No.9986    January 10, 2008

Alcoholic Beverages Company Strategy for 2008

Suntory Limited has firmly promoted the development and marketing of premium, highly value-added offerings in our alcoholic beverage business in Japan and overseas. In response, consumers have supported exceptional drinks including The PREMIUM MALT'S and YAMAZAKI, and the brands have grown tremendously.

In 2008, competition is expected to intensify in the alcoholic beverages market. Suntory will leverage core competencies in this business as a whole as we aggressively implement strategies for premium beverages in many categories (such as beer, whisky, low-alcohol drinks, and wine) and expand marketing focused on healthy beverages, working to bring customers an appealing, high-quality selection.

• Review of 2007
Sales in the market as a whole (including beer, happoshu, and new-category beverages) dipped below 2006 levels, but the new-category market grew by about 3% as the beer and happoshu markets declined by about 1% and 3%, respectively.
Despite this, Suntory beer business defied the market trend to record a total sales volume of 54.5 million cases, representing 3% growth year-on-year. The PREMIUM MALT'S in particular enjoyed outstanding sales at 9.51 million cases, up 70% from the previous year. The beer was awarded a Grand Gold Medal for the third straight year at Monde Selection, an international food and beverage competition in Europe*¹.
Meanwhile, 20.61 million cases of new-category beverages such as Jokki Nama and KIN-MUGI (named after mug draft beer and golden barley, respectively) were sold, up 14% over the 2006 level.
 *1 The PREMIUM MALT'S medium bottle was awarded in 2005, 2006, and 2007.

• Strategy for 2008
Although the beer market as a whole in 2008 is expected to continue to decline somewhat, Suntory will focus marketing efforts on beverages in the premium beer and health-oriented happoshu markets (which have good potential for sustained growth), including The PREMIUM MALT'S and new Zero-Nama. Moreover, by building the brands of new-category beverages Jokki Nama and KIN-MUGI, we are working toward a total sales target of 55.5 million cases (2% growth year-on-year) in Suntory beer business.

1. The PREMIUM MALT'S
The scale of the premium beer market in 2008 is expected to grow to 32 million cases (up 25% from 2007), and Suntory is pursuing sales of 13 million cases (37% higher than last year) for The PREMIUM MALT'S.

2. Zero-Nama and Diet-Nama, health-oriented happoshu
Consumers in Japan are likely to be more mindful of health issues after the adoption of a new public health system starting in April 2008. In view of this, Suntory is focusing on the health-oriented happoshu market and will launch Zero-Nama and Diet-Nama on March 4, aiming for a sales target of 11 million cases (a 2.5-fold increase over 2007) for all healthier happoshu beverages.

3. New-category Jokki Nama and KIN-MUGI
In new-category business, Suntory will seek a solid market position for crisp, refreshing Jokki Nama and rich, satisfying KIN-MUGI, aiming for total sales of 19.3 million cases (up 17% from 2007) in both brands.

• Review of 2007
The Western liquors market as a whole reached 96% of the previous year's level, with the whisky market at 94% and the liqueur market nearly even.
Suntory whisky sales reached 97% of the previous year's level, slightly better than the industry as a whole (at 95% of the 2006 level). Demand for single malt whisky continued to grow, up 6% over the previous year. YAMAZAKI in particular has enjoyed tremendous growth in Europe, North America, and elsewhere overseas.
Standard whiskies KAKUBIN and The SUNTORY OLD together marked a 1% increase over 2006 levels. In liqueur, Japanese plum liqueur remains a favorite among consumers, with sales up 3% year-on-year.

• Strategy for 2008
As the leading source of Western liquors in Japan, Suntory will continue to highlight these highly value-added beverages and encourage an appreciation of their richness and variety among Japanese consumers.
In premium whisky, we will promote the appeal and quality of the premier Suntory whisky, HIBIKI, as well as YAMAZAKI, HAKUSHU, and imported single malts including The MACALLAN. Our careful efforts will introduce consumers to whisky through promotions at points of purchase, and drinking establishments, as well as at events such as workshops. YAMAZAKI, acclaimed worldwide as a paragon of Japanese single malt whisky, will be promoted in increased global marketing centered in Europe and North America.
As for standard whiskies The SUNTORY OLD and KAKUBIN, we will stimulate demand among those who enjoy whisky at home by means of in-store promotions throughout the year with tips on complementary foods and various whisky drinks.

• Review of 2007
The shochu market as a whole has entered a period of maturity, reaching sales of 98% year-on-year (with continuously distilled "ko-rui" at 95%, pot-still distilled "otsu-rui" at 101%, and domestic blended shochu at 110%) and Suntory shochu sales at 96% of the 2006 level. Among ko-rui shochu, both Kyogetsu, the leading Korean shochu in Japan, and Daijuhyo dropped 10% from the previous year. Meanwhile, in otsu-rui shochu, the specialty shochu Yaemaru enjoyed sales 40% higher year-on-year. Sales of domestic blended shochu such as Muginoka and Hanaimo remain strong, up 20%, far exceeding the market trend.

• Strategy for 2008
In ko-rui shochu, Suntory will aim for even greater brand recognition of market-leading Kyogetsu, a Korean shochu. Greater promotion of otsu-rui shochu will highlight our full selection, and consumers will be introduced to the discernment of shochu producers through workshops and other means.

• Review of 2007
Despite an estimated 5% decline in the low-alcohol beverages market as a whole, Suntory ready-to-drink (RTD) business grew 8% over the previous year, significantly defying the market trend. The Calori brand enjoyed sales of 12.09 million cases, up 30% over 2006. The innovative, foamy bubbles of AWA'S (introduced in July) make the beverage satisfying to drink. It has proved popular, selling 2.56 million cases in the remaining months of 2007.

• Strategy for 2008
Although the low-alcohol beverage market is expected to remain even in 2008, we have set a sales target for Suntory RTD business of 25.61 million cases (up 4%).

1. Health-oriented brands
Consumers in Japan are likely to be more mindful of health issues after the adoption of a new public health system starting in April 2008. Thus, Suntory has set a sales target of 13 million cases (up 8%) for the Calori brand, which has 50% fewer calories*².
We will also launch ZERO DRY, a sugar-free*³ version of -196°C chu-hi, on February 5.
 *2 Compared to the average of Suntory fruit-flavored chu-hi cocktails.
 *3 Zero sugar content is indicated as less than 0.5 g per 100 ml, according to official nutritional labeling standards

2. AWA'S
In January, AWA'S beverages will be updated, offering a fresh taste and new package design. Aiming to encourage even greater demand among consumers who enjoy both beer-like beverages and low-alcohol beverages, Suntory has set a sales target of 5.6 million cases (2.2 times the previous year's level).

• Review of 2007
Continuing a trend from 2006, the wine market as a whole is expanding and was seen growing about 2% year-on-year in 2007. Suntory wine business surpassed market achievements by turning in sales 4% higher than in 2006. In sparkling wine, which is also increasingly popular, Freixenet was the focus of our aggressive marketing efforts, and in champagne as well, we introduced the world-class brands Laurent-Perrier and HENRIOT in April, contributing to a 20% increase in sales year-on-year for champagne and sparkling wine combined. Imported non-sparkling wine also continued to sell well, and in October, our selection was expanded through a closer partnership with Gallo.
Meanwhile, Japanese wine won many awards in competitions in Japan and overseas, earning high acclaim for quality.

• Strategy for 2008
Suntory intends to stimulate new demand for sparkling wine, where ongoing growth is expected, by focusing on Freixenet, CINZANO, and other offerings. In champagne, we will further strengthen the Laurent-Perrier and HENRIOT brands. In imported non-sparkling wine, we will build brands that offer consumers a greater variety of choices, highlighting what is appealing about each wine.
In Japanese wine, we will develop premium new products in line with tastes here while continuing to promote the Tomi brand of Tomi no oka Winery and other domestic wines.

• Review of 2007
Again in Suntory beer business in China last year, we worked to build brand recognition of beer in all price ranges through aggressive marketing centered in the Shanghai area as we reinforced our sales business functions. Overall beer business in China rose 2% over the previous year.

• Strategy for 2008
In the Shanghai area and elsewhere, we will focus on brands in both premium and standard price ranges as we step up marketing activities. We expect these efforts to help us attain sales 10% over the 2007 level in China beer business as a whole.

• Review of 2007
In overseas alcoholic beverage business in Europe, North America, Australia, and elsewhere, business was brisk for Suntory Aust and Morrison Bowmore, with sales surging 35% over 2006 levels. Successful marketing of the melon liqueur Midori in various regions has pushed sales up 8% year-on-year. Meanwhile, Bowmore also proved more popular, partly from growth in the worldwide market for single malt whisky.

• Strategy for 2008
Expanded promotion of popular Midori and Bowmore offerings as well as the Japanese single malt YAMAZAKI is expected to help Suntory build global brands for these beverages.