Mercian Corporation

views updated

Mercian Corporation

1-5-8 Kyobashi, Chuo-ku
Tokyo, 104-8305
Japan
Telephone: +81 3 3231 3910
Fax: +81 3 3231 8539
Web site: http://www.mercian.co.jp

Public Company
Incorporated: 1934 as Showa Brewery Co. Ltd.
Employees: 1,290
Sales: $947.0 million (2004)
Stock Exchanges: Tokyo
NAIC: 312130 Wineries; 311119 Other Animal Food Manufacturing; 312140 Distilleries

Mercian Corporation is Japan's leading wine producer and distributor, and also ranks in the top three, alongside Sapporo and Asahi, of the country's alcoholic beverage groups. Mercian produces and distributes a wide range of wines, including its flagship Chateau Mercian. The company's efforts to develop and refine a Japanese wine based exclusively on grapes grown in Japan has enabled it to win a number of international wine competitions since the late 1990s, including the Japan International Wine Challenge in 2000. In addition to its higher-priced Chateau Mercian line, Mercian produces the economically priced Bon Marché brand, credited with playing a major part in the Japanese wine boom in the 1990s. The company operates wineries in France, Spain, and in the United States. Mercian's overseas holdings include Markham Vineyards, in Napa Valley, California; Chateau Reysson, in the Bordeaux region; as well as several production partnerships in Spain and elsewhere, including Spain's Codorniu and Chile's Vina Concha y Toro. In the traditional Japanese beverages segment, Mercian focuses primarily on Shochu, a white spirit distilled from rice or potatoes. The company also produces Scotch-styled whiskey and Japanese plum brandy, and holds import and/or production and distribution agreements with William Grant, Old Crow, Jim Beam, and Original Peachtree, among others. Using the byproducts of its distillation operations, Mercian has extended into animal feed and pet food production. The company also produces antibiotics, including the cancer-fighting drugs Aclacinomycin and Pinorubin. Mercian's partnership with Japanese food production giant Ajinomoto provides it with sales and distribution and other support services. Mercian is listed on the Tokyo Stock Exchange, and Ajinomoto is the company's largest shareholder, with more than 11 percent of shares. The founding Suzuki family remains active in the company, although former President Tadao Suzuki, grandson of the company's founder, retired from the position of chairman in 2004 at the age of 75. In that year, the company's sales topped $947 million. Wine accounted for 26.8 percent of group sales, followed by Shochu (23 percent) and other Japanese liquors (14.4 percent).

DEVELOPING JAPAN'S WINE LEADER IN THE 20TH CENTURY

Mercian Corporation traces its winemaking history back to the late 19th century, with the founding of Dai-Nihon Yamanashi Budoushu-Gaisha in 1877. Japan's humid climate, however, remained rather hostile to grape-growing, and into the mid-20th century, the country's wine industry relied heavily on imported grapes for production of wines. The Yamanashi-based company began developing new growing techniques and working with domestic grape varieties, adapting traditional grape-growing techniques to the Japanese climate. By 1949, the company had succeeded in launching its Mercian label, which claimed to be the first Japanese wine made wholly from Japanese grapes. The Mercian label quickly became a leading wine label in France, and the Yamanashi company adopted the brand name as its own.

In 1961, Mercian was acquired by the Showa Brewery Co. Ltd. By the mid-1960s, Mercian had begun to earn an international reputation, starting with the winning of a gold medal in an international wine competition in 1966. Following that success, the winemaker began developing a premium wine label, launched as Chateau Mercian in 1970. With this label, the company sought to adapt French winemaking traditions to the Japanese climate. Planting of Merlot grapes began in 1976 at the company's Kikyogahara vineyard. This was followed by the addition of Cabernet Sauvignon grapes at the company's Jyonohira vineyard in 1984.

An important step in the group's winemaking effort came with the development of its Vertical Shoot Positioned trellis system. Pioneered in Jyonohira, the new method broke with traditional Japanese grape-growing methods, involving the use of an overhead trellis. The company also adapted techniques from other agricultural sectors, such as apple growers' use of plastic bags to cover fruit in order to protect it from the elements.

At the same time, Mercian, under Showa, had begun expanding its wine interests. In the early 1970s, the company began developing its import business, starting with an agreement to import and distribute Tio Pépé brand sherry wines from Spain's Gonzales Byass in 1972. The following year, the company became the importer and distributor for wines made by Germany's Gustav Adolf Schmitt, as well as the Tokay brand of wines from Hungary.

The company's relationship with France began in 1982, when it received the distributorship for Maison Albert Bichot's wines. This was followed by a distribution agreement with Remy-Cointreau, bringing that company's cognac to France, and an agreement with Administration Schloss Reinharshausen, introducing that company's Rhine Wines to the Japanese market. In the late 1980s, the company strengthened its presence in the French wine segment in Japan through import and distribution agreements with champagne-maker Pommery, and wine merchant Crus & Domaines de France, both in 1988.

Into the late 1980s, however, Mercian launched its first efforts to develop its own international wine production component. The company initially turned to the United States, where it acquired Markham Vineyards, in California's Napa Valley, in 1987. This was followed by the purchase of a wine estate in France, Chateau Reysson, in Bordeaux.

COMPANY PERSPECTIVES

Established in 1934 as a liquor manufacturer, Mercian Corporation has become one of Japan's leading producers of wine, Oriental liquors and low-alcohol beverages. The Company has also established a strong record of selling a wide range of imported alcoholic beverages. Throughout its history, Mercian has used original fermentation know-how and biotechnology to expand its business horizons. In addition to its alcoholic beverages business, the Company manufactures and markets pharmaceuticals, chemicals and feedstuffs.

Mercian's network consists of five branch offices, eight factories and two research facilities in Japan, as well as one representative office and five production facilities overseas. Two of the overseas production facilities are wholly owned, while the remaining are affiliates in which Mercian's equity participation is less than 50%.

Mercian enjoys a close relationship with the Ajinomoto Group—one of Japan's largest food manufacturers—in such areas as sales, distribution and information processing.

Partnerships formed an important part of Mercian's continuing growth strategy into the 1990s. In 1989, the company entered a partnership with seven Italian wine companies, providing Mercian with a portfolio of Italian wine labels for the Japanese market. The following year, the company reached an agreement to begin importing Gu Yue Long Shan branded wine from China's Shaoxing province. In 1993, the company turned to the South American market, and especially the rapidly improving Chilean wine industry, winning the import and distribution agreement for Japan for the wines of Vina Concha y Toro. This was followed by an agreement with Argentinian producer Bodegas Trapiche in 1996.

By the dawn of the 21st century, Mercian had added distribution agreements with Californian wine heavyweight Roberto Mondavi, starting in 1998, and with Marchesi de Frescobaldi, of Italy, and Montan Wines Limited in New Zealand, both in 1999. By 2001, the company had added another French wine partner, Piat Pere et Fils, and several of its Piat d'Or wine labels.

JAPANESE DRINKS LEADER IN THE NEW CENTURY

At the same time it developed its wine business, Showa, which adopted the name Mercian Corporation in 1990, had been building its other interests in the drinks industry. Showa had been founded in 1934 in Tokyo, and began producing alcoholic drinks in 1935. This company expanded its production to include synthetic sake, which led to the launch of a new brand, Sanraku, in 1937. By 1946, the company had extended its drinks production to include another traditional Japanese spirit, Shochu. In the mid-1950s, Showa's liquor production operations (more specifically, the waste byproducts of the distillation process) gave it an entry into the animal feed industry.

KEY DATES

1877:: Wine grower Dai-Nihon Yamanashi Budoushu-Gaisha is founded.
1934:: Showa Brewery is founded.
1937:: Showa begins production of Sanraku synthetic sake.
1946:: Showa begins production of Shochu liquor.
1949:: Yamanashi launches the Mercian label.
1961:: Showa Brewery acquires Mercian; Showa merges with Nisshin Brewery Co.
1962:: The company merges with Ocean Co., maker of Ocean brand whiskey.
1966:: Showa begins production of agricultural antibiotic Kasugamycin.
1969:: Showa launches production of Josamycin, a medical antibiotic suitable for human use.
1972:: The company initiates an import and distribution agreement for Tio Pépé brand sherry wines from Spain.
1973:: The company begins the import and distribution of Gustav Adolf Schmitt wines (Germany) and Tokay wines (Hungary).
1977:: The company enters into an import and distribution agreement with Jim Beam Brands of the United States.
1985:: Showa changes its name to Sanraku Co.
1987:: The company acquires Markham Vineyards in Napa Valley, California, and Chateau Reysson in Bordeaux, France.
1988:: The company enters into import and distribution agreements with champagne-maker Pommery, wine merchant Crus & Domaines de France, and William Grant.
1990:: Sanraku changes its name to Mercian because of rising wine sales; the company begins importing Gu Yue Long Shan branded wine from China's Shaoxing province.
1993:: The company begins an import and distribution agreement for Japan for the wines of Vina Concha y Toro (Chile).
1996:: The company enters into an import and distribution agreement with Argentinian producer Bodegas Trapiche.
1998:: The company enters into an import and distribution agreement with Roberto Mondavi (U.S.A.).
1999:: Import and distribution agreements begin with Marchesi de Frescobaldi (Italy) and Montan Wines Limited (New Zealand).
2001:: The company enters into an import and distribution agreement with Piat Pere et Fils (France).
2005:: The company acquires 44 percent of Nippon Liquor Ltd.

Showa's acquisition drive in the early 1960s went beyond Mercian to include a merger with Nisshin Brewery Co. in 1961 and with Ocean Co. in 1962, a maker of Ocean brand whiskey. Following the latter merger, Showa changed its name to Sanraku Ocean Co. Through the 1960s, the company continued its diversification effort as well, launching production of the agricultural antibiotic Kasugamycin in 1966. This was followed by the launch of production of a medical antibiotic suitable for human use, Josamycin in 1969. Both antibiotics became strong sellers in Japan and internationally.

Sanraku sought to complement its success developing its portfolio of wine import and distribution agreements in the 1970s. In 1977, for example, the company signed an agreement with Jim Beam Brands of the United States, adding that company's whiskey labels, including Windsor Canadian whiskey and Old Crow bourbon. Later, in 1988, the company added Grant's blended whiskey, from William Grant & Sons. This was followed by the distribution rights to the Original Peachtree Fizz brand in 1989.

The company changed its name to Sanraku Co. in 1985. The growth of its wine business, however, encouraged the company to change its name again, to Mercian, in 1990. By then, Mercian had scored two new successes in the pharmaceuticals market. In 1981, the company launched its successful anticancer antibiotic Aclacinomycin. This was followed by a new cancer-fighting compound, Pinorubin, in 1988. Two years later, the company formed a joint venture, Shenzhen Main Luck Pharmaceuticals Inc., in order to introduce its antibiotics into the mainland Chinese markets.

Pharmaceuticals were to remain just a small part of Mercian's business, however, and by the mid-2000s, with no new products ready for market, the percentage of pharmaceuticals in Mercian's overall revenues had begun to shrink. Yet this was due in part to the development of a boom in Japanese wine consumption in the 1990s.

The discovery of potential health benefits of the polyphenols naturally present in red wine captured the attention of the health-conscious Japanese consumer market. Mercian shrewdly capitalized on the new and growing interest by launching a new wine label, Bon Marche. The new wines were marketed at lower price points than the group's other labels. The result was an upsurge in Japanese wine consumption. Into the mid-2000s, wine consumption in Japan had doubled its level from just a decade earlier. By then, however, the wine boom had ended.

Mercian nonetheless continued to capitalize on the purported health benefits of drinking red wine into the 2000s. The company launched new wine varieties featuring enhanced polyphenol levels, as well as other wines containing other health-promoting ingredients, such as blueberries (for sharpening eyesight) and, in 2004, perilla leaf, said to help suppress allergy symptoms. Meanwhile, rival Sapporo's decision to exit the low-end wine segment in 2003 enabled Mercian to claim the leading position in Japan's wine industry.

Mercian continued to seek new growth opportunities into the second half of the 2000s. In 2005, for example, the company reached an agreement to acquire a 44 percent stake in Nippon Liquor Ltd., which specialized in importing and distributing wine to the Japanese market. Wine remained a driving force for the group's growth, representing nearly 27 percent of its sales. Mercian Corporation prepared to toast further growth into the new century.

PRINCIPAL SUBSIDIARIES

Château Reysson (France); China Shaoxing Yellow Wine Group Co. (PRC); La Jota Vineyard & Winery L.L.C. (U.S.A.); Markham Vineyards (U.S.A.); Marusan Express Co., Ltd.; Mercian Bio Green Co., Ltd.; Mercian Cleantec Corporation; Mercian Feed Corporation; Mercian Karuizawa Museum of Art; MERCOM CORPORATION; Nanki Kushimoto Fisheries Corporation; San'o Corporation; Sanraku Finechem Incorporated; Shenzhen Main Luck Pharmaceuticals Inc. (PRC).

PRINCIPAL COMPETITORS

Taian Taishan Brewery; Sapporo Holdings Ltd.; Asahi Brewers Ltd.; Oenon Holdings Inc.; Yibin Wuliangye Company Ltd.; International Distillers Philippines Inc.