August 15/Business Monitor International Ltd. (BMI) -- Japanese brewer Sapporo is to invest 10 billion yen ($103.7 million) in a 20% stake in compatriot canned coffee specialist Pokka. Hoping to reduce its dependence on the stagnant local beer market, Sapporo will acquire the stake from investment firm Advantage Capital, which currently owns 60% of Pokka, and other shareholders in order to bolster its small soft drinks presence.

Through to 2013, BMI forecasts a 9.8% contraction in volume sales of beer in Japan. The sector's advanced stage of maturity, exacerbated by stagnant wage growth and an aging population, has seen the market become sluggish, and all leading brewers are now seeking diversification, either geographic, in product terms or both. Suffering from the same problems as the beer market, forecast growth in Japan's soft drinks sector is hardly inspiring, but at 7.8% through to 2013 it clearly provides better opportunities for brewers.

The reason for a more favorable soft drinks forecast is partly due to the sector's superior ability to innovate to shore up consumer demand and stimulate spending. The beer industry had some success here for a time, releasing low-malt and "third" beers in an effort to reignite industry dynamism, but with a wider range of beverages in the soft drinks category, this industry will always boast a far greater capacity to developed new innovative products.

Improved product development capabilities could be one factor motivating Sapporo's decision to bid for Pokka. Although a merger will improve both firms' buying and negotiating power, the combined company would still only have a market share of 3.2%, not sufficient enough to challenge market leader Coca-Cola or soon-to-merge Kirin and Suntory in terms of soft drink branding and pricing.

Of future interest to Sapporo, in terms of further diversifying, could be Pokka's relationship with dairy producer and confectioner Meiji Holdings. Formed via the merger of Meiji Dairies and Meiji Seika Kaisha in April, Meiji Holdings has a 20% stake in Pokka. Sapporo, Pokka and Meiji could cooperate in terms of product development and distribution, improving Sapporo's access to the dairy beverage channel, while there has also been speculation that it might eventually consider a capital tie-in with Meiji.

Although notable in improving its footprint in the higher-growth soft drinks market, Pokka alone will not dramatically lift Sapporo's growth prospects. An improved relationship with Meiji, however, could represent an enormous opportunity for the firm.  

From the August 17, 2009, Prepared Foods E-dition