[Sulsul Saeneun K-Juse]③ The Land of 'Highball,' Japan... Why Is It So Popular?

Japan’s Liquor Tax Law Revision in the 1980s Sparked Suntory’s Rise as an Industry Leader
Highball: The Game Changer in Japan’s Alcohol Market
Liquor Tax Reform Also Boosted Sake and Shochu Competitiveness
K-Alcohol Industry Misses Out on the K-Wave... Trade Deficit Persists

Suntory's "Yamazaki" whiskey distillery located in Osaka Prefecture, Japan.

'Yamazaki (山崎)'.

Yamazaki, which combines 'Yama (山)' meaning mountain and 'Zaki (崎)' meaning mountain ridge, literally means 'mountain foothill' and is a name that whisky enthusiasts passionately admire. Suntory, a leading comprehensive beverage company representing Japan, operates the Yamazaki Distillery in Osaka Prefecture and the Hakushu (白州) Distillery in Yamanashi Prefecture. In 2023, the total number of visitors to Suntory’s whisky distilleries reached 300,000.

The number of Korean visitors also increased by about 30% compared to the previous year, with approximately 24,000 people visiting. The prestigious two-hour tour at the Yamazaki Distillery, which includes a walkthrough of the whisky production process and tasting, costs 10,000 yen (about 97,000 KRW) per person. Despite the high price, competition is fierce, and many try multiple times to secure a tour ticket.

The secret to its popularity was clear: 'quality.'

At Suntory’s headquarters in Tokyo, Takumi Nara (奈良 匠), head of Suntory Whisky Marketing, said, "Suntory is a company that has been making whisky for over 100 years and takes pride in its tradition and technical expertise." He added, "Suntory has created a well-balanced whisky by harmonizing a universal taste that can be appreciated worldwide with flavors tailored to the unique palate of Japanese people, and as a result, it has received excellent evaluations both domestically and internationally." The outstanding quality of Suntory whisky captivated a wide range of consumers, which in turn sparked curiosity that led to visits to the distilleries.

Takumi Nara (奈良 匠), Marketing Manager of Suntory Whisky.
Photo by Eunmo Koo

Japan Changed Liquor Tax Law in the 1980s... Suntory Grew as a Pillar of the Alcohol Industry

The liquor tax laws adopted by Korea and Japan respectively have reshaped the landscape of their alcohol industries. In 1989, Japan revised its liquor tax law, shifting from an ad valorem tax system based on the shipment price of alcohol to a specific tax system based on volume. This simplified the tax system by abolishing differential tax rates among types of alcoholic beverages, aiming for tax fairness. As a result, tax rates on whisky, sake, and beer were lowered, while those on soju and wine were raised.

With all types of alcohol switching to the specific tax system, Japanese liquor companies began producing premium alcoholic beverages. Previously, using high-quality ingredients increased production costs, which led to higher tax rates and consequently higher product prices, making sales difficult. However, with the specific tax system applying the same tax rate regardless of production cost, companies were freed from the burden of price increases due to taxes and gained motivation to develop premium categories such as whisky and sake, which previously had high tax burdens. This competition among manufacturers to develop high-quality products improved quality, and consumers began seeking premium alcohol at affordable prices, ushering in a golden age for the Japanese alcohol industry.

Suntory's "Yamazaki" whiskey distillery located in Osaka Prefecture, Japan.

Suntory is Japan’s leading alcohol manufacturer handling not only whisky but also beer, wine, coffee, and soft drinks. Founded in 1899 by Shinjiro Torii with the aim of entering the wine business, Suntory ventured into whisky in 1923 by establishing the Yamazaki Distillery. In 1937, aiming for a clean whisky suited to Japanese tastes, they created 'Kakubin,' which gained worldwide popularity and pioneered the new genre of 'Japanese whisky.' A century later, Japan has grown into one of the world’s top five whisky-producing countries alongside Scotland, Ireland, the United States, and Canada, with Suntory playing a decisive role.

Last year, Suntory recorded sales of 3.0797 trillion yen (approximately 29.365 trillion KRW). By business division, the beverage business accounted for 1.6887 trillion yen (55% of total), and the alcohol business accounted for 1.0557 trillion yen (34%). Considering that Korea’s largest alcohol company, HiteJinro, recorded sales of 2.5992 trillion KRW last year and the largest comprehensive beverage company, Lotte Chilsung Beverage, recorded 4.0245 trillion KRW, Suntory’s scale is enormous. Operating profit was also 328.9 billion yen (about 3.15 trillion KRW), with an operating margin of 10.7%, showing higher profitability than the two Korean companies.

Japan’s Alcohol Market Reversal Card: Highball

Suntory has not been without challenges. Thanks to the success of Kakubin, the Japanese whisky market grew significantly during the high economic growth period (1954?1973), with total whisky production reaching 412,000 kL in 1983. However, from 1983 to 2007, alcohol consumption among young people gradually declined, and combined with a trend toward low-priced products, whisky consumption also decreased. Industry-wide countermeasures were urgently needed.

The card Suntory played at that time was the 'Highball.' Mr. Nara pointed to 2008 as a turning point for the revival of the whisky industry. He said, "To popularize whisky, which had a strong premium image, we actively promoted highball marketing to make it more approachable and pair well with meals. We believed that expanding the mixed drinking method, even with non-Suntory products, could help improve the market, and it ultimately succeeded." Thanks to the highball’s popularity, Japanese whisky production increased from 63,000 kL in 2007 to 157,000 kL in 2019, before the COVID-19 pandemic.

Blended whiskey 'Gakubin' that led the widespread popularity of Suntory whiskey

Highball marketing also influenced Korea. Mr. Nara explained, "Korea has a similar food culture to Japan, so it seems to be more comfortably accepted. With the popularity of highball, the whisky category began to receive renewed attention, and along with demand from tourists visiting Japan, a shortage of whisky raw materials also occurred."

However, to maintain quality, production volume was not increased recklessly. This has contributed to price increases caused by supply shortages relative to demand. In fact, Suntory is not a company that relies solely on the Japanese domestic market. As of last year, domestic sales accounted for 48% of total sales, with Asia-Pacific at 20% (601.7 billion yen), the Americas at 17% (531.6 billion yen), and Europe at 15% (466.8 billion yen), meaning overseas sales accounted for a larger share.

Industry support to further enhance the value of Japanese whisky continues. The Japan Spirits & Liqueurs Makers Association has defined the previously ambiguous definition of Japanese whisky as "using malt and grains, water sourced domestically in Japan, distilled at a domestic Japanese distillery, aged for more than three years in wooden barrels of 700 liters or less," and since April last year, has implemented a certification system allowing products to be labeled as 'Japanese Whisky.' The Japanese whisky industry expects this to improve product quality and safety, further advancing the related industry.

Whiskeys from Suntory and Nikka, representing Japan.
Photo by Koo Eun-mo

Liquor Tax Law Revision Also Boosted Sake and Shochu Competitiveness

Suntory is not the only player in Japan’s alcohol industry. Recently, exports of traditional Japanese sake (Nihonshu) have also rapidly increased. According to the Japan Sake and Shochu Makers Association (JSS), total sake exports last year amounted to 43.5 billion yen (about 41.6 billion KRW), a 5.8% increase from the previous year’s 41.1 billion yen. In 2015, sake exports were around 14 billion yen but have more than tripled in ten years. The premium sake market has grown significantly, with export value increasing 1.8 times and average unit price rising 1.3 times since 2020. In terms of volume, a record 3.45 million cases (equivalent to 9 liters per case) were sold in 80 countries.

The recent growth in the sake market is attributed to government and industry efforts toward premiumization. An industry insider said, "The Japanese sake industry is focusing on improving quality and changing its image. Breweries are developing unique brewing rice and concentrating on expressing their individuality through yeast research and other methods." Notably, in December last year, sake was registered as a UNESCO intangible cultural heritage, which is seen as a result of continuous emphasis on sake being a high-skill product requiring complex brewing processes from rice polishing to fermentation and processing, with sophisticated brewing techniques applied at every production stage.

The liquor tax law revision also affected the soju market. Japanese soju, or shochu, is classified into 'Kourui Shochu (甲類?酎)' and 'Otsurui Shochu (乙類?酎),' with Kourui being diluted soju and Otsurui being distilled soju. The diluted soju in green bottles familiar to us was invented in Japan in 1899, following the first successful production of ethanol in East Asia in 1895. This is Kourui Shochu, which was introduced to Korea during the Japanese colonial period. In the past, diluted soju was consumed in significant quantities in Japan as well. However, with the liquor tax law revision significantly lowering the tax burden on high-quality Otsurui Shochu, the incentive to consume Kourui Shochu disappeared, and over several decades, the Japanese soju market was reorganized around high-quality distilled soju.

Yoichiro Nishi, CEO of Nishi Brewing, a famous producer of both sweet potato soju and whisky in Kagoshima, Japan, explained, "When Japan switched to the specific tax system in 1989, the prices of expensive Scotch whiskies dropped, which became a background for the popularity of related whiskies." He added, "Most importantly, this led to an increase in producers who saw potential in the distilled spirits market. As a result, producers of whisky and distilled soju in Japan have continued to emerge and grow to this day."

Komaki Isekichi Komaki, CEO of Komaki Brewery, operating sweet potato soju and whiskey distilleries in Kagoshima, Japan (left), and Nishi Yoichiro, CEO of Nishi Brewery.
[Photo by Eunmo Koo]

K-Alcohol Industry Left Out of the K-Wave... Continued Trade Deficit

Meanwhile, Korea’s alcohol industry, which maintains an ad valorem tax system, has experienced a trade deficit every year. According to the Korea Customs Service, last year, domestic alcohol imports amounted to 1.34413 billion USD (about 1.93 trillion KRW). Domestic alcohol imports surged during the COVID-19 pandemic due to the home drinking and solo drinking boom, reaching 1.6504 billion USD (about 2.3 trillion KRW) in 2022. Although demand for whisky and wine cooled down and imports decreased for two consecutive years, nearly 2 trillion KRW worth of alcohol is still imported annually.

Exports have stagnated at around 300 million USD for over a decade. Last year, total exports of all types of alcohol amounted to 349.08 million USD (about 500 billion KRW), a 4.1% decrease from the previous year’s 364.14 million USD. Among types, soju is making efforts. Soju exports increased from 82.42 million USD in 2021 to 104.09 million USD (about 150 billion KRW) last year, showing a 26.3% growth over the past three years. However, in absolute terms, this is still insufficient. The overseas sales ratio of soju from the largest manufacturer, HiteJinro, was only 4.0% as of the third quarter of last year.

Due to exports lagging behind imports, a large trade deficit continues annually. Last year, the alcohol trade deficit was 995.05 million USD (about 1.3 trillion KRW), a 10.2% decrease from the previous year, marking the second consecutive year of deficit reduction. However, since this improvement was due to decreased imports rather than increased exports, the deficit could fluctuate again at any time.

The alcohol trade deficit results from the domestic alcohol industry’s inability to produce sufficiently competitive products to defend the domestic market and expand overseas markets amid an influx of representative alcoholic beverages from around the world into the domestic market. While global interest in Korea is higher than ever and K-food is making strides in the global market, Korean alcohol remains an exception. Although diluted soju is gaining attention in the international market, the industry commonly agrees that it is difficult to establish it as a flagship alcoholic beverage for long-term export.