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Suntory CEO explains how Gen Z is shaping the spirits industry

As the Federal Reserve seems like it may keep interest rates higher for longer, companies may feel added pressure to adjust pricing to keep up with consumer habits and continue growth. As a major beverage maker globally, Suntory (STBFY) is positioned to take advantage of its pricing power as it makes a wide array of products, spanning multiple demographics.

Takeshi Niinami, Suntory Holdings CEO, joins Yahoo Finance's Brian Sozzi and Julie Hyman at the World Economic Forum in Davos, Switzerland to discuss inflation, pricing, and dealing with a change in consumer habits with Gen Z.

Niinami explains how conflicts in the Red Sea are impacting its shipping logistics, saying deliveries are taking longer and that the company is "considering" raising prices to offset the additional cost.

Niinami gives insight into Gen Z, saying they are more "health conscious" and like to deal with companies that have a social awareness. He continues acknowledging the differences between his generation and Gen Z and will focus on making adjustments to the business model accordingly.

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It's all part of Yahoo Finance's exclusive coverage from the World Economic Forum in Davos, Switzerland, where our team will speak to top decision-makers as well as preeminent leaders in business, finance, and politics about the world’s most pressing issues and priorities for the coming year.Watch this full episode of Yahoo Finance Live here.

Editor's note: This article was written by Nicholas Jacobino

Video transcript

[MUSIC PLAYING]

BRIAN SOZZI: There's more going on here at the World Economic Forum in Davos, Switzerland, than talk about AI. Lots of food and beverage companies here are trying to understand how climate change may impact their business. Let's talk to one of those very large companies, Suntory CEO, Tak Niinami. Tak, good to see you in person for a change.

TAKESHI NIINAMI: Good to see you.

BRIAN SOZZI: Appreciate it.

TAKESHI NIINAMI: Thank you.

BRIAN SOZZI: So what has been your biggest takeaway so far from the conference?

TAKESHI NIINAMI: Possible escalation of Middle East crisis. That may affect the world supply chain in terms of cost increase, and perhaps energy costs might go up again. So that's a huge risk. So things are more complicated than I thought.

JULIE HYMAN: So what is Suntory doing to try to prepare for maybe that happening as we see especially more shipping problems through the Suez Canal and the Red Sea?

TAKESHI NIINAMI: Well, first of all, we are now piling the inventory. And we ship as early as possible. In '22, '23, so many of our products are afloat. So we have to avoid. And our logistic team is very much agile to secure spaces now. But that's-- I think the travel time, the shipping time is expected to be more than current, so maybe one two weeks more.

BRIAN SOZZI: Do you anticipate any product shortages? Do you have to take price increases to support those pressures?

TAKESHI NIINAMI: We are now considering. But in the US, for example, consumer confidence is waning. So anytime soon, perhaps that will go up. It depends on the scenario of the interest rates led by Fed. So around the world, I think we want to increase. But the situation at this moment is worse than last year.

JULIE HYMAN: And for people who don't realize, Suntory, I believe, is the number three maker of spirits globally. But you make much more than spirits. And you make a lot more than Japanese whiskey, right? Sauza tequila, you own Jim Beam, Orange Gina, also other soft drinks, beer and wine as well. So when you think about just to expand on that pricing strategy a little bit around the world, what kind of pricing power do you have? Did you take a lot of price increases while we were seeing inflation in the US, for example? And now, kind of where are you on that front?

TAKESHI NIINAMI: Two things. First of all, we keep a premium products and focusing on premium and a bit premium instead of super and a luxury, which is under attack from the current trend of consumer incompetence. So we focus on premium again and the tequila, American whiskey, and the Japanese whiskey. Whereas, the-- we want to respond to the current trend of Gen Z, who is not drinking a lot. And they are drinking seltzer, RTDs. So we are number three in RTD segment. So we want to enhance--

JULIE HYMAN: The ready-to-drink, that is.

TAKESHI NIINAMI: Yes, ready-to-drink. So we have a bold plan to expand our business of RTD's in the world, including US, including China, including India.

BRIAN SOZZI: Just staying on the Gen Z-- I didn't realize this maybe because I'm old now. Half of Gen Z is reaching the legal drinking age by the end of this year. Why do you think they're not-- are they not drinking as much as? Is it a health thing?

TAKESHI NIINAMI: I think health conscious as well. And somehow, they don't want to drink just like their fathers, mothers. I don't think mothers, but all this-- you know, there's a social divide in a sense. They like definitely the companies that are dealing with the social contribution and environmental sustainability. They have-- I think, their various standards are completely different from my generation.

So in that context, they are different and they like that difference. So less drinking and enjoy meeting people. But I think that is a huge trend we have to be concerned about in terms of increasing the spirits.

BRIAN SOZZI: Your business, incredibly well-run for many decades. And one of the benefits of that is you have a lot of cash and you can do things. Do you want to create brands out of thin air from the development team? Or do you want to go out there and acquire brands like we've seen in recent years from the industry?

TAKESHI NIINAMI: Well, yeah. Well, switching the brands amongst our competitors, that's the-- I mean, a regular transaction. And we would like to increase our portfolio of tequila, for example. And we will increase the exposure of Japanese whisky or scotch, which we produce based on the Japanese craftsmanship in Scotland.

So we are spreading to create a new brands based on Japanese craftsmanship. And we work together with the local workmanship. So-- excuse me-- we are going to increase scotch, Japanese whisky, tequila, American whiskey based on more upgrading the quality and instead of just the marketing. But we want to demonstrate that we are the quality player.

JULIE HYMAN: And speaking of which, Japanese whisky, just like scotch whisky, now has-- and I believe Kentucky whisky-- now has a definition, right? So talk to us about that and what that has done to the reputation of Japanese whisky in other markets.

TAKESHI NIINAMI: That's a concerning factor. As a matter of fact, from April 1 this year, the Japanese whisky definition will be very much strict, which means you have to produce in Japan. And you have to use the Japanese whisky. You have to age in Japan more than three years. Those definitions at least guarantee the quality of Japanese authentic whisky. But I'm afraid to say, quite a few on Japanese whisky but saying Japanese whisky.

So from the 1st of April, we will demonstrate to the clients, consumers authentic Japanese is Japanese whisky. So we, Suntory, produce and supply only Japanese whisky produced in Japan. So watch out. And we'll give a guideline to clients.