Sapporo Holdings Ltd., Japan's fourth-largest brewer, will focus on expansion in North America and Southeast Asia, where returns on investment will be greater than in China, Chief Executive Officer Takao Murakami said.
"Competition in China is intensifying, and everyone seems to be having a hard time boosting profits," Murakami, 64, said in Tokyo Wednesday. "We can't take the risk of entering a market that may give us returns 10 or 20 years later."
Sapporo's rivals are acquiring competitors or combining as Japan's shrinking population cuts demand. The planned merger between Kirin Holdings Co. and Suntory Holdings Ltd., Japan's two biggest beverage makers, would be "threatening," said Murakami, even as he predicted Sapporo will beat its 2009 profit estimate and boost sales by volume this year.
"It's good to start expansion ahead of its rivals in a growing market like Vietnam," said Ichiro Takamatsu, chief investment officer at Alphex Investments Co., a Tokyo-based hedge-fund advisor. "More consolidation may take place" in the industry.
While Japan's demand for beer and similar drinks will probably shrink 2 percent this year, Sapporo's sales of the beverages may increase 5 percent by volume on increased marketing for the 120-year anniversary of its Yebisu brand, Murakami said.
Sapporo gained 1 percent to 532 yen as of 10:08 a.m. on the Tokyo Stock Exchange. The stock fell 8.9 percent last year, compared with a 19 percent gain in the Nikkei 225 Stock Average.
The merger of Kirin and Suntory would create one of the world's biggest beermakers that may challenge market leader Anheuser-Busch InBev NV. Kirin has spent more than $10 billion acquiring rivals in the past 25 months, according to data compiled by Bloomberg. Suntory in November said it bought European drinkmaker Orangina Schweppes.
"A merger isn't the only way" to compete in Japan, Murakami said. "We just need to keep offering products that will be favored by customers."
Sapporo will probably beat its 2009 net income estimate of 3 billion yen ($33 million) while sales may fall short of the October forecast of 400 billion yen, Murakami said. The brewer trimmed promotional costs last year after 2008 sales fell and profit growth slowed.
"The only way for Sapporo to grow is to go outside Japan," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments Ltd. in Tokyo, who declined to comment on his shareholdings. "It needs to save money at home, as beer consumption probably won't recover."
Sapporo wants to expand brewing capacity in North America, where it owns Sleeman Breweries, he said. Sleeman's sales may rise 14 percent this year after a 10 percent increase in 2009, Murakami said.
The Japanese brewer will consider acquisitions, increasing outsourcing or investing "several billions of yen" in existing plants, he said.
In Vietnam, Sapporo agreed to buy a 65 percent stake, valued at $25.4 million, in Kronenbourg Vietnam Ltd., a joint venture between Carlsberg A/S and Vietnam National Tobacco Corp., the company said on Dec. 10. The Vietnamese partner will retain a 35 percent stake.
Sapporo plans to open a new brewery in Vietnam 2012. It may also ship Black Label beer and other products from Vietnam to other Southeast Asian countries and Australia.
The company aims to have as much as 5 percent of the Vietnamese beer market with sales of $128 million by 2019, it said on Dec. 22.
In Singapore, Sapporo will start to sell beer this year, using Pokka Corp's distribution network. Sapporo bought a 21.65 percent in Japanese beverage maker Pokka in 2009.