Asahi Breweries’ market performance in the past three years had amazed the Japanese business community. Being a marginal player before 1986, the company had recorded an increase of 71.9% beer sales volume in 1988 while the whole industry grew only 7.6%. At the same period, the company’s market share grew from 10.5% to 20.6%. The company’s current flagship product is its Super Dry beer, a revolutionary beer with an appealing and a distinct sharp taste. Accordingly, Asahi’s competitors have also moved into the dry beer market and attempted to capitalize the surprising profitable opportunity. Thus, Asahi has encountered many challenges resulted from the high growth rate of sales and emerging competition. Asahi’s capital infrastructures and human resources are in need of expansion. Performance Measurement
The annual sales growth rate from 1986 to 1988 had been an outstanding exponential growth (see figure 1). According to Exhibit 6, Asahi’s drastic sales growth in Super Dry beer has helped Asahi to outperform the other competitors in seizing market shares. In 1988, Asahi’s sales were accounted for 20.6% of the entire market sales, growing from a 9.9% in 1985. At the same time, Kirin, a dominant player in the market, had dropped 11.2%.
According to Exhibit 4, Asahi is a highly leveraged firm as its equity to total asset ratio (ETA) is 30%. This is normal for the industry because Asahi’s competitors, Sapporo and Suntory, are also highly leveraged, 29.7% and 25% ETA respectively. According to the Finance Director Okada, Asahi funds all of its current investments with equity (evidence can be seen in the outstanding shares growth in 1987 on the balance sheet). From a debt to equity perspective, this move is favourable to the investors as the financing method does not increase the firm’s risk of bankruptcy or violate the existing debt covenant. Furthermore, Asahi paid off many its debt liabilities in 1987, as indicated in the 1986 and 1987 balance sheets, to further reduce its risk of bankruptcy and to signal the public regarding its healthy cash flows. External Analysis – Potter’s 5 Forces and PEST Analysis
The threat of substitutes in this industry is relatively high. The substitutes come from other beverages such as, soft drinks, milk, tea, wine, vodka, etc. However, the threat of substitutes has been reduced by the fact that beer generally causes some form of addiction, the advertising done by the company within the industry, and also the perceived life style in drinking beers. Suppliers’ bargaining power is relatively low due to the fact that there are only three dominant beer firms in the Japanese beer industry, which are Sapporo, Kirin, and Asahi. Buyers’ bargaining power is also relatively low because of the same reason. Product differentiation decreases the bargaining power of buyers because of the high switching cost between beer and other substitutes. General distributors have more bargaining power because they can switch from one firm to the others. However, the opposite is true for the exclusive distributors. The rivalry among competitors within this oligopoly market is high. This rivalry is mainly due to the low cost of imitation. The beer companies compete based on the taste and the advertising. The profitability of this industry is primarily depended by low threat of new entrants, brand loyalty, capacity expansion, limited shelf spacing, and economic of scales. Other factor which influences the industry’s performance and profitability is government regulation which requires firms to own licenses for manufacturing beers, selling beers, and opening up new plants. To maintain healthy beer competition, the ministry of finance also sets high tax on beers and price floor level at which companies should price their beers at. Socio-cultural factor within this industry is impacted by the Second World War generation and the lifestyle of the current generation. Meanwhile, technology innovation is mainly influenced by the...
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