No.8993   2005. 1. 11

“Wine & Spirits”and “Beer & RTD (ready-to-drink)”
Company policies for 2005

1. Liquor business
Liquor market is assumed to have declined by 10% compared to the previous year, as consumers were yet to have confidence in spending. Suntory's liquor business appears to have slightly surpassed the market trend with a 7% decrease of the previous year sales. As for whisky business, Suntory advocated “whisky regeneration” to create “new whisky drinkers” through fresh communication activities targeting toward young people, proposal of a new drinking style “Half Rock,” and new malt whisky releases including “Hokuto 12 Years.” Furthermore, “Hibiki 30 Years” won the highest prize at an international liquor competition to commemorate world's recognition of Suntory's quality whisky. In the liqueur sector, potential demand was stimulated through a release of new healthy liqueur “Macadia” and implementation of “Cocktail Award.”

2. Shochu business
Shochu market is estimated to have grown by 8-9% compared to the previous year. Suntory's shochu business was substantially expanded to 113% of the previous years’ sales. Among others, “Sorekara” sold considerably well to reach a 60% increase to the previous year. As for specialty shochu (consignment production), popular Imo Jochu (potato shochu) “Kuromaru” and genuine Awamori “Tenryugura” welcomed new releases of Soba Jochu (Japanese soba flour shochu) “Kagura no Mai” and genuine Awamori “Churajima.” Korean shochu “Kyogetsu Green” successfully sold 118% of the previous year's (4.6 million cases) to surpass the market trend.

3. Wine business
Wine market presumably shrunk by 5-6% in terms of sales amount to the previous year, while Suntory's wine business exceeded the market trend and even the previous year's level. Suntory suggested more diversified styles to enjoy wine for consumers with Californian wine “Rivercrest” and Beaujolais Nouveaux favorite “Georges Duboeuf.” Also, the year-round activities were implemented to push forward sparkling wine and champagne. As for wine making in Japan, “Tomi” and “Tomi no Oka” brands were promoted as specialty wine made from 100% self-owned vineyard's grapes at Tomi-no-Oka Winery.

1. Liquor business
Liquor market is forecast to maintain the current conditions in 2005. Suntory as a leading company in the industry aims to revitalize the market from a long-term viewpoint.

(1) Whisky
In 2005, Suntory continues to urge “creation-of-new-whisky-era” activities for the second in a row, consolidating the campaigns to establish whisky's new image and to increase whisky fans.

Suntory regards recent development of malt whisky as a sprout of the new demand, pulling the market with a variety of malt whisky lineups both domestic and imported. “Yamazaki” is to be nurtured as the Japanese leading single malt whisky by promoting the use of worldly acclaimed quality malt. “Hokuto 12 Years” attempts to take root in the market as “an introduction to malt whisky” with its popular smooth relish. With a diversified brand portfolio, imported single malt lineups such as “Macallan” and “Bowmore” are expected to expand the market furhter. Total sales target for malt whisky is to hit 20% up from the year before.

“Hibiki” and “Ballantine's 17 Years” are pushed forward for their exclusive image to establish the brand's position in the high-end liquor market. As for “Kakubin” and “Jack Daniels,” Suntory will further strengthen communication activities toward consumers in 20s and 30s to extend an opportunity to enjoy whisky for the segment.

A “Half Rock” style continues to be promoted through multiple approaches including ‘how-to-drink-in-style” campaigns and samplings.

In addition, Suntory continuously strives to interact with customers, suggesting new values of whisky by setting out whisky's health campaigns and distillery tours at Yamazaki and Hakushu.

(2) Liqueur / Spirits
The year 2005 is also ready to see activities to create a new cocktail culture with a theme of “healthy and easy.” “Macadia,” the frontier for “new healthy liqueur” market, will be strengthened with new items to grow further as a casual drink suitable for various occasions. As in the preceding year, Suntory will push forward a “home cocktail” concept, planning to hold campaigns linked to such seminars and events as “Liqueur Workshop” and “Cocktail Award” to stimulate a demand for home use.

2. Shochu business
Shochu business in 2005 is developed through further branding activities and product-specific marketing campaigns catering to each of the target segments.

“Sorekara,” an established shochu brand with new values, will be communicated via various marketing activities to reinforce its brand position. As for the growing specialty shochu segment, new product lines will be added to the current selections, such as Imo Jochu (or potato shochu) “Kuromaru” and “Kuromaru Shinshu (nouveau),” genuine Awamori “Tenryugura” and “Churajima,” and Soba Jochu (or Japanese soba flour shochu) “Kagura no Mai.” Suntory keeps its commitment in delivering the tradition and culture of specialty shochu and to further grow its type ”Otsu” extension.

“Kyogetsu Green,” a quality shochu made from premier natural water of Mt. Sorak, has kept a favorable performance, and will be marketed through a variety of branding campaigns and activities.

3. Wine business
This year Suntory will consolidate the developing segments, suggesting new values for customers to enjoy wine in more diversified styles as the leading wine company. Further reinforcement will be also conducted for representative wine brands from each country or region.

Sparkling wine / champagne sector is expected to grow more this year. Various sales and promotion activities as well as communication campaigns will be implemented throughout the year for a wide range of the products including “Freixenet,” “Cinzano,” “Mumm,” and “Perrier-Jouet.” Moreover, a variety of daily casual wine selections will be boosted to expand the market including Californian wine “Rivercrest” and Beaujolais Nouveaux favorite “Georges Duboeuf.” The world's top wineries as “Torres,” “Penfold,” “Bouchard Pere et Fils” and “William Fevre” will be highlighted for their unique characters to appeal to wine lovers.

As for wine making in Japan, Tomi-no-Oka Winery, accompanied with a self-owned vineyard in Yamanashi Prefecture, will further reinforce the value of quality Japanese wine through the signature brands “Tomi” and “Tomi no Oka” made from 100% self-produced grapes.

Utilizing its expertise and technology, Suntory will pursue to develop new products based on a key concept of “wine and health.”

1. Beer business
Beer and happoshu market appears to have shrunk by 4-5% compared to the year before, largely affected by an introduction of beer-flavored new alcohol drink. The happoshu market is likely to have decreased nearly 10%, while the beer sector has shown a sign of hitting the bottom from the previous downward trend with merely a 2-3% decline. The total market including the new genre seems to have resulted in a slight increase.

Suntory's beer business sold 53.47 million cases (101% to the previous year) including the new genre. “Malts” re-launched in April 2004 was specially well received by the customers for its use of “quality natural water of four river systems,” and the home use (canned) favorably rose to 115% compared to the previous year. As for the new genre, a June release “Super Blue” shifted strongly to reach 5.8 million cases within less than half a year.

2. RTD business
Low alcohol drink market is assumed to have grown 6-7%. Suntory's business also achieved the market equivalent increase of 7%. As for canned chu-hi, “Calori.” sold 6.34 million cases annually to health conscious consumers for its features of “refreshing and fruity” flavor and “calories 50% off,” and created a new category in chu-hi. A new product “Double Shibori (double flavored chu-hi)” gained popularity especially for its fruity flavor. Also, a long-selling brand “Cocktail Bar” was re-launched in a variety of new products, offering a new sphere for cocktail lovers.

1. Beer business
A decline by 2-3% in beer market is predicted in 2005 while a decrease in happoshu is likely to be covered by the new genre. Yet the total market (beer, happoshu, and the new genre) appears to drop slightly below the previous year's sales. In spite of the adverse market condition, Suntory beer business is aimed to grow further through active marketing campaigns around a core theme of “100% natural water” brand.

This year Suntory plans to sell 56.9 million cases (106% to the previous year) as a total of beer, happoshu, and the new genre, to establish a solid position in the market.

(1) Branding through “using 100% natural water”
With the corporate message “Living with water. Suntory,” the company pursues to use “100% natural water” for all the domestic beer and happoshu starting 2005, while fostering reliability in all of the Suntory brands to further improve its market position. This explicit differentiation in quality with the competitors indicates a firm direction in total branding of Suntory beer business.

Suntory beer and happoshu will be packaged with a “using 100% natural water” medal mark for all the brands. At the same time, wide-ranging communication activities will be implemented at shops, during factory tours, through advertising and other channels to reinforce Suntory brand's presence in the market by pushing forward the “natural water” use as a core concept.

(2) Brand strategy
<Malts>
In 2004 “Malts” was acclaimed afresh for the fact being made from “quality natural water of four river systems” at four beer factories. “I like Malts, tasty and safe, for its natural water,” “using natural water in beer is surely up to date” were a few of many supportive customers’ responses to be reflected in a favorable sales increase after the product re-launch. The year 2005 is also set to see further pursuant of the quality as the key brand in Suntory beer business. Kabuki actor Kankuro Nakamura is the brand endorser for 2005(see news release No.9000) to strongly appeal for the market with the key concept that “tasty ‘cause it's natural water.” Starting from the beginning of the year, “Malts: 4 River Systems ? 100,000 giveaways’ campaign” has targeted samplings of 1 million people to expand the fan layers in hope for achieving 19 million cases (112% of the previous year sales) this year.

<Magnum Dry>
”Magnum Dry,” since its inauguration in 1999, has established its unique position as long-selling “dry happoshu” in the highly competitive happoshu market. In 2005 the product will be re-launched with a totally new content and package. Using “dry malt” made by the world's first HHS technology* (patent application in process), Magnum Dry will deliberately offer both “soothing and after-taste sharpness.” A TV celebrity Tomoya Nagase as the brand endorser for 2005 (see news release No.8997) conveys the attractive features of new “Magnum Dry” with a key concept that “dry happoshu is tasty” to target for 16.8 million cases (117% of the previous year's sales).
* HHS is an abbreviation of High temperature, High pressure, and Steam.
* “dry malt” is named by Suntory.

<Diet>
”Diet” successfully communicated its product feature “calories 50% cut” in the market, selling 6.78 million cases in 2004. Especially after the re-launch last October, the sales figure continued to rise in double digits to exceed the previous year performance. A musician Miki Imai as the 2005 brand endorser (see news release No.8998) delivers its key message “calories 50% cut” in a stylish manner aiming a dynamic leap in the market to achieve 7.05 million cases (104% of the previous year sales).

<Super Blue>
”Super Blue” will be re-launched on 25th of January. The new version contains happoshu using twice as more malt as the current one, as well as wheat spirits developed through Suntory's eminent technology as a total liquor maker, creating both dynamic and sharp taste. This re-launch is targeted to reinforce the brand's presence to reach 10 million cases in sales (172% to the year before).

(3) Beer business in China
Beer business in China has developed steadily for the past years and continued to shift favorably in 2004. The total sales amount in the greater China increased to 113% compared to the previous year with over 2.8 million cases. In November, Suntory Brewing (Shanghai) Co., Ltd. won “Excellent Enterprise Award” from Chinese Brewing Association for its quality and technology. This year further active marketing campaigns around Shanghai are planned to take place to strengthen the brand for a sales boost.

--Suntory beer business and natural water--
(1) Beer quality and natural water
Suntory believes that true taste of beer can be derived from using 100% quality natural water suitable for beer and happoshu brewing. “Natural water” drawn from deep underground contributes to safe and stable beer brewing due to its pure and consistent quality throughout the year. Also, various factors of “natural water” including mineral level and ion balance positively influence important processes of brewing during ‘preparation’ and ‘fermentation.’ “Natural water” extracts a tasty feature of malt and suppresses astringency and bitterness in ‘preparation,’ while removing unpleasant after-taste in ‘fermentation’ to realize a refreshing and sharp flavor. Furthermore, “natural water” is free from such an external element as chlorine smell in sterilization or general water processing, and ideal in fully drawing the real taste of beer.

(2) Beer factory and natural water
Suntory has been deliberately selective in a location of beer factories abundant in quality water suitable for brewing. Musashino Beer Factory (Tanzawa river system), Kyoto Beer Factory (Mt. Tenno & Kyoto Nishi river system), Tonegawa Beer Factory (Mt. Akagi river system), and Kyushu Kumamoto Factory (southern outer rim of Mt. Aso river system) are all built along with deep underground wells, where specialty “natural water” in each respective area is nurtured and used for beer brewing.

Suntory is committed to a thorough quality control in use of “natural water,” requiring a periodical analysis of ingredients not only at the factories but also at the Analytic Science Center. Moreover, the water level is carefully monitored as to limit the usage only when a natural rise occurs, and the water circulation systems in the factories are designed to fully utilize precious “natural water” in the course of production and to reuse other than the raw base.

(3) Suntory's water source cultivation activities
Suntory has been involved in various conservational activities to position the global environment as precious management resources, based on a corporate philosophy of “resonating with people and nature,” since the products’ raw materials are mostly derived from natural wealth. The southern outer rim of Mt. Aso serves as a water source for Kyushu Kumamoto Factory completed in 2003. Around this area, the company named 102 ha national forestry as Suntory “Forest of Natural Water” through a “Corporate Forest” system by the Forestry Agency, conducting a maintenance of the headwater forest as the water source in cooperation with the state. Suntory has also set up some facilities in the area for people to interact with nature, and opened “School of Forest and Water” for children which serves as a focal point of environmental education to experience the forestry system and its importance with their five senses.

On 30th of November Suntory signed another “Corporate Forest” contract with the Kanto Regional Forest Office to take an active role in maintaining 5 ha national forestry along with the surrounding area at Mt. Komochi in Kita Gunma County, Gunma Prefecture. In addition, the company agreed to maintain 62 ha forestry around Hakushu Distillery in Yamanashi Prefecture in cooperation with the National Land Afforestation Promotion Organization, commencing the first phase of the activities last December. Suntory has been and will continue to be dedicated to promoting the forestry protection in hope for not only water source cultivation but also various effects including global warming measures, national land protection, and ecosystem preservation.

2. RTD business
Suntory's RTD business in 2005 will be concentrated on ‘reinforcing the existing brands’ and ‘introducing and fostering new brands’ to achieve 126% of the previous year's sales (23.6 million cases).

(1) <Calori _° >
”Calori.” is a fruity and refreshing canned chu-hi with “calories 50% off (compared to Suntory's existing products)” in response to health conscious drinkers’ needs. Since its product release, “Calori.” has gained popularity steadily with the 2004 sales to reach 6.34 million cases. Advocating a new tag line “tasty yet calories 50% off,” the product re-launch will be implemented to enhance the flavor this year (see news release No.8994). A new item ‘Crystal Dry’ with lessened sweetness from saccharide will be introduced to strengthen the brand targeting to strike 134% of the previous year's sales or 8.5 million cases.

(2) <Double Shibori (double flavored chu-hi)>
”Double Shibori” has been supported by fruity chu-hi lovers for its ‘double’ flavor derived from two kinds of fruits. In coming February, the brand will be re-launched to respond to these loyal fans, introducing a new refreshing design with a bright tone and a flavor “to freshly enhance fruity flavor.”

(3) <Cocktail Bar>
”Cocktail Bar” is a key brand of low alcohol drink which has long nourished the cocktail culture. In 2004, the brand went through substantial changes with a variety of novelty products to suggest a new sphere in cocktail. This year ‘Clear-’ and ‘Frozen-series’ will be added to the family to expand the attractive cocktail world.

Moreover, with a continuous focus on R&D, Suntory strives for new products’ release to respond to the changing market's needs, planning to introduce a new brand in RTD.