This article was initially published in the November issue of Global Drinks Intel magazine. For details on how to subscribe, click here.
As the Japanese Government encourages the country’s younger LDA consumers to drink more alcohol, the burden of promoting responsible drinking has fallen to brand owners as they navigate a changing consumption environment.
In these days of responsible drinking initiatives and the rising popularity of no- & low-alcohol products, a public campaign that encourages young people to drink more alcohol comes as something of a surprise. But, that’s exactly what Japan’s National Tax Agency announced in August.
Concerned that younger legal drinking age [LDA] consumers were drinking less than their forebears — and impacting tax revenues as a result — the agency launched a national competition called ‘Sake Viva!’, asking 20- to 39-year-olds to come up with ideas to boost demand for everything from beer to sake, and from wine to whisky.
The campaign has met with a mixed response — not least from the health lobby — and the reaction of brand owners has been one of mild mystification.
“We do not know the specifics of what the Japanese government is trying to do with their campaign,” says a spokesperson for Pernod Ricard. “We’re committed to contributing and participating in initiatives that encourage the younger generation to drink responsibly.”
The campaign may be faintly bizarre, but its very existence says something about the nature of a country where population decline is endemic, thanks to a declining birth rate. Factor in a more health-conscious younger generation and the prevalent trends don’t look positive for spirits brands.
Then, there are the ongoing effects of the pandemic, which have been deeper and more prolonged in Japan than in most other developed nations. Only now is the country’s on-premise returning to something approaching pre-pandemic levels, and some of the changes wrought by repeated lockdowns will persist for years to come.
On-premise not expected to return to pre-COVID levels
“While the country continues to manage waves of COVID infections, we are currently seeing positive returns, with September at nearly 90% of pre-COVID rates,” says Bacardi Japan MD Tomo Azuma. “As we look to the future, we know that behaviours will change, and the full return to the on-trade will look different.”
The numbers may vary slightly, but this view is broadly echoed by Hideki Kanda, president of Suntory Spirits. “The on-premise channel in the Japanese spirits market has recovered to around 80% of the pre-COVID [2019] level,” he reports. “While it might still accelerate in the last quarter of 2022 and into 2023, significant recovery in the future isn’t currently expected, due to changes in consumer behaviour and the macrotrend of population decrease (a declining birth rate and ageing society). The off-trade channel has been strong, and is expected to continue growing.”
Market must adjust to major shift in consumption habits
For a spirits market historically built on casual drinking in bars and restaurants, this is a major shift in terms of consumption habits, and it requires a similarly seismic switch of emphasis from brand owners and distributors.
“The days of the customary stop by a bar or restaurant for a drink with colleagues or friends shifted a bit to at-home consumption due to an increase in remote working,” observes Azuma. “We see easy-to-make cocktail serves, like the Whisky/Whiskey Highball [whisky or whiskey mixed with soda] or Gin & Tonic, gaining in popularity because it’s easy to make them at home.”
The Highball remains a mainstay of spirits consumption in Japan. Beyond the huge shochu category and local liqueurs, whisky/whiskey is the dominant spirit (although gin is gaining ground off a very small base), with domestic whiskies to the fore. That said, there are plenty of opportunities for Scotch and American whiskey as well.
“Whisky/whiskey is by far the largest Western spirit and has been growing steadily pre-COVID, riding on the popularity of the Highball,” says Azuma. For Bacardi, its Dewar’s Blended Scotch brand is the chief priority here, and the central importance of the Highball is being reinforced by increased at-home consumption — as the serve is so easy for consumers to make.
Switch from beer as spirits & soda serves gain favour
In turn, this is leading to consumer migration away from Japan’s huge traditional beer market, Azuma believes. “We are also seeing a decline in beer as this generation of consumers prefers spirits,” he says, citing the taste, sessionability and food-matching attributes of Whisky/Whiskey & Soda as key reasons underpinning its growing popularity.
What’s more, this trend is diversifying and spreading into other spirits categories, particularly fast-rising gin. “Recently, we’ve seen great growth in gin and the increased popularity of Gin & Soda — and Bombay Sapphire is helping premiumise the category in Japan,” says Azuma.
Suntory is best known for its market-leading stable of Japanese whisky brands — with Jim Beam Bourbon also playing strongly in the Highball market — but the company is also increasingly targeting the dynamic gin category, both through its ‘craft’ Roku brand and more recent addition Sui, which launched in spring 2020. Described as a “more accessible” Japanese gin, Sui combines three classic Japanese botanicals — yuzu, green tea and ginger — with traditional gin ingredients including juniper, coriander, angelica, cardamom, cinnamon and orange and lemon peels. The company has also launched a Sui-branded Gin & Soda canned RTD.
While gin continues to grow in Japan, in some ways Sui is swimming against the prevailing current — coming in at a lower pricepoint than Roku in a market that is generally premiumising, certainly within the whisky/whiskey sphere.
For the same reason, Suntory’s Kanda doesn’t expect the country’s large RTD category to experience significant growth in the near future, despite recent expansions on the back of flavour and ABV extensions, and a boom in lemon sour variants. Such trends are now slowing as the on-premise begins to recover.
Echoing the views expressed by Bacardi’s Azuma, Kanda says: “The whisky/whiskey category is driving the growth in the Japanese market — led by strong demand for the Highball at meal occasions. The current premiumisation consumer trend is driving further growth of the premium-plus range.”
Price rises result in cautious consumers drinking less but better
Any upward trajectory of this nature will be welcome at a time when, for the first time in a generation, a very unfamiliar phenomenon — that of price rises — is beginning to seriously affect Japan. Brand owners are understandably nervous about the impact on a consumer who has lived in a deflationary economy for so long — while also seeing the potential for driving overall value.
“Price increases across industries have only recently begun, and at a very low pace following a 30-year history of deflation in the country,” says Azuma. “Consumers are cautious and what we are seeing is that [with] the anticipation of price increases, along with the trend of fewer casual after-work drinking occasions, gathering is becoming more special, so people are drinking less but better — which leads to great opportunities for our portfolio of premium brands.”
In a similar fashion, Suntory’s Kanda blends concern with optimism when looking to the future. “Due to rising costs, inflation and the depreciation of the yen, many Japanese spirits companies in the market have been implementing price increases,” he says. “However, we need to keep an eye on the impact this has on consumer behaviour, given Japan has been an under-deflation economy for many years.
“Long term, we believe offering products with a higher value is key to revitalising Japan’s spirits market. In terms of category trends, we foresee whisky/whiskey and gin as the drivers to lead market growth, and we will focus on new demand creation to recruit more consumers into these categories.”
Brand owners take up the mantle of promoting responsible drinking
Whatever the future of spirits in Japan, a publicly-funded, government-approved initiative that aims to get younger LDA consumers to drink more still appears tin-eared at a time when drinking responsibly — and less but better — is the clear focus of brand owners.
Nor is this anything new: Pernod Ricard has been running ‘No Ikki’, a programme designed to curtail excessive drinking among university students in Japan, since 2011. In 2021, the company launched an awareness campaign targeted at young adults, urging them to ‘Make Memories, Not Hangovers’ and reaching an estimated 1.2m people.
“Drinking in moderation is a lubricant for social connection and conviviality,” says a Pernod Ricard spokesperson. “This core belief shapes our commitment to responsible drinking in all markets, including Japan.”
Perhaps somebody should explain that to the country’s government.
The international trends for Japanese spirits
As brand owners come to terms with the evolution of spirits in Japan, homegrown products — most notably whisky, but also umeshu and, increasingly, gin — continue to target overseas growth.
Marussia Beverages sells Hatozaki Whisky and 135o East Gin in about 30 international markets, including the US, France, the UK, Poland and Italy. New destinations include Singapore, Taiwan, China and Australia.
According to Marussia marketing director Marc Torterat, trends are “very positive”, with annual growth (YTD to September 2022) at 44% for gin and 30% for whisky. “Japan has a great reputation for the quality of its spirits and the execution of its packaging,” says Torterat. “Consumers are therefore ready to pay a premium, and most Japanese spirits position themselves in the premium-and-above segment.”
Torterat is especially optimistic about prospects in Australia and Brazil — the latter, he says, has the largest Japanese expat community in the world — and highlights the company’s latest launch: Hatozaki Small Batch 12 Years Umeshu Cask Finish. The 46% ABV whisky, which is non-chill-filtered with no artificial colour, has been aged for 12 years in American oak, before a six-month finish in casks previously used to age umeshu plum liqueur. The expression will be available in the US, the UK, France and Germany.
Umeshu is the speciality of liqueur maker Choya, which reached a new high in terms of overseas sales during 2021. Senior manager Seiji Susuki highlights the plum (ume) liqueur’s claimed health credentials, including organic acid and polyphenols.
India, Nigeria and Brazil are particular targets for Choya, thanks to their high liqueur consumption — and Susuki believes the global popularity of Japanese whisky and gin is helping to drive awareness of other products from the country.
The company’s latest new product is Choya From The Barrel, an umeshu aged in French oak sourced from the Cognac region. Supplies are limited, with the 2014 vintage currently on the market.
Another company experiencing growth is BBC Spirits, thanks to its expanding Etsu Gin range, including Double Yuzu, Double Orange and Pacific Ocean Water variants. The company also markets a Japanese tomato liqueur called La Tomato. Head of product Léa Monnétreau reports growth throughout Europe, especially in Italy, Spain, Greece and the UK. She attributes this to the distinctive character of Japanese products, backed up by a lot of education to raise awareness — including an Instagram programme called ‘Ikigai Collection’.
This article was initially published in the November issue of Global Drinks Intel magazine. For details on how to subscribe, click here.
