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| July 21st 2011 |
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| An interview with Toru Yagi |
By Suzanne Mustacich
Toru Yagi, age 61, has been the head of Suntory Wine International (SWI) for two years. He joined Suntory in 1972, and by 2002, had risen through the ranks to join the board as deputy chief operating officer (COO) in the Sales & Marketing Division. |
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Nearly every year thereafter promotions followed as COO of other divisions – Marketing Promotions, Nationwide Chain Stores Sales, Sales & Marketing in Tokai Hokuriku area. Then in 2008, he became President of subsidiary Fwines Ltd, until the last move to SWI in 2009.
Although Suntory is now an international conglomerate, its roots are in the vineyards. Founded in 1899 by Shinjiro Torii in Osaka with the production and sales of grape-based wine, Suntory soon diversified into whiskey. Today Suntory Holdings are diverse, including beer, whiskey distilleries, Pepsi bottling, Orangina-Schweppes, blue roses, Bordeaux chateaux, a Bordeaux negociant, a China-based fine wine importer, restaurants and bars, health supplements and health drinks. Net sales hit ¥1,742,373m ($21,381,433) in 2010.
Suntory was in a unique position to help during the earthquake crisis. The company donated one million 550ml PET bottles of Suntory Natural Mineral Water Minami Alps and ¥300m. On 1 April, it increased its donation by committing ¥1 for each can of soft drink and beer sold. If 2011 sales are similar to 2010, their contribution will be around ¥4bn.
Meininger’s: Bottled-water is doing a brisk business in Japan in the wake of the catastrophe. But what about wine?
Yagi: By volume the market has been quite stable since last year, and temporarily dropped down in March due to the earthquake, and soon after in April recovered to the previous trend. For on-trade we still find the negative influence of the event, however for off-trade the sales are going quite well.
Meininger’s: Let’s talk about the market. According to Euromonitor data, the Japanese still light grape wine market, minus sake, grew by 8% in 2010 and generated sales of $6.34bn. Volume was at 274m litres, up from 254 litres in 2009. What is your forecast for the Japanese wine market for 2011?
Yagi: I believe that the wine market will show continuous growth in 2011.
Meininger’s: What are Japanese consumers drinking and how is that changing?
Yagi: In the last ten years, the liquor market in Japan has declined; beer, sake and shochu have had a tough time. RTD and whiskey, which [has been] promoted in new drink styles such as high balls (whisky with soda ) are uptrends, and wine has been quite stable, gradually increasing by volume.
Meininger’s: What are the long-term trends that could help develop the market?
Yagi: In the long range, there is a large room for expansion…as wine consumption in Japan is still very small in comparison with global wine consumption.
Meininger’s: In terms of imported wine, is there a country of preference?
Yagi: According to the customs clearance data, France is always number one by volume, then followed by Italy. This aspect has |
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not been changed, but in recent years Chile and Spain are catching up with them, thanks to their competitive quality and price.
Meininger’s: Suntory imports Georges Duboeuf. Is Beaujolais Nouveau still popular in Japan?
Yagi: I think Nouveau market in Japan has been well established as a seasonal product. However the imported quantity declined after 2004. I ts extraordinary boom was over and I think the market will be more stable.
Meininger’s: Was it a mistake for Beaujolais to forbid the packaging of their wine in PET?
Yagi: PET bottled Beaujolais Nouveau has been presented in the market since two years ago, I think this vessel is good for enjoying daily wines. But we are promoting Georges Duboeuf as a high quality Beaujolais Nouveau brand, and because it is an AOC and high priced product, our consumers can drink it in a different situation from that of daily wine, so we don’t have any intention of introducing PET Nouveau. Furthermore, we respect the decision made by the Committee to prohibit PET for Beaujolais Nouveau.
Meininger’s: What kind of Japanese consumer buys grand cru classé from Bordeaux?
Yagi: Gran cru classé was presented in the market more than 20 years ago, so this market has been ripe, and the consumers have excellent knowledge about the category. However, recent price increases made the products too expensive for consumers to buy. Incidentally, only the limited outlets such as night clubs can purchase them. We believe the [Bordeaux wines] which have high quality - even with less awareness - will be selected now.
Meininger’s: Dom Perignon was the leading brand of Champagne in Japan. Is premium Champagne still doing as well as it did?
Yagi: For Champagne, the market in 2010 ended almost the same in volume as in 2009. Only premium Champagne has had a hard time, as its proportion [in the] night clubs was rather high.
Meininger’s: How does Freixenet do against French champagne? Are Japanese consumers open to non-French sparkling wine?
Yagi: The sparkling wine market is going well, thanks to the lower price products like Spanish, Italian and Chilean, for home consumption. Freixenet has always been the number one brand in the sparkling category in Japan.
Meininger’s: Euromonitor International says they see a trend towards lower-priced brands. What do you think?
Yagi: According to the customs clearance data, average CIF price has been lower in recent years, which affected the retail price. On the other hand, home consumption is expanding, and we believe the general wine market will show steady growth, mainly with the products whose retail price is not more than ¥1,000.
Meininger’s: What are the trends in wine |
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packaging?
Yagi: Our standard is still the 750ml glass bottle. Screwcap products, BiB, or half-sized products are growing; however, total volumes are still small at the moment.
Meininger’s: Are Japanese consumers open to PET bottled wine? Bag-in-Box? Other alternative packaging?
Yagi: For expanding wine consumption in Japan, a new vessel or other format strategy would be required.
Meininger’s: When you released your new wine, Century, made from international grape varieties and native Japanese varieties all grown in Japan, you sold out the supply in three days. Why do you think it was a hit?
Yagi: This is because its concept was quite simple and clear : a limited wine brand with DBR (Lafite) in honour of the centennial of Tomi no Oka winery and the twenty-fifth anniversary of our partnership [between] DBR and Suntory. The consumers accepted and understood the concept, which made it a hit. We received a lot of good opinions, as it is an excellent wine in terms of quality.
Meininger’s: How is distribution changing? Is there a growth in the supermarket retail market?
Yagi: The wine growth is being made mainly by supermarkets, and this trend will last.
Meininger’s: Does being in the beer and spirits business help you with wine distribution? Or does wine distribution help with spirits and beer?
Yagi: We believe that for wine, a different business style is needed from other liquors. It is important for the wine business not only to increase the distribution, but also to clarify the targeted outlets, consumers, then to work on them with a high expertise.
Meininger’s: How will Suntory Wine develop its domestic market?
Yagi: We will make an effort to expand the market by communicating well with consumers – proposing new drink styles and general food and wine pairings, like beef with red wine. The entire purpose of this is to invite new people to enter the wine world and broaden the base of wine fans.
Meininger’s: Given the troubled Japanese market, will Suntory put more emphasis on other markets? If so, which ones and why?
Yagi: First of all, the Japanese market is the most important, even for further expansion. Then we at the SWI group will put more emphasis on the fast-growing Chinese market. And, as the global growth of French fine wines can be expected, we will strengthen this category as well. Exporting our own Japanese wines to Asian and European countries in the future is to be studied.
Meininger’s: Tell me about Japanese wines. I read about your Japan Premium and Tomi no oka Wines with a great deal of interest. Can you talk about the style of these wines?
Yagi: The Japan Premium series is made with 100% domestic grapes which |
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are harvested from well-known wine producing areas. It is a series that shows the potential of Japanese wine… by taking advantage of Suntory Wine International wine skills.
The Tomi no Oka series is made from 100% Tomi no Oka winery property grapes. It is a series that [blends] technique and passion… workers here have spent unsparing time and effort to craft graceful and dignified wines, for more than 100 years.
While maintaining the techniques and expertise gained over 100 years of domestic production in Tomi no Oka winery, efforts will [be made to] expand traditions of wine in Japan and stimulate the market by launching a new brand.
Meininger’s: Will they appear in international markets?
Yagi: We believe we can start exporting overseas in the near future, when we are ready with quality and quantity.
Meininger’s: Let’s move on to your new merger with Castel. Suntory increased its stake in Grands Millésimes de France (GMF) from 37% to 50%. The other 50% stake is now owned by Castel. GMF owns Chateau Beychevelle, Chateau Beaumont and negociant Barrière Frères. (Castel is France’s largest wine and beer company: The merger has such broad implications that it caught the attention of the European Union Commission dealing with competition and anti-trust. The commission cleared the merger on 1 April 2011.)
Yagi: By this, we make our wine business in France (Beychevelle, Beaumont and Lagrange) stronger by making the most of each [the strengths of each company].
Meininger’s: How will the new partnership with Castel change how your wines are made or sold or distributed?
Yagi: We will take advantage of the partnership for further sales of Castel brand as we sell their product in Japan.
Meininger’s: Suntory entered the Chinese beer market in 1984 and the soft drinks market in 1995. The group is also developing its whiskey business in China. Tell us about the Chinese market.
Yagi: The Chinese drinks market is still dominated by demand for Chinese hard liquor ; nevertheless, beer sells well and for wine there is important potential. The demand is for French wines, Australian wines, then after that, wines produced locally. But 90% of the market for alcoholic beverages is still spirits.
Overall, the wine market is for red wine. The market is evolving and we are trying to bring on the market with products that are good, and products that are affordable, in order to develop the market. French wines have their place, but there is also room for wine from South America.
Meininger’s: What are the biggest challenges in the Chinese wine market?
Yagi: Establishing the real wine culture by continuous education to the consumers. The imported wines are expensive and high quality, and facing them are local |
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wines at very low prices. In the middle, there is an empty space. The key will be to fill that space.
Meininger’s: People say that wine markets in big cities like Shanghai and Beijing are saturated. What do you think?
Yagi: The big cities are important platforms so you have to be present there. At the same time, our role is to develop those and other cities that might not yet be well-developed today, but have strong potential. So maybe you have to be in both.
Meininger’s: Suntory's wine division shows impressive vertical integration in the wine market. Does your ownership in the Bordeaux estates and negociant firm help you in the Chinese market?
Yagi: We have a portfolio of brands that clearly helps us – it’s a strength for positioning ourselves in the Chinese market.
Meininger’s: Do you have plans to acquire any other wine estates or importer/distributors?
Yagi: I think our current portfolio is still to be complemented. We don't have any plans to acquire them, but would like to study any possibilities.
Meininger’s: The Chinese market is evolving quickly. In China, beer and spirits companies are now distributing wine. This gives them a well-established network. Are you worried? How will you meet this competition?
Yagi: Our subsidiary, ASC has its own distribution network, and we will make it stronger.
Meininger’s: Let’s talk about ASC. In 2009, Suntory acquired 70% in ASC Fine Wines, which had sales of ¥7.1bn in 2008. With the head office in Hong Kong and Don St. Pierre, Jr, at the helm, ASC has regional offices in over a dozen major Chinese cities and several hundred employees. Why did you buy ASC?
Yagi: Suntory is a group that produces beer as well as non-alcoholic drinks. It also produces, imports and sells wine. We’ve known ASC for a long time. Because the Japanese market is losing speed – even if the wine market continues to grow, overall the Japanese spirit market is losing speed – so we are turning [outwards]. We wanted to work with ASC in China to develop wine culture and to bring their savoir faire to the group. And their network was an initial base for developing a distribution platform for our brands.
Meininger’s: What are the major differences between the Japanese and Chinese markets?
Yagi: Basically, the Japanese is a mature market, while Chinese is a growing market. The competitor situation is also different. In China, many foreign companies are coming to compete against major national companies in general. In the field of wine, the competition is not so tough now, but in the future it will be tougher.
Meininger’s: What does China represent for you in terms of volume?
Yagi: Overall, the volume imported into China is now superior to what we import into Japan.
Meininger’s: Do you have any plans to invest in Chinese domestic wine production?
Yagi: We are considering the possibility, but have no plans at the moment.
Meininger’s: Are there other wine markets in Asia or elsewhere that you consider ripe for dynamic growth?
Yagi: Taiwan and Singapore are perhaps the countries to keep an eye on for the relatively near future. In the mid-term range, many countries may grow dynamically, but no country can overtake China’s speed of growth.
This interview first appeared in the June 2011 edition of Meininger's Wine Business International, which is only available by subscription. Mr Yagi’s comments have been edited for English.
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