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Back to the very long but very interesting Diamond Online discussion between two Yūsukes – Yūsuke Satō, 8th head of the Aramasa brewery, and Yūsuke Asakura, author of a book on financial thinking in Japan. (You can read part one here, and part two here.)

After talking about how Satō ended up taking over the Aramasa brewery after not intending to join the family business, how he turned it around by thinking differently and how the industry’s highly regulated past still affects it today, they launch into a discussion of fads (“booms”) in the sake market and the current state of jizake.

Asakura recaps by saying that hearing Satō talk about how the state controlled sake brewing from the Meiji period onwards, it sounds like a traditional industry was forced into becoming a processing industry to meet demand. During Japan’s period of high economic growth, chasing short-term sales and profits (what he terms “profit and loss focused”) wasn’t an issue. In an expanding market, mass producing cheap sake still turned a decent profit. But when sales and prices started to fall, there was no differentiation between breweries and they fell victim to contraction as the market reached a new equilibrium.

Satō agrees, but adds that sake branding really disappeared after the old state classification system was discontinued. In a normal market, contraction forces a shift to higher added value in order to maintain or increase prices. But after leaving the state pricing system, everyone followed the large companies who went down the route of low pricing. The very biggest in the industry have automated to the point where they can brew with the push of a button, but the overall result was a resounding loss for sake itself.

What made it worse, Satō continues, was the lack of marketing and image-based strategy. Sake went from being an enjoyable drink to the poster drink for cheap alcohol. As far as he’s concerned, the industry today has gone into decline because after the old classification system was abolished and they were free to compete, they were forced to actually run their own businesses. The industry was no longer regulated – guided – and they made the wrong decisions. The sake industry brought about its own downfall because there was suddenly too much competition.

Asakura remarks that if only others in the industry had the same awareness, maybe it wouldn’t have gone into decline. Satō points out that the only types of sake whose sales are increasing are junmai and ginjō, “special designation” sake. They’re the industry’s new lifeline, keeping it afloat. A small number of kuramoto with foresight are specialising in special designations like junmai, junmai ginjō and junmai daiginjō. They acknowledge the risks and spend decades on the shift, and it’s thanks to their constant efforts to communicate the attractiveness of these classes that they have become popular. Asukura comments that he gets the impression that junmai and junmai daiginjō are popular even in bars and restaurants.

Satō strikes a note of caution, saying that things are changing. The special designations have seen a dramatic increase in sales over the last 10 years, but their popularity is waning. The reason could be anything, maybe a side effect of a slowdown for bars and restaurants, but he suspects it’s a structural problem. At the moment, the market is driven by junmai daiginjō. There’s a junmai daiginjō boom. But to get to a junmai daiginjō boom, there had to be a series of other booms before it.

As soon as futsūshu went into decline, the market was dominated by honjōzō-based Niigata tanrei karakuchi. Next, more expensive ginjō was in the spotlight, and led into the bubble-era daiginjō boom. When Juyondai nōjun amakuchi went onto the market in the mid-90s, junmai was already starting to take off. Soon junmai and ginjō converged and junmai ginjō became popular. And in the last 10 years, Dassai, who specialise in junmai daiginjō, took the lead in name and in reality, and pulled the market along with them. Each of these booms lasted around 5-10 years, and although overall volume has fallen dramatically the market is still looking for new forms of sake as it climbs the ladder of special designations.

The problem here is that there are no more special designations. Up until now, sake followed the route laid down by the National Tax Agency (NTA), but there’s nowhere left to go. What do you put on the market after junmai daiginjō goes out of fashion? Individual sakagura have to start innovating, and if they can’t, they’ll take the long, slow fall alongside the whole concept of special designations.

Asakura asks what Aramasa is doing about these structural changes, and Satō replies that they assume the appeal of sake as a traditional product still hasn’t been fully communicated. So their policy is to dig into that as thoroughly as possible. Broadly, they do three things: choose raw ingredients with strong local associations, revive traditional methods such as kimoto, and revive traditional materials such as wooden barrels and futa-kōji (kōji made in shallow trays).

Aramasa never uses rice grown outside the prefecture, even the “king” variety Yamada Nishiki. They polish the rice as little as possible. The more polishing, the greater the role played by starch – the finish gets shorter and the flavour more homogeneous. Less polishing does more to reflect the characteristics from cultivation and the rice itself as a raw material. Aramasa also continues to move towards old-style production equipment. Barrel brewing fell out of favour because it produces flavours classed as “off flavours” but they actively brew in barrels. When you look back over the history of sake, Satō adds, most of it was spent brewing in wood. Their records contain complaints from customers about weak flavour after they switched to metal equipment.

So Aramasa’s course is set directly away from processing, asks Asakura. Satō points out that the source of the appeal of simple modern products like cars and electronics is different from that of a traditional product like sake. He’s convinced that becoming a mere processing industry is a bad thing for sake. It’s what Aramasa used to do and what other breweries with well-known labels did – they held an exaggerated belief in the efficiency of excess production to meet short-term demand and went into decline. So Aramasa started bringing in wooden barrels at a time when there was no-one left who could make them.

Not only that, Aramasa acquired their own rice fields, something other breweries shy away from because it’s so much cheaper to outsource. Satō is banking on regionality being key, so local raw ingredients are essential. Going back to growing your own rice is one way of escaping from sliding into processing. Jizake isn’t just something produced in a certain region, it’s sake made from regional ingredients that has universal appeal.

Asakura muses that although at first glance what Aramasa is doing seems nonconformist, it’s actually going back to basics. Everything comes around again. But, he asks Satō, wasn’t there a backlash from both inside and outside the industry? There was, Satō replies, from local wholesalers and retailers, which made it hard to get on track. An Aramasa label milled to 80% was popular locally, so when he discontinued it over 3-4 years company performance briefly got worse, denting his confidence that their new products, “No. 6” and “Amaneko”, could support them. But he didn’t want to do what he didn’t want to do, and they somehow scraped by.

When Satō took over the business, 4,000 of the 6,000 koku they produced was futsūshu. It was like offloading a business that was bleeding money. Although decreasing production (kokudaka) felt counter-intuitive, he’s convinced that if they hadn’t moved to smaller scale production they would never have become profitable. Volume wasn’t important to him. And there were other kuramoto who were respected by their peers despite not producing high volumes – like Isojiman, or Takagi, makers of Juyondai. Tiny but vibrant companies, like Romanée-Conti in the wine industry, can punch well above their size. The potential for influence is so great as to be almost unimaginable.

Does ramping up production without a strategy always result in a worse product, Asakura asks. Satō says that he can’t put his finger on why, but yes – mass production usually leads to deterioration in quality. There are kura that skilfully combine large-scale production with elements of manual production, and he has great respect for them. But in general, sake production is becoming excessively automated and mass production is not good for sake. It’s different for beer, which may be why the beer industry is dominated by the only four companies that remain. His opinion is that the expense and effort needed to increase production is better spent elsewhere.

Asakura mentions that Aramasa was founded in 1852, so operates over timescales that are overwhelmingly long compared to the companies he focuses on in his book, where he argues that managing based on profit over the space of one year is flawed. Satō points out that Asakura is not addressing traditional industries or family businesses. If you’re running a company over 100 or 200 years, you’ll see that chasing the revenue right in front of you gets in the way of fundamental reform. He also had to deal with the imminent danger of collapse at Aramasa, so luckily there wasn’t much resistance to the changes he was making. The fact that the business was in crisis may have made it easier to push through reforms, Aramasa speculates.

Aramasa asks another amateur question – why not make only popular sake and sell it online? He’s asked kuramoto who came to tasting parties, but most replied that they don’t sell online and only go through specialist retailers. Any modern consumer will be asking themselves why their sake isn’t sold online.

Satō explains that it’s actually quite a complex situation. In Japan’s high growth period, products from every kuramoto were lined up on supermarket and retailer shelves. If they ran out, they just sent for more. Then 43 years ago, in 1975, the Japanese economy peaked, some kuramoto started to find business difficult and the situation changed. The price of sake used to be determined by the state, the National Tax Agency would send its people out to each kuramoto and they would drink the sake and rank it as special class, first class, or second class. The price of each rank, or classification, was actually controlled until about 1965, and even after that its influence remained in the form of standard pricing.

Asakura is surprised at the degree of regulation – it sounds more like the pharmaceutical industry. Satō agrees, saying it wasn’t far off government control of cigarettes or drugs. But the era of those classifications ended in 1992. It was easier to appeal to customers with sake that had the special class or first class seal of approval, but the higher the rank the more tax was levied, so the sale price was also relatively high. This is where one brewer started selling sake with the name Mukansa [“not inspected”]. Although it would easily have qualified for special class the brewer didn’t have it inspected for the higher ranks and sold it cheaply, labelled as second class. Other breweries copied their example, so the classification system effectively existed in name only and was discontinued. After that, there was only one rate of tax and the method of production was used to divide sake into honjōzō, junmai, ginjō, daiginjō, etc. in the system we have today.

Asakura wonders if now that the focus is on production method, does the market determine the value of a brand? Satō replies that that’s a good question. Their new-found freedom led some kuramoto to develop different strategies, such as Kokuryu who promoted ginjō, or Shinkame who specialised in junmai. However, there were abuses of the change of system, and futsūshu – as mentioned earlier – descended into a price war. Unlike before, there was no standard pricing to control price decreases. When the Large-Scale Retail Stores Law was abolished, sake could be sold anywhere and that did spur its sales. However, the shock of low pricing from supermarkets and discount stores forced more and more local sake shops into bankruptcy, and the market price of futsūshu dropped suddenly to about half of what it had been. Sake had seemed endlessly positive, but that impression was gone.


The idea of successive “booms” working their way up the ladder of tokutei meisho is very, very interesting. That’s part three, part four coming up!

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