No.8631   2004. 1. 8

Suntory to implement internal company structure for
“Wine & spirits” and “Beer & RTD” business, starting from 2004.

1. Implementing internal company structure

2. “Wine & Spirits company”’s policy for 2004.

3. “Beer & RTD company”’s policy for 2004.

4. Completion of new research and development institution “Product Development Center”.

5. Program for environmental issue.

Suntory Co. Ltd. has implemented internal company structure, starting from October of 2003. Companies will be formed of 5 companies, which are “Beverage & Food company”, “Wine & Spirits company ”, “Beer & RTD company ”, “Food service & Business development company” and “Global business company ”taking consideration of the conformability of business models for each business units. Especially for alcoholic drink business, we restructured its business unit into 2 companies, which are “Wine & Spirits company ” and “Beer & RTD company ” , to strengthen in specialization and to reinforce competitiveness.

Each company will have planning, research & development, production, and sales functions integrated, to strengthen consistency and also, to speed up decision making and action.

Moreover, each company will operate as if it were independent firm, putting their viewpoints in terms of business management, and aim for innovating business efficiency to correspond to intense change of market environment promptly.

1. Liquor business
The number of sales for Suntory whisky ended with slight fall by approximately 10%, likewise the total Japanese whisky market last year, as the market under adversity for bar use field. The year of 2003 was the 80th anniversary since Suntory first started manufacturing whisky. We, then, have concentrated on whisky’s original value solicitation to arouse long term demand. As a result, Suntory’s accumulated whisky manufacturing skill was acknowledged internationally, to receive various prizes and certifications, such as “Yamazaki 12yrs”, domestic manufactured whisky, received gold prize in international liquor competition, “International Spirits Challenge (ISC)”, and also, both of Yamazaki and Hakushu distillery got certified for “Distillery code 119” and “Distillery code 120” from “The Scotch Malt Whisky Society” (SMWS). For imported whisky business, single malt whisky’s sales for “Maccalan”and “Laphroaig” increased approximately 10% compared to previous year. Total sales for liqueur / spirits ended with slight decline compared to previous year, from the effect of adverse market condition in bar / hotel use field. On the other hand, the core brand “LEJAY ”exceeded previous year’s sales. “KAHLUA” and “CAMPARI” sold on average, following the market sales trend, and consolidated their status as cocktail’s standards.

2. Shochu business
Shochu market is estimated to have risen 4 to 5 % compared to previous year. Of which, Suntory’s shochu business performed to rise up to double digit numbers. Also, among the growing Korean shochu’s market, the sales of “Kyogetsu Green” grew rapidly up to 20%, which exceeded the growth of the total market. Moreover, “Sorekara” achieved approximately 10% increase as well. As for other shochu types, we have started selling “Kuromaru” and “Kuromaru Shinshu”, which are co-developed product with famous shochu manufacturer , Hamada Shuzo Co., Ltd. , in Kagoshima. Furthermore, the sale of genuine awamori “Tenryugura”also gained good reputation in the market.

3.Wine Business
Suntory’s wine business started implementing world’s leading wine brands, to enable to offer valuable wines to customers, begins with American foremost winery “E&J Gallo Winery” , French Bourguignon wine “Bouchard Pere et Fils” and “William Fevre Chablis” and Spanish Cava’s “Freixenet”. In addition, Suntory received gold prize, the highest, for “Tomi 1997”, in “Le Citadelle du Vin 2003”, the international wine / spirits competition, and it was Japan’s first achievement to win the prize. Suntory had thrown strength in wine making at Tomi no oka winery, the self owned vineyard, using 100% of domestic grown grapes to create “Tomi 1997”. Furthermore, total market of Beaujolais Nouveau showed extreme growth and reached the biggest-ever launch for more than 600 thousands cases. Among these,“Georges Duboeuf” consolidated its brand status.

Wine’s total sales amount in the market for the year of 2003, is expected to have decreased for approximately 10%, and in fact, Suntory’s wine’s total sales also followed the market sales trend. Nevertheless, there has been a sign of recovery shown during November to December, after Beaujolais Nouveau season

Suntory possess history of building liquor drinking culture in Japan, such as for whisky, liqueur and wine. Wine & Spirits company provides complete selection of various magnetic brands of wine and spirits through international network. Wine & Spirits company plans to activate market for the year of 2004, by offering new suggestions in alcoholic beverages market.

1.Liquor business
We expect liquor market to continue to be in adverse condition for the year of 2004. Whisky market is forecasted to decline compared to the previous year, and liqueur / spirits market is to remain approximately unchanged from the previous year. Under these market circumstances, Suntory’s liquor business will aim to consolidate base as category leader for the new growth, by activating long-term market and strengthening brand value.

(1)Whisky
Suntory’s whisky business aims for playing the lead role in recovering market growth, by pushing forward the “Creation of new whisky culture” with long range perspective. We will approach the market actively, putting “Creation of new whisky drinkers” as our main strategic pillar this year. We especially are targeting to younger people, who are aged between 20 to 40 years old. We plan to offer “Kakubin ” and “Jack Daniels” as products to this target segment, and will focus on communication activities to response to their lifestyle. Moreover, we are going to offer new whisky drinking style, named “Half Rock”. “Half Rock” is a rock style drink, made of whisky and mineral water or soda, proportion of 1 to 1, with ice, and the drink is to introduce pleasant and stylish new whisky drinking style to the market.

Suntory also plans to expand further in transmitting whisky making information, putting “distillery” as our core. Distilleries will be inviting more customers, aiming for further understanding of the quality of Suntory’s whisky and attractiveness of whisky itself. Single casques sold in Yamazaki and Hakushu distilleries enjoyed its popularity last year, and were sold out in 10 minutes when offered through internet. We plan to strengthen our malt’s limited edition lineups and will hold tasting events in distilleries and other events at a time, to expand more whisky fans.

As for “Yamazaki”, which received gold prize last year in ISC, we plan to elevate its brand value and promote its prime quality, as world certified “Japan’s single malt whisky. “Maccallan” and “Bowmore” will also be promoted widely to the market, by offering each of their unique taste as imported top brand single malt whiskies.

We forecast that there will be in adverse condition continuously for bar use field. However, we will attempt to improve whisky’s value by focusing on our best whisky “Hibiki “, and promote luxurious time or scene brought by genuine taste of whisky.

Whiskies are aged and matured in oak barrels, and reborned into amber color with fragrant alomas. Suntory has been researching “Barrel maturing” effect, especially focusing from “health” aspect. As a result, we found soothing effect on stress from whisky’s fragrant component, and also, a great deal of fine components for human body, such as polyphenol, slowly running out from barrel. We plan to pass on these new and attractive sides of whisky, starting from providing its effective health information this year.

(2) Liqueur / Spirits
Suntory’s liqueur / spirits business plans to strengthen top brands’ product category, such as , “LEJAY” “CAMPARI ” and “KAHLUA”, further , to expand its market, using utmost of our wide range of brand portfolio. We found that 20’s alcohol drinkers enjoy drinking cocktails for their starters. We focused on this point to realize the trend of “Demand on Starter” (aperitif) and offer various drinking style to promote new cocktail culture. Also, we will develop customer-oriented new products to create new market actively.

2.Shochu business
Shochu business plan to foster and strengthen its products’ brands, by performing marketing activities that fit each market’s characteristics.

“Kyogetsu Green”, Korean shochu with favorable sales growth, is to strengthen its promotional activities, such as to advertise widely, and appeals its high quality. We aim for improving the product’s brand and to establish No.1 brand position for Korean shochu in Japan.

“Sorekara, shochu that possesses new value, is beginning to lay brand foundation at present. We will strengthen its brand by carrying out active marketing activities and create firmer market position.

As for type“Otsu”,continuously growing shochu field, we plan to expand more of new product line ups, adding to the existing brands such as that Imo Jochu (potato shochu ) “Kuromaru” / “Kuromaru Shinshu” and genuine Awamori “Tenryugura”. We also aim to pass on the tradition and culture of authentic shochu to more customers, to grow further.

3.Wine business

Japanese wine market is expected to grow for mid and long term.

Suntory has been producing wines at self owned vinyard and winery focusing on quality. This enables us to affiliate with potential wineries worldwide, to create our brand portfolio. We will continue to offer the most of the appeal of wine itself, to provide valuable wines to customers and aim to lead the very market.

(1) Extension and strengthening brand’s portfolio
Suntory plans to foster the existing brands possessed , starting with E&J Gallo Winery’s wine “River Crest”, which first sold in 2003. As for sparkling wine, we will strengthen in providing information to expand the market, focusing on “Frexinet” and “Cinzano”. We will also examine implementation of potential brands worldwide actively continuously.

(2) Quality focused in wine producing
Suntory plans to develop wine making with 100% self owned vinyard, which are cultivated in “Tomi no oka”, and will pursuit to obtain world class quality.

(3) Expansion of wine market
Suntory plans to offer new value in wine towards the market, which has been growing in the long and medium terms. We will recommend full-fledged tasteful wine, which are manufactured by utilizing our collective skill. Also, we will work on communication activities actively, to widen interface between customers and wine.

1.Beer business
Beer and happoshu market was affected by happoshu’s tax increase and cold summer weather of this year. Happoshu market fell slightly and beer market decreased for 10% compared to previous year, which gave 6-7% of decline to the total market. Having the circumstances, Suntory’s beer business focused on fostering the existing brands. We continuously has acted in appealing our loyalty in ingredients and providing high quality products for “ Malts ” , which resulted to favorable result and ended surpassing total beer market. As for happoshu, although tax increase has affected the market, “Magnum Dry” grew significantly, and “Diet “‘s sales also exceeded previous year. “Fine Brew” grew steadily as well, but total sales in beer business ended with 53,940,000 cases (94% of total sales of previous year).

2.RTD business
Suntory has developed activities to broaden value of chu-hi, cocktails, and low-alcohol ciders in RTD (Ready - to – Drink) business. We received high quality remarks for our new products, such as, limited edition of “Super chu-hi” to enjoy the seasons, “calorie. ” which followed the trend of customers’ health consciousness offering can chu-hi with “calories 50% off , sugar 80% off ”, and “Royale” higher priced premium can chu-hi , using luxurious fruits for its ingredients. Nevertheless, total sales of RTD business declined for approximately 20% compared to previous year.

Beer & RTD company is a company offering low alcohol drinks ,which are enjoyed casually in everyday life , such as beer, happoshu and can chu-hi. We have developed happoshu, bottled cocktails, low-priced can chu-hi and others, and has kept challenging to offer new value to the market. At the same time, we are planning to (1) “strengthen brand power” of the existing products that have been supported by a great deal of customers, and to draw out Suntory’s research activities’ synergy effects in various fields and carry out (2) new product development to suggest new value, for the year of 2004.

1.Beer business

Total market of beer / happoshu for the year of 2004 is expected to decline slightly compared to previous year, where beer market will continue on downward trend, and happoshu market will rise for a few points.

Among the market circumstances, Suntory’s beer business plans to respond to market environment change, by pursuing “Brand value strengthening” and “New value suggestion” , and setting out of track for growth. Suntory’s beer business’ sales target for the year of 2004 will be 55,600,000 (103% of total sales of previous year).

« Strengthening brand value »

• Malts
“ Malt’s ” is well received for its natural taste , which adheres its ingredients by using “ malt 100% / natural mineral water 100% ”. It also received high remarks from customers of its can designs, expressing “ water vein ”, which won attention for its originality that other companies do not have. We plan to continue promoting “Malt’s ”’s quality to acquaint the attractiveness of the product, by making a strong appeal on the gusto of “ Beer made with natural mineral water”. Moreover, we have started “Malt’s factory outstation” from last year, and will pursue continuously during high seasons, to introduce the delicacy of “ Malt’s ” to more customers, by putting through customers the experience of beer factory’s tour.

• Magnum Dry
“Magnum Dry ” opened new market for “Dry happoshu ” since its first sale in 1999, and has been supported from a great deal of customers as standard happoshu’s product. We plan to appoint Mr. Hideki Matsui (New York Yankees baseball player) as “Magnum Dry ”’s brand character in the year of 2004, to make a strong appeal on advertisement for its refreshing and dynamically sharp taste. In addition, we are going to hold sales campaign named as “ Hideki Matsui, GO ! GO ! Magnum campaign ” to develop further as Suntory’s happoshu major brand.

• Diet
“Diet ” possesses 3 combined features, which are “ Calories 50% cut, sugar 70% cut and purine 50% cut ” , and these have been gaining great reputation to establish unique position in happoshu market. We plan to upgrade its market position widely, making a strong appeal on its healthy and stylistic fascination by advertisement and promotional activities for the year of 2004.

• Jun Nama
“Jun Nama ” has been gaining high remarks from customers, as a type of refreshing happoshu that goes along together with meals, which is manufactured by a method “ charcoal filtering ”. We plan to strengthen “Jun Nama ”‘s brand power by developing promotional activities, under the theme of “Compatibility with food ”, for the year of 2004.

• Fine Brew
“Fine Brew” has been leading new market as “beer-taste non-alcohol drink” and it has been growing steadily, since its first sale in the year of 2002. It is mainly supported by health conscious market and it gains especially high remarks from beer / happoshu drinkers for its taste. We plan to achieve its firm position in the very category to expand its fans for the year of 2004.

2.RTD business

Suntory’s RTD business has been showing upturn since the end of 2003 from the impact of new products. It estimates to grow sales amount for 31 million cases (170% of total sales compared to previous year), by focusing on “Brand establishment and cultivation ”for the year of 2004.

« Brand establishment and cultivation »

• Super Chu-hi
“Super Chu-hi” has been the standard can Chu-hi product, leading its market at all times since its first sale in 1999. We plan to expand its fans by adding new products for the year of 2004, such as “ Super chu-hi <Tanrei>” and “ Super chu-hi <Tanrei Greapfruits>” and also, continuous development on seasonal limited products , which gained great reputation in 2003.

• Calorie.
“Calorie” is a new type can chu-hi, which offers fruity and refreshing pleasure tastes. It also possesses special feature of “Calories 50% off / Sugar 80% off ” compared to existing can chu-hi. We plan to create new market of “Calorie off chu-hi ” in 2004, by expanding its fascinating brand and releasing new product “Hakuto”, into the market by the end of January , 2004.

• Royale
“Royale ” series is a premium can chu-hi, produced by high graded fruits lavishly. We aim for achieving firm position in the very market as premium can chu- hi, by letting customers to experience its high quality and also to focus on new flavor development

• Cocktail bar
“Cocktail bar ” is our representative brand for low alcohol drinks and it is a product that has been fostering cocktail culture for a long time “The cocktail bar <CAN> ” is released in 2003, and its credibility and high quality has been appreciated, which led to show favorable trend now. We plan to expand cocktail drinking market and grow more fans by developing new products in 2004.

2.“Suggesting new value”

Suntory possesses wide range of alcohol drink business such as whisky, wine, liqueur, low-alcohol drinks, and shochu. However, in Beer & RTD company, we have been pursuing product development besides alcohol drinks, by bringing out synergy effects of our accumulated skill, such as from beverage, food and health food. We have produced outstanding products, such as “Diet ” by applying our strongly built manufacturing skill in happoshu and the know-how from soft drinks business. We plan to boost the new demand by working on product development with freewheeling thinking and challenge spirits for the year of 2004.

• New release of brand-new beer cocktail “BAKUFU”
We are releasing “ Suntory BAKUFU ” as brand-new beer cocktail, starting from March 2004. “ BAKUFU ” is produced after the pursuit of tasty beer based alcohol drinks and developed it on company-wide, without being constrained of traditional business fields. It is based on 100% malts combined with full-fledged Mugi shochu (oat shochu) and offers both beer’s and shochu’s original ,taste, that possesses rich, refreshing and sharp taste. (See news release no.8632)

• New brand “Suntory Chu-hi Double shibori (Double flavored chu-hi)” releasing in 2004.
“Suntory Chu-hi Double shibori (Double flavored chu-hi) is a new type of can chu-hi brought by collective skill / know-how, accumulated from wide range of line up of Suntory’s alcohol business and also, from growing beverage & food business. We pursued on rich “ tasteful ” and “ sharp ” flavor, which then finally manufactured with 2 different types of fruit juices and 2 types of liquers We aim for upgrading our market position in 2004, by releasing this product and to activate can chu-hi market.

Suntory is completing “ Product Development Center ”(Located in Kawasaki-shi, Kanagawa ) in autumn of 2004, and its purpose is to integrate product development functions on food and alcohol business fields. The center is aimed for expanding innovative ideas by activating communication and accelerating collaboration between related departments concerning product development. To pursue the goal, the center is built on approximately 12,300m² floor area, laboratories focused on the first floor, and unpartitioned floor on the second floor with width 100m and depth 20m. By establishing this development center with new concept, we aim to:

(1) Activate our collective strength on product development, and exhibit our synergy effects on research and development activities in various fields.

(2) Enhance product development in line with customer’s trend more promptly, and also to strengthen the coordination between business divisions, advertising divisions, designing divisions and other various related divisions.

• Water resource cultivating activities
Suntory has been continuously acting for preservation of the environmental , under corporate philosophy “Resonating with people and nature”, as most of our products’ ingredients are comprised by blessings of nature. Especially we have pursuit and treasured ‘water’, which led us to strengthen our water resource preservation activities and to put up “Living with water. SUNTORY” slogan since 2004. In 2003, we actualized Mountain Aso Gairin in Kumamoto, which is spread approximately 100ha, as our water resource cultivating groves called, “Suntory’s forest for natural water”. We plan to start our forestry protection activities and to develop “Haven of rest” at the very forest, aiming people to contact with nature. For the year of 2004, we will continue to maintain the forestry, and will open “Suntory’s school of forestry and water ”, that creates opportunity of environmental education for next generation. In addition, Suntory is scheduling to expand our water resource cultivating activities not only in Aso-ku, Kumamoto area, but in other areas as well.

• Initiating interests on environmental issues
Suntory has been implementing environmental activities to introduce and to initiate interests on environmental issues to our customers at our beer factories. The activities is carried out by holding “Eco brewery tour ”, that is a factory tour that focuses on ‘Ecology’, and “Family tour – Mechanism of non-garbage factory – ”, that is a factory tour to introduce recycling structure to parents and children. Moreover, we publish “ Environmental reports ” every year since 1998, and have been introducing goal for long and middle terms of Suntory’s activities towards environmental issues. As a result, our activities have been appreciated in 2003, receiving prize for “Environmental Reports Awards Excellence”. Moreover, we have hold “Sustainability Board ” since 2003, which is to enhance our activities in the future, by adopting opinions from environmental and social experts.

• Resource saving / energy saving goal achievement
Suntory has already achieved the goal, which was supposed to achieve by 2005, of reducing factory’s fuel, electricity, and service water unit consumption by 47%, 38%, and 37% respectively compared to the year of 1990. We then now are planning to pursue conversion of fuel to gas, expansion on utilizing water recycled, CO2 reduction, and improving usability of energy and water.

• Technological development and ‘Green’ purchasing policy
Suntory has achieved to reach 100% for recycling percentages of factory’s arising / wastes in every factories, and this has been persisted still. We attained drastic reduction of sludge generation, by implementing oxidized decomposition system, to decolorize effluent’s pigment components generated from manufacturing process. It is the first attempt in Japan. In addition, we have adopted “ Green purchasing basic policy ” and “ Green purchasing guideline ” , to put an effort in purchasing recycled products, from raw materials to office supplies. We also began to adopt this “Green purchasing policy” in our facilities, by utilizing recycled plastic chain in parts of conveyors on our new production equipment.