Japan brewer cuts production costs

Related tags Beer Japan

Asahi Breweries of Japan has turned corporate wisdom on its head,
by cutting production costs enough to compete with Chinese brewers.
The company has overcome the problem of higher labour costs by
cutting down on packaging and other production expenses.

Asahi Breweries of Japan has turned corporate wisdom on its head, by cutting production costs enough to compete with Chinese brewers.

In recent years Japanese manufacturers have been moving production to China to take advantage of lower labour costs. But by cutting production expenses, Asahi Breweries has become one of the first to show that made-in-China doesn't necessarily mean cheaper.

The cost-reduction efforts began last fall at the brewer's nine domestic plants that make Asahi Super Dry.

The aim was to reduce production costs of the brand below those of its joint venture in Shenzhen, southern China, which is known for its state-of-the-art facilities.

Personnel costs represent the biggest difference in expense between the two nations. The labour cost involved in making a can of beer in Japan is 1.7 times that of China.

If last year's average production cost of Asahi Super Dry at the nine plants was set at 100, the cost of manufacturing the product in Shenzhen and shipping to Japan came to 90.

To bridge the gap, Asahi Breweries adopted an Internet procurement system for malt in Japan and reduced the quality of packaging materials.

As a result, Asahi slashed more than 10 per cent off material costs, pushing production expenses at its Ibaraki Prefecture plant, the largest of the nine factories, below the 90 level in January-June.

Company officials said production costs at eight other plants should fall below the target within two years.

''We are determined to beat made-in-China products not simply on production costs but also on the cost that includes our mark-up and other expenses,''​ said Executive Vice President Koichi Asahi.

While beer production is unlikely to shift to China because of the preference of Japanese drinkers for home-brewed products, the company is keenly aware that cost reductions are vital amid the ongoing price war of low-malt happoshu beers that is squeezing profit margins.

The cost cuts are bolstering the brewer's bottom line. Last week, Asahi Breweries announced that its consolidated pretax profit in January-June rose 16.8 per cent year on year to 23.4 billion yen (€200m).

Knocking down production costs of the Asahi Super Dry brand accounted for 4.2 billion yen of the pretax profit.

Company officials cautioned, however, that the cost decreases will not allow the brewer to lower the retail price of Asahi Super Dry, at least for the time being.

Taxes account for 46 per cent of the retail price, lessening the chance of cost reductions pushing down prices, industry officials said.

Related topics Processing & Packaging