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January 14, 2009

Kirin Beverage: Business Approach for 2009

Kirin Beverage has positioned 2009 as 'Year Zero' in the run-up to its next medium-term business plan, through which the company is aiming to develop an operational base to support a quantum leap in growth from the year 2010 onward. Our focus during 2009 will be on strengthening our competitiveness along new axes while working to reinforce our earnings base.

Key strategic issues for 2009
Develop Kirin Beverage's operational base to support a quantum leap in growth during the next medium-term business plan:

Reinforce revenue base and Strengthen competitiveness along new axes
  • Reform earnings structure and profit management system
  • Optimize research marketing to enable new value creation for customers
  • Use group alliances to develop framework for enhancing customer relationships, R&D technology, and SEEDS creation
  • Advance M&As and alliances to support quantum leap in growth
  • Develop business model for overseas beverage operations

Review of 2008

The domestic soft drinks market was negatively affected by unseasonable weather in August and September, despite an extremely hot July, and temperatures overall were cooler than during the extremely hot summer of 2007. This weather pattern, in combination with worsening consumer sentiment concomitant with the economic downturn, is expected to have resulted in a 2% year-on-year decrease in industry sales volumes. Our priority during the year was to strengthen core brands Kirin Nama-cha, Gogono-kocha, and Kirin FIRE. We also renewed the long-selling Kirin Lemon carbonated soft drink to mark the 80th anniversary of its launch, and launched Kirin Ururu-cha, while continuing to make high value added proposals through developing the Sekai no Kitchen Kara series. As a result, we outperformed the market with total domestic soft drinks sales (on a non-consolidated base) of 192.94 million cases, roughly level with our performance in the previous year.

Key issues for 2009

The soft drinks market is expected to either remain in line with the previous year or contract slightly as consumer sentiment continues to weaken amid ongoing financial and societal uncertainty.

With customer preferences diversifying in what is essentially a flat overall market, our efforts during 2009 will be directed at continuing our shift to a management approach that is based squarely on consumer-oriented values. Rather than aiming for quantitative growth, we are implementing a major strategic shift toward qualitative growth through the optimal distribution of resources aimed at creating value for our customers. We are targeting medium- to long-term growth by addressing two key prerequisites: reinforcing our earnings base and strengthening our competitiveness along new axes.

In reinforcing our earnings base, we will aim to enhance the cost effectiveness and efficiency of consumer-oriented sales promotions, boost marketing productivity, develop our business model in line with the specific characteristics of each channel, and streamline our SCM.

Strengthening our competitiveness along new axes will involve enhancing the performance of each value chain by achieving synergies within Kirin Group. Specifically, the priority issues that we will address are: developing high value added products; improving our market research; enhancing our R&D framework; and strengthening the foundations of our overseas operations.

We will continue to form and enhance alliances with Kirin Brewery in each value chain to create value and thereby advance Kirin's comprehensive beverages group strategy.

Initiatives in the domestic soft drinks business

(1) Product strategy

We have established a new concept to guide the development of our product strategy: Make it taste great while being good for the body, the mind, and the environment. This concept incorporates what we see as the three key themes driving consumption in our industry today: the polarization of consumer tastes; health, food safety and trust; and environmental awareness. Our intention is to closely consider what it means for a beverage to 'taste good' in today's world, and while producing products of unparalleled quality aim to create beverages with genuine potential to change our customers' lifestyles. We will continue to optimize our research marketing with a focus on current core brands, and develop new high value added brands that can become the core brands of tomorrow in order to create competitiveness along new axes.

Boosting core KIRIN brands

Our flagship items are performing strongly, and we will proactively select and focus management resources on this axis of our product portfolio. We will realize the Great tasteand good for the body, mind, and environment concept outlined above as proposals of new value and lifestyles to consumers based on the consumer-oriented idea.

  • Kirin FIRE
     Kirin FIRE continued to perform strongly in 2008, achieving record-high sales, mainly of Kirin FIRE Hikitate Koubou. This year marks the 10th anniversary of the launch of Kirin FIRE and, in line with our approach of redefining the limits of canned coffee, we will continue to pursue the flavor of regular coffee and further enhance the quality of the continually evolving Kirin FIRE canned coffee brand.
  • Kirin Nama-cha
     In March we will launch a renewed version of Nama-cha, emphasizing the quality of the green tea leaves that essentially define the flavor of green tea, and offering consumers a modern green tea that is refreshing and easy to drink. By pursuing a refreshing juicy taste, we have established a unique position for Nama-cha as a modern green tea offering new value.
  • Kirin Gogono-kocha
     This year we will strengthen Gogono-kocha, the number one selling black tea beverage1, by addressing the needs of health-conscious customers who prefer low-sugar or sugar-free products, based around a theme of For your body in the afternoon. We are developing a series of additional appealing products that will include ambient and chilled versions.
    1. Food Marketing Institute survey
  • Mineral water
     With Kirin Alkali-Ion-no-Mizu, we will be highlighting the appeal of its delicious alkalinized natural water to suggest unique new ways to consume and enjoy the benefits of this product. We aim to strengthen the number one selling imported mineral water brand2 Volvic along with flavored water Volvic Fruit Kiss through the continuous implementation of a social contribution program, the 1L for 10L Program.
    2. Food Marketing Institute survey

New high value added product proposals

By optimizing our research marketing we aim to discern customer needs and propose high value added products that will benefit our customers.

  • Kirin Hakko Ukon
     During 2009 we will launch Kirin Hakko Ukon, a new beverage that contains turmeric extract. By subjecting autumn turmeric to a lactic acid fermentation process, we have softened its bitter taste, making it more delicious and easy to drink. We have also added 200mg of ornithine, an amino acid found abundantly in freshwater clam. We have adopted a size and diameter for the product that will make it easy to stock in vending machines, and will steadily expand its points of sale.
  • Kirin Sekai-no-Kitchen-Kara
     With Sekai-no-Kitchen-Kara, we have developed a product with a unique position as a premium taste beverage for adult consumers. Starting with the renewal of fruit nectar beverage Torotoromomo no Frune we will deliver new products and news throughout the year with the aim of creating a brand that will continue to excite customers.
  • Kirin Ururu-cha
     In May 2008 we launched Kirin Ururu-cha, a new type of blended tea that combines popular healthy ingredients with a juicy taste experience, and the product has been performing strongly. This year we will further improve its ingredients and renew the product for a new launch as a "healthy blended tea that replenishes the nutrients needed for today's busy lifestyles."

Developing next-tier core brands

We aim to invigorate the Kirin soft drink brand by clearly defining the product benefits and social opportunities available to consumers and developing valuable products that customers can continue to enjoy for years to come.

  • Kirin LEMON
     A full product renewal in 2008 to mark the 80th anniversary of Kirin LEMON enabled us to achieve a 72% increase in sales volume. In 2009, we will continue to promote the consistent quality and safety of this trusted long-selling brand, as well as the delicious flavor and sense of wellbeing that it provides.
  • 100% fruit juice products
     To magnify the values that encourage customers to choose Tropicana within the 100% fruit juice category, we will review its core products under the Tropicana brand and propose high value added brand extensions, continuing to pursue the delicious flavor of fruit juice as a means to improve the brand.

(2) Marketing strategy

In marketing strategy, we will continue to strengthen our alliance with Kirin Brewery, implementing value proposal marketing that fully leverages the resources of the group to maximize synergies. We will further enhance our market research based on a rigorous consumer-focused approach through which we aim to ensure that our products are always closest to customers. In addition, we will use group alliances to strengthen marketing activities, closely adapting them to the specific characteristics of each region to ensure that we can respond accurately to market needs and increase our contact with our customers.

This year, in addition to implementing regular marketing activities at large distributors, we will newly launch Kirin Oolong Tea as an on-premise product through marketing activities in the on-premise market, and pursue a marketing initiative headed by Kirin Brewery that will enable us to create new synergies between our two companies.

In the vending machine channel we will optimize column arrangements to reflect and guide consumer behavior, and through mergers and acquisitions, alliances and other methods aim to increase the number of machines in operation and the number of columns hosting Kirin products.

Overseas operations/ Domestic food operations

In overseas operations, we continuously pursue further growth by utilizing technology and customer relationships to both strengthen the base of and increase the scale of our operations in China, Thailand and Vietnam. We will continue to reinforce our operational base in China as part of our comprehensive beverage group strategy. From spring 2009 we are scheduled to begin operation of a second aseptic packaging line, and we aim to build higher levels of customer support by developing high value added products through this technology. We will start beverage operations in Vietnam from the second half of fiscal 2009 with the commissioning of a factory. In Thailand, in addition to Nama-cha Green Tea, a milk-type green tea beverage that went on sale in May 2008 and has performed favorably, we will develop products in new categories to improve our product portfolio.

Koiwai Dairy Products Co., Ltd. has as its core operation the dairy business supported by Koiwai farms. Koiwai is managed with the key principles of being customer focused, valuing quality, protecting the environment, and making optimal use of Koiwai's distinctive capabilities and characteristics. By emphasizing Koiwai's highly valued qualities—namely trustworthiness (safety and reliability), and quality (good taste and high product quality)—we aim to distinguish Koiwai from other food brands and help Koiwai attain a unique position in the market.

Together with society: CSR (corporate social responsibility) initiatives

Throughout our business activities, we will work to provide food safety and reliability, in keeping with our shared value of visible quality, as part of which we will continue to optimize our quality assurance framework and traceability system. We will also further strengthen our internal control system to ensure complete compliance and conformity to the requirements of J-SOX.

In order to actively improve our communication with society we will carry out initiatives that leverage our unique technologies and strengths—and the products and services that originate with these—in three areas: environmental conservation; transmission of beverage-related cultural information; and sports sponsorship.

In the area of environmental conservation, we acquired ISO14001 certification at our head office at the end of 2008. During 2009 we will advance measures to further incorporate environmental considerations into our management approach and shift to low carbon emission operations.

In the vending machine business we will continue environmental initiatives we pursued last year. We will continue to adopt non-fluorocarbon refrigeration equipment, which release almost zero greenhouse gases, and increase our use of heat pump-equipped vending machines, which substantially reduce energy consumption compared with conventional machines. Our plan is to increase the total number of heat pump-equipped vending machines in operation to a target of around 15,000 units.

As the leader in Japan's black tea beverage market, we will continue to transmit information relating to the culture of tea. In sports sponsorship we plan to implement projects such as Escort Kids and Kids Sheet under the umbrella of the Kirin Beverage Kids Project, the purpose of which is to nurture the next generation.

By carrying out these initiatives, we aim to develop a strong social presence as a company that is trusted by its customers and by society as a whole.

Kirin Beverage product sales targets (total domestic sales volumes) Millions of cases
  2008 Percentage of
previous year
2009 target Percentage of
previous year
Kirin Nama-cha 26.7 89% 25.5 96%
Kirin Gogono-kocha 37.39 99% 37.5 100%
Kirin FIRE 30.7 102% 33.0 107%
Kirin Alkali-Ion-no-Mizu 23.98 103% 25.0 104%
Volvic 16.16 106% 16.5 102%
Core brand total 134.93 99% 137.5 102%
Beverage total 192.94 100% 193.0 100%

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© 2007 Kirin Holdings Company, Limited.

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