Kirin Holdings
Corporate History & Strategy

The origins of Kirin Beer trace back to Spring Valley Brewery, which began operations in the Yokohama foreign settlement in 1870. Its successor, The Japan Brewery Company (JBC), developed the 'Kirin Beer' brand and continued operations based at the Yokohama factory, but the foreign-owned structure faced constraints in fundraising and sales channel expansion. While localization progressed through Mitsubishi capital participation and sales through Meijiya, management leadership remained unstable.

In 1906, the three-company merger of Sapporo Beer, Nippon Beer, and Osaka Beer gave birth to Dai Nippon Breweries. With major brands 'Sapporo,' 'Yebisu,' and 'Asahi' under its umbrella, a giant enterprise controlling approximately 77% of the domestic beer market was born. Dai Nippon Breweries also proposed a merger to JBC, aiming for industry-wide consolidation.

For JBC, which was far inferior in scale, the merger appeared to offer stability, but it simultaneously carried the risk of losing independent management decision-making. JBC was forced to choose between being swept up in the wave of restructuring or standing alone to compete.

JBC rejected Dai Nippon Breweries' merger proposal. Behind the rejection lay differences in management philosophy. While Dai Nippon Breweries was strengthening its orientation toward domestic raw materials, JBC maintained a policy of designing quality and supply around imported raw materials. Raw material policy was directly linked to cost structure and quality control, and was an issue that would determine investment allocation and brand operation leadership after a merger.

Having chosen independence, JBC needed to build its own financial capacity and domestic sales channels. In February 1907, with investment from Meijiya and the Mitsubishi founding family, Kirin Brewery Company, Limited was co-founded. By consolidating production (Yokohama factory), sales (Meijiya), and capital (Mitsubishi-affiliated) under Japanese control, the entity was transformed from a company with strong foreign character to a domestically governed joint-stock corporation.

This capital design secured the creditworthiness needed for bank borrowing and capital investment, establishing the framework necessary for sales expansion in the domestic market.

The establishment of Kirin Brewery formed a competitive structure in the Japanese beer market centered on two companies: Dai Nippon Breweries and Kirin. Mitsubishi-affiliated capital supported creditworthiness and fundraising capacity, and the combination of Meijiya's sales capabilities with the Yokohama production base gave Kirin competitiveness as an independent enterprise.

The dynamic of countering Dai Nippon Breweries, which had secured scale through consolidation, with capital design for independence, anticipated the competitive characteristics of the later beer industry. As differentiation through taste and brewing methods reached its limits early on, the axis of competition shifted to securing distribution channels and fundraising capacity for capital investment.

The 1907 founding decision was a redesign of capital and distribution channels for independent survival in an era when the beer industry had already begun to develop a commodity-like competitive structure. This decision became the starting point for Kirin's postwar achievement of the top domestic market share.

The postwar beer market was centered on commercial use, but from the 1960s onward, household demand expanded rapidly, and by the 1970s it accounted for approximately 70% of the total. The spread of refrigerators and rising income levels established the habit of drinking at home, and purchasing decisions shifted to housewives.

Kirin focused on household sales and developed a nationwide network of exclusive distributors and retail channels. By standardizing transaction terms and emphasizing inventory turnover, it secured stable handling at the distribution level. Meanwhile, Asahi had a high dependence on commercial-use distribution channels, and Sapporo was still affected by the temporary discontinuation of its flagship brand. In a market where product differences were small, differences in channel control and brand recognition directly manifested as differences in market share.

Kirin advanced planned factory expansion based on demand trends, expanding production capacity while avoiding supply shortages or overinvestment. In the beer business with significant seasonal fluctuations, appropriate adjustment of supply capacity was one of the competitive conditions.

In December 1972, Kirin's domestic beer market share reached 60.1%. The three factors behind this high share formation were a household-oriented strategy that accurately captured changes in demand structure, nationwide distribution network development, and planned capital investment. However, the entrenchment of a share far exceeding the majority brought institutional implications related to the application of antitrust law.

While a share exceeding 60% brought earnings stability, further volume expansion became subject to regulatory constraints. The movements of the Fair Trade Commission were incorporated as a prerequisite for management decisions, making it difficult to actively push share higher.

As a result, Kirin began to consider business diversification as a management challenge to replace volume growth. Against the backdrop of stable cash flow generated by high market share, expansion into soft drinks and food sectors was explored, leading to the later formulation of the structural plan. Market dominance was both proof of competitiveness and a structural factor constraining the direction of growth.

In the mid-1970s, Kirin maintained a near-majority share in the domestic beer market, but the very sustainability of this high share had become a management issue. Amid ongoing discussions about antitrust enforcement and fair trade, the prolonged market dominance by a specific company attracted regulatory scrutiny.

In addition, the 1973 oil crisis forced a reassessment of business operations premised on high economic growth. Rising raw material and transportation costs compressed profit margins, and combined with slowing demand growth, the limits of management reliant solely on volume expansion were beginning to show. While maintaining the structure where the beer business was the core of earnings, a perspective for managing the degree of dependence on a single business was required.

In August 1975, Kirin formulated the 'FY1975 Structural Plan,' distributing to all managers a medium- to long-term policy subtitled 'Laying the Groundwork for Stable Growth.' The content aimed to shift from the previous trajectory of depending on rapid growth in the beer division to a stable growth trajectory.

Specifically, the company pursued expansion into soft drinks and food sectors, gradually increasing the weight of non-beer businesses while leveraging existing distribution networks and sales channels. These sectors could be expanded while suppressing new capital investment, and could be managed primarily with internal funds. The structural plan was positioned not as suppressing beer business volume, but as a framework for adjusting the composition of the overall business.

Triggered by the structural plan, Kirin began full-scale expansion into soft drinks and food businesses. The expansion of the beverage business through Kirin Beverage was a rational choice given that it could leverage the same distribution network as beer.

However, as of the 1970s, diversification remained positioned merely as business composition diversification, and did not produce an earnings pillar to replace beer. The direction of 'breaking away from single-business dependence' set forth in this structural plan would be carried forward into pharmaceutical entry in the 1980s and subsequently into business portfolio transformation through the transition to a holding company structure.

In the early 1980s, Kirin maintained a high share in the domestic beer market, but the room for volume growth was limited. In addition to the impact of antitrust law, market maturation had ushered in a phase where differences in capital investment and promotional spending determined earnings. Continued dependence on a single business posed challenges as the structure became increasingly susceptible to environmental changes.

Meanwhile, Kirin had accumulated technologies in fermentation, cultivation, analysis, and purification through beer production. These technologies had high affinity with biopharmaceutical manufacturing processes, and their potential for transfer to alternative applications was attracting attention. At the time, the pharmaceutical industry was centered on chemical synthesis, and biopharmaceuticals based on microorganisms and cell culture were a peripheral field. The fact that this was a domain with low entry priority for existing pharmaceutical manufacturers conversely opened entry opportunities for Kirin.

Between 1982 and 1983, Kirin decided to enter the life sciences field and established a pharmaceutical development laboratory. The policy was to apply the fermentation and cultivation technologies cultivated in the beer manufacturing process to drug discovery and manufacturing method evaluation.

However, pharmaceuticals is a field where regulation, clinical trials, and intellectual property are complexly intertwined, and securing talent and partners, not just research funding, was a prerequisite for commercialization. Kirin did not lean entirely toward self-reliance, keeping the introduction of external technologies and joint development in its sights. This flexible entry approach later led to the partnership with Amgen, opening the path to commercialization of an EPO formulation while avoiding patent disputes.

The entry into biopharmaceuticals was premised on the ability to utilize the stable cash flow from the beer business as capital for research investment. The financial capacity to continue long-term research investment without demanding short-term returns enabled the cultivation of biopharmaceuticals, a business that requires time to develop.

As a result, biopharmaceuticals were cultivated as a high-value-added business with an earnings structure different from the beer business, adding depth to the Kirin Group's business portfolio. This is an example where avoiding the mainstream and leveraging technological compatibility and cash generation capacity for long-term investment led to competitive advantage.

In the mid-1980s, Kirin occupied approximately 60% of the domestic beer market and maintained industry leadership. However, the overall market growth rate was decelerating, and with the spread of canned beer and diversification of drinking occasions, product-level differentiation was entering a critical phase.

The organization at the time was structured with production, sales, and research arranged by function, suited for mass production and mass sales but requiring time for product-level profitability management and rapid decision-making. Market share data showed a gradual decline beginning from the early 1980s peak, and within a context of high dependence on the flagship product, the speed of response to environmental changes was beginning to be recognized as an issue.

In February 1987, Kirin decided to introduce the divisional system. The organization was restructured into a framework where planning, development, and sales were handled at the product and business-unit level, centered on the beer business. Performance that had previously been managed on a company-wide basis was made visible at the business-unit level, with the aim of rapidly reflecting share trends and profitability changes in management decisions.

The divisional system was not merely a change in management methodology but also a mechanism for delegating decision-making to units closer to the market and customers. The intent was to accelerate the speed of product improvement and new product launches, strengthening the capacity to respond to changing consumer needs. It was implemented as a proactive response anticipating the future competitive environment, while share and performance remained stable.

The introduction of the divisional system established a product-level profitability management framework. However, ironically, immediately after its introduction in March 1987, Asahi Beer launched Super Dry, and the market environment changed dramatically. The proposal of a new taste changed consumer selection criteria, and Kirin's share began to decline rapidly.

The divisional system was a reform that changed how the organization operated, but it was of a different dimension from the strategic decision of whether to fundamentally change the taste of the flagship Lager. The Dry Shock that followed immediately revealed that organizational structure revisions alone could not adequately address discontinuous market changes.

Super Dry, launched by Asahi Beer in 1987, presented a different drinking experience and rapidly expanded the market starting from the restaurant channel. Consumer selection criteria changed, and the relative positioning of existing brands began to waver. For Kirin, the very premises of its strategy built on supply capacity and distribution networks—which had been maintained for years—were being called into question.

The president at the time reflected, 'Our management used to be remarkably stable, and we followed the convention of changing presidents every four years without any doubt. But now the beer industry has become one of the most fiercely competitive sectors in Japanese industry.' It was recognized that the successful experience of stable operations did not function adequately in the new competitive environment.

Kirin's response to the Dry Shock prioritized the stable supply of its flagship brand Lager. Regarding Super Dry as a temporary movement, Kirin attempted a limited response through new products but could not commit to changing the taste of Lager itself.

Behind this lay a structural dilemma inherent to high-share companies. Changing the taste risked losing existing customers, while not changing it meant falling behind the new trend. The larger the customer base, the greater the cost of transformation. Kirin chose to protect its flagship brand, but this consequently delayed its response to market changes.

In December 1989, Kirin's domestic beer market share fell to 48.4%. This was a drop of more than 10 percentage points from over 60%, and the long-standing stability of the top position had crumbled. Asahi rapidly disseminated the value of a new taste through the restaurant channel, quickly expanding its share.

The Dry Shock confronted the inescapable dilemma that the higher a company's share, the more it falls behind market changes if it doesn't change the taste, but loses existing customers if it does. Being in a dominant market position and responding promptly to change do not necessarily align. The 1989 share decline was not merely the success of a competitor's product, but an event that made visible the challenges inherent in the high-share regime itself.

In 1980, biotech venture Amgen was founded in the United States. Aiming for the commercialization of pharmaceuticals using recombinant DNA technology, the company focused on the research and development of EPO (erythropoietin) from its early days. EPO was expected to have demand as a therapeutic agent for renal anemia and other conditions, but mass production of the body-derived substance was difficult. In 1983, Amgen succeeded in cloning the EPO gene, opening the path to commercialization as a pharmaceutical product.

Meanwhile, from 1982 onward, Kirin had been advancing its entry into the biopharmaceutical field by leveraging the fermentation and cultivation technologies accumulated through beer production. However, developing pharmaceuticals independently from basic research carried significant time and risk, and particularly the intellectual property for EPO was held by Amgen, meaning independent development could directly lead to patent disputes.

In 1984, Kirin decided to partner with Amgen and made an investment. This was a partnership formed at the stage when EPO development success had been confirmed, representing a choice to participate in commercialization while avoiding basic research risk. Kirin assumed responsibility for domestic approval, distribution, and sales in Japan, while Amgen provided formulation technology and patents in a designed division of roles.

This decision carried the significance of avoiding competition over patents. During the same period, Chugai Pharmaceutical was independently investing in biopharmaceuticals and faced patent disputes with Amgen. Through partnership, Kirin suppressed both R&D risk and legal risk, choosing the shortest path to commercialization.

In 1990, Kirin, jointly with Amgen, launched the EPO formulation 'ESPO' in the Japanese domestic market. By participating in the pharmaceutical commercialization process, the company accumulated business experience, and the ability to invest cash flow from the alcoholic beverage business as development capital supported the entry.

The success of the EPO formulation transitioned Kirin's pharmaceutical business from the conceptual stage to the execution stage. As a business with a high-value-added earnings structure different from the beer business, it added a new pillar to the Group's business portfolio. The subsequent full-scale expansion of the pharmaceutical business through the acquisition of Kyowa Hakko Kogyo was premised on this commercialization experience with the EPO formulation.

Around 2010, Kirin HD positioned the expansion of overseas operations at the core of its medium- to long-term growth strategy, against the backdrop of the maturing domestic beer market. Brazil, where population growth and rising incomes were expected, was a market with beer consumption approximately twice that of Japan and annual growth of around 10%, and was evaluated as a promising destination in terms of both scale and growth potential.

Schincariol Group, the second-largest beer maker in Brazil, possessed a nationwide sales network, 13 production facilities, and multiple beer and beverage brands, providing a platform-type business base. Kirin judged that by deploying its own technological capabilities and product development strengths, it could accelerate the company's growth.

However, this judgment rested on several assumptions. The assumption that the founding family's shareholding structure was stable, the macro premise that the Brazilian market would maintain its growth trajectory over the medium to long term, and the projection that the substantial goodwill could be recovered through future cash flows. None of these had been negated at the time of acquisition, but all contained uncertainty.

In October 2011, Kirin HD effectively acquired 100% of the Schincariol Group through the holding company that held its shares. The total acquisition cost reached approximately 304.3 billion yen, a decision accompanied by increased financial leverage using a combination of cash on hand and external borrowing.

However, integration did not proceed as expected from immediately after the acquisition. Schincariol's shares were held by different branches of the founding family, and what Kirin acquired was one side's stake. The other shareholder filed a lawsuit claiming the share transfer was made without prior consultation, and Kirin became embroiled in local litigation over the exercise of management control.

Under legal uncertainty, rapid decision-making became difficult, and in addition, intensifying competition in the Brazilian market, accelerating price competition, and the depreciation of the real all converged. The synergies envisioned at the time of acquisition did not materialize sufficiently, and business operations diverged significantly from the original plan.

In December 2015, Kirin HD recorded impairment losses of approximately 140 billion yen related to its Brazilian subsidiary. On a non-consolidated basis, approximately 270 billion yen was recognized as losses on valuation of shares in related companies, and the gap between the growth assumptions at acquisition and actual earnings capacity was confirmed in accounting terms.

This impairment exposed not merely deterioration in the external environment but problems in the decision-making structure. It cannot be denied that the judgment prioritized scale and growth potential without sufficient verification of certainty of control, governance structure, and post-integration execution capability. Substantial capital was left at low returns, significantly impairing capital efficiency.

The Brazil acquisition became a case demonstrating that entry into a growth market does not necessarily translate directly into increased corporate value. Subsequently, Kirin advanced selectivity and concentration in its overseas operations, transitioning to a policy emphasizing capital efficiency for each business. The 2011 decision and the 2015 impairment were a turning point highlighting the importance of risk assessment and governance in global strategy.

Kirin invested in FANCL in 2019, making it an equity-method affiliate, but FANCL's independence as a listed company constrained the scope of collaboration. In core areas such as pricing, cost, and product design, each company needed to make independent decisions, and cooperation remained at the level of coordination.

Kirin had positioned the health science field as a medium- to long-term growth area, but the capital structure of partial equity investment acted as a constraint on cultivating this business as an integrated growth axis for the Group. Consideration for minority shareholders made large-scale investment decisions and business restructuring more cautious, and in-depth information sharing and joint decision-making were also restricted.

In June 2024, Kirin decided to make FANCL a wholly-owned subsidiary and announced the implementation of a tender offer. The structure aimed for 100% share acquisition, premised on delisting. The tender offer consideration was estimated at approximately 220 billion yen.

This decision was aimed not so much at expanding collaboration as at restructuring the capital structure. The goal was to streamline the constraints of minority shareholder consideration and prior consultation requirements, and to complete investment decisions and business restructuring as intra-group decision-making. Behind the decision was the recognition that if health science was to serve as a growth axis, integration rather than partnership was necessary.

Through the full subsidiary acquisition, FANCL was positioned as a business within the Kirin Group. The regulatory compliance costs associated with maintaining listing status and the duplication of indirect departments became targets for streamlining, and a framework for examining research, product, and sales functions as an integrated whole was established.

This transaction has the effect of narrowing the distance between strategy and execution through streamlining the capital relationship. It is positioned as the process through which the health science business transitioned from the conceptual stage to the execution stage, and the concretization of a growth axis alongside pharmaceuticals in Kirin's business portfolio advanced.