—14 years after the Sapporo revival and 22 years after the Nippon Beer launch.

The Sapporo Beer trademark revival was a necessary correction but was insufficient to make up for lost time. The market structure that had become fixed during the Nippon Beer period was maintained as is, and Sapporo would remain at its third-place position for the next half century without ever breaking free.

In 1889, Japan Beer Brewing Company built a brewery in Shibuya-mura (present-day Mita, Meguro-ku). It was a location chosen for water sources and logistics, and production of 'Yebisu Beer' began the following year. Yebisu grew tied to urban demand, eventually achieving such a presence that the factory name became established as the place name 'Ebisu.'

However, over 100 years Tokyo expanded, and the area around the factory became residential and commercial. The Ebisu factory, having lost room for expansion, saw equipment aging and production efficiency decline become apparent by the 1980s. With the beer business stagnating at around 20% market share, the rationale for investing in factory modernization had faded.

During the same period, a redevelopment plan for the Ebisu district was taking shape in Tokyo. The factory site attracted attention as a prime location for large-scale development in central Tokyo, and reconsideration of land use was being demanded from both government and private sectors. While its rationality as a production site retreated, its asset value as real estate came to the fore.

In 1986, Sapporo Breweries decided to close the Ebisu factory and transfer functions to the Chiba factory. Simultaneously, it established Yebisu Development Co., Ltd. to handle the site redevelopment and began utilizing the land. This decision went beyond relocation of a production base—it was a business transformation to reconstruct held real estate as an earnings base.

In the development, residential areas were sold as condominiums, while office and commercial facilities were retained and managed by the company rather than sold. This was a decision choosing long-term rental income over short-term sale proceeds, and can be understood as Sapporo's full-scale entry into the real estate rental business at this point.

The then-president Yoshitaka Takakuwa expressed the view that the intent was to 'utilize the assets inherited from predecessors in the best way currently conceivable and pass them on to successors,' revealing that the philosophy of operating rather than selling the land and passing it to the next generation underlay the decision-making.

In October 1994, the mixed-use complex 'Yebisu Garden Place,' comprising offices, commercial facilities, residences, and a hotel, opened on the former Ebisu factory site. Condominium sales in the residential area proceeded as planned, and the office and commercial portions became established as assets generating stable rental income under Sapporo's continued ownership.

As a result, Sapporo secured a revenue source independent of the beer business and enhanced cash flow stability. The real estate business came to account for more than half of consolidated profits, forming a structure in which real estate earnings masked the beer business's stagnation.

On the other hand, the structure of holding large-scale real estate on the balance sheet relative to revenue scale harbored challenges from a capital efficiency perspective. The weight of 'held asset value' in enterprise value increased, and the company took on a character resembling an asset management company despite being an operating company. This structure became a contributing factor in attracting activist investor attention from the 2000s onward.

In the 2000s, Sapporo Holdings had a structural distortion in its earnings structure. More than half of consolidated operating profit was generated by the real estate business, supplemented by the alcoholic beverages business, while the beverage and restaurant businesses continued at low profitability or losses. Although consolidated profitability was maintained, the source of profits was rental income centered on Yebisu Garden Place.

As the real estate business continued to supply stable cash flows, the reorganization of unprofitable businesses such as beverages and restaurants had been deferred. While the asset base expanded, growth in business earnings remained limited, and when compared with industry peers on ROE and ROIC, the low capital efficiency stood out.

From the perspective of external investors, this structure represented clear room for improvement. As a company where the balance sheet scale outpaced business value and where asset reallocation could improve profitability, Sapporo HD was ripe for attention.

In October 2004, Steel Partners disclosed holding 5.13% of Sapporo HD shares. The initial stated purpose was 'pure investment,' but as buying continued, by January 2007 the holding ratio had reached 18.13% and the purpose was changed to 'important proposal activities.'

Steel made an acquisition proposal contemplating acquisition of up to 66% of voting rights, presenting improvement measures including external partnerships for the beverage business, improving alcoholic beverages factory utilization rates, and introducing external capital to the real estate business. It was a proposal emphasizing asset turnover and monetization rather than continued asset holding—a direct challenge to Sapporo HD's capital efficiency.

Sapporo HD's management maintained its takeover defense measures and countered with questionnaires and the engagement of financial advisors. Simultaneously, it concluded a business and capital alliance with Morgan Stanley, selling 15% of Yebisu Garden Place shares (trust beneficiary rights) to a Morgan Stanley-managed investment fund for approximately ¥50 billion to secure stable shareholders and reduce Steel's acquisition incentive.

In February 2008, the special committee published the view that Steel's share acquisition risked damaging corporate value, and the acquisition proposal effectively collapsed. Steel lowered its acquisition target from 66% to 33% but negotiations did not progress, and compounded by deteriorating market conditions after the Lehman crisis, Steel sold all its shares and withdrew by 2010.

Sapporo HD blocked the acquisition, but in the process, the company's structural challenges became visible to the capital markets. The point that despite holding large-scale assets centered on real estate, the company could not convert them into earnings growth—namely, low capital efficiency—became established as the core issue in corporate valuation.

The acquisition did not materialize, but the question Steel posed—the difference between 'holding' assets and 'turning them over'—remained as a long-term challenge for Sapporo HD's management. And this question would be raised again in virtually the same form 16 years later through 3D Investment's shareholder proposal.

In 2007, Steel Partners had accumulated over 18% of Sapporo HD shares and made an acquisition proposal, forcing management to develop concrete defensive measures. Maintaining the takeover defense and buying time through questionnaires alone was insufficient, and a response that would undermine Steel's acquisition motivation itself was required.

The primary reason Steel had focused on Sapporo HD was the asset value of held real estate, exemplified by Yebisu Garden Place. If this real estate value could be dispersed externally, the economic rationale of the acquisition could be reduced—this judgment became the design philosophy of the alliance.

In October 2007, Sapporo HD concluded a 'strategic business and capital alliance' with Morgan Stanley. The centerpiece of the business alliance was the sale of 15% of shares (trust beneficiary rights) in its wholly-owned subsidiary Yebisu Garden Place to an investment fund managed by Morgan Stanley for ¥50 billion. As a capital alliance, a plan was presented for Morgan Stanley to gradually acquire up to 5% of Sapporo HD shares.

The stated reason was enhancing real estate value, but the substance was a defensive measure to simultaneously disperse the real estate assets targeted by Steel to an external party and secure stable shareholders. The public announcement of future share acquisition was also presumed to aim at pushing up the Sapporo HD share price and increasing Steel's acquisition costs.

However, the capital alliance did not proceed as planned. Morgan Stanley's share acquisition stood at only 1.8% as of July 2009, far short of the 5% target. When Steel announced its withdrawal from the acquisition in February 2009, the premise of the alliance dissolved, and Morgan Stanley announced the cessation of share acquisitions.

In March 2012, Sapporo HD repurchased the 15% Yebisu Garden Place shares for ¥40.5 billion, restoring its wholly-owned subsidiary status. The alliance was simultaneously formally dissolved. The series of transactions—selling for ¥50 billion and repurchasing for ¥40.5 billion—embodied the cost of the defense measure, while the business structure itself remained entirely unchanged.

Throughout the 2000s, Sapporo HD had high dependence on the alcoholic beverages business, and its beverage business was undersized compared to competitors. As the beer market contracted, business diversification was recognized as a management issue, but self-directed expansion of the beverage business had its limits.

What emerged was Pokka Corporation. The company was in the midst of restructuring under private equity firm Advantage Partners and was seeking a buyer. Its most recent performance was revenue of ¥22.3 billion with a net loss of ¥810 million, but it held a product lineup including canned coffee and soups and a nationwide vending machine network.

For Sapporo HD, acquiring Pokka was a means of obtaining a beverage business foundation externally in one transaction. Acquiring existing products, distribution channels, and production facilities for integration was judged more rational in terms of time and certainty than building a business from scratch.

In March 2011, Sapporo HD acquired 98.59% of Pokka Corporation shares for ¥34.8 billion. Of the acquisition cost, ¥18.4 billion was recorded as goodwill. After the acquisition, it was integrated with the existing beverage business to establish subsidiary 'Pokka Sapporo Food & Beverage.'

Beyond the acquisition, Sapporo HD continued aggressive capital investment in the food and beverage business over the following 10 years. This included construction of a third factory at the Nagoya plant, expansion and second factory construction at the Gunma plant, construction of the Sendai plant, plus factory expansion in Malaysia and Indonesia. Cumulative capital expenditure from FY2012 to FY2019 reached ¥58.6 billion.

Combined with the ¥34.8 billion acquisition price, total invested capital in the food and beverage business reached ¥93.4 billion. At approximately ¥7 billion per year in capital expenditure, this was a resource allocation clearly intended to nurture the business as a 'second pillar.'

Despite aggressive investment, food and beverage business revenue stagnated throughout the 2010s. The saturation of the vending machine market, intensifying price competition in the beverage industry, and absence of hit products combined to produce three consecutive years of revenue decline from FY2020 to FY2022.

On the earnings side, the depreciation burden from expanded production facilities and difficulty in raising prices became bottlenecks. Investment expanded, but commensurate revenue growth and profit generation were not achieved.

In FY2020 (December period), Sapporo HD recorded ¥11 billion in impairment losses in the food and beverage business. The targets were land, buildings, and equipment at the Gunma and Nagoya factories, signaling the abandonment of recovery on the aggressive investments of the 2010s. Meanwhile, goodwill of ¥18.4 billion was not impaired, meaning the failure of the acquisition has not been formally recognized on the books. However, as the beverage business continues to underperform, the impairment risk for goodwill is considered to be increasing.

From the 2020s onward, Sapporo HD's earnings structure exhibited essentially the same pattern as at the time of Steel Partners' 2007 acquisition proposal. While consolidated profits maintained a certain level, the real estate business stably generated cash flows on one hand, while the alcoholic beverages and beverage businesses showed relatively stagnant profitability.

The real estate business centered on Yebisu Garden Place underpinned the group through rental income, enabling the avoidance of consolidated losses. However, this stability also had the effect of making it difficult for the core business's low profitability and business portfolio distortions to surface.

From an investor perspective, capital efficiency by business segment was the issue. While the real estate business generated profits at a high ROIC, the alcoholic beverages and beverage businesses were unable to demonstrate adequate returns on capital expenditure and marketing costs. The low asset efficiency of the group as a whole had remained unimproved for 16 years since Steel's withdrawal.

In October 2023, activist fund 3D Investment made a shareholder proposal to Sapporo HD. The focus of the proposal was not short-term performance improvement but the distortions in capital allocation and governance structure.

3D did not deny the existence of the real estate business. Rather, precisely because real estate held high value, 3D pointed out that capital policy—how to hold and utilize those assets and where to allocate the resulting funds—determined corporate value. This argument was essentially the same as the 'real estate-dependent profit structure' raised by Steel in 2007.

Additionally, 3D raised questions about the expertise and independence of the board of directors that supervises irreversible decisions such as real estate divestiture and capital allocation. Drawing on the experience of prolonged discussions under takeover defenses during the Steel proposal, 3D argued that insufficient dialogue with the market would result in a valuation discount on corporate value.

In response to 3D's shareholder proposal, Sapporo HD began examining management improvements. While the situation differs from the hostile acquisition context of 2007, the issues being raised are the same—the structure in which the existence of real estate as a stable asset defers business portfolio restructuring and capital efficiency improvement.

This structure provides stability in the short term but constrains enterprise value growth over the medium to long term. What the market evaluates is not just profit levels but which business uses how much capital and generates how much return. Without an articulated policy for improving capital efficiency, there is a risk that the entire enterprise, including its real estate value, will be discounted.

What Steel demonstrated in 2007 was the arrival of an era where 'how assets are used' is questioned, and 3D posed the same question in 2023. Over 16 years, the party raising the issue changed, but the issue being raised did not. Whether Sapporo HD can break free from the structure of dependence on real estate earnings and enhance asset efficiency through capital allocation and governance will determine the next evaluation juncture.