Japan's Oldest Winemaker Readies for European Grape Onslaught

(Bloomberg) -- With the removal of tariffs on European wines as soon as next year, Kirin Holdings Co.’s wine-making unit is betting on Japanese grapes to weather the onslaught.

Mercian Corp., Japan’s biggest and oldest winemaker, is nearly doubling its vineyards on expectations that its niche grapes -- grown in a small area in the shadow of Mount Fuji -- will increase sales both at home and overseas. It’s seeking to bolster market share ahead of the implementation of a trade agreement removing tariffs on European Union wines that are as high as 182 yen ($1.63) a liter.

Japan's Oldest Winemaker Readies for European Grape Onslaught

The Japan-EU deal lowers barriers just as U.S. President Donald Trump’s shunning of such deals helps stoke a wave of protectionism that’s disrupted the trade of commodities and consumer goods. Japan is a growing wine market, with consumption surging this decade and exports climbing threefold last year. Mercian uses Koshu grapes, a white variety first cultivated in Japan in the 12th century and used in wine-making for more than 100 years, and Muscat Bailey A, a red variety developed eight decades ago.

Japan's Oldest Winemaker Readies for European Grape Onslaught

The “chances to sell Japanese wine overseas are growing,” Mercian President Teruyuki Daino, 58, said in an interview in Tokyo. Competition in the domestic market is set to intensify as imports from Italy and Spain increase, he said. The uniqueness of a wine made from Japanese grapes is an advantage when competing with bottles made from European varieties, according to Daino.

Double Sales

Japan’s wine exports climbed to 493 million yen in 2017 from 164 million yen a year earlier, according to Agriculture Ministry data. Hong Kong accounted for 61 percent of sales, followed by Indonesia at 13 percent. Mercian’s top market is Hong Kong, followed by the U.S. and Singapore.

Japan's Oldest Winemaker Readies for European Grape Onslaught

Daino aims to double sales of wine made from Koshu and other locally-grown grapes in the next decade from 468,000 bottles last year and plans to start shipments to Thailand and China. It will expand the vineyard under its management to 76 hectares (188 acres) by 2027 from 40 hectares. Mercian sources grapes from its own vineyards as well as through contracts with farmers in Yamanashi, Nagano, Fukushima and Akita.

In addition to Japanese grapes, Mercian produces varieties better known to western consumers like chardonnay, merlot and cabernet sauvignon. It’s also growing albarino and tempranillo to cope with future challenges posed by climate change after temperatures in Koshu city topped 35 degrees Celsius (95 degrees Fahrenheit) during the summer.

Japan's Oldest Winemaker Readies for European Grape Onslaught

“Even if we use European grapes, our wine tastes different from Europeans because of our technique and terroir,” Mitsuhiro Anzo, Mercian’s chief winemaker, said in an interview in Koshu city in the eastern prefecture of Yamanashi.

Market Share

Japanese wine is generally more expensive than European bottles and exports from countries such as France, Italy and Spain are expected to grow, said Kenichi Ohashi, a Tokyo-based expert who holds the title of Master of Wine. The trade agreement will give European wine makers the chance to regain market share in Japan that’s been lost to Chile in recent years, he said.

Still wine imports from Chile to Japan rose fivefold to 55,519 kiloliters in 2017 from 2007, according to data from the Ministry of Finance. In the same period, imports from France fell 13 percent to 45,523 kiloliters.

Japan's Oldest Winemaker Readies for European Grape Onslaught

The EU deal will help cut costs for Japanese makers who produce the drink from imported bulk wine, according to Ohashi. It will also benefit Mercian, which imports bottled wine that it then sells in Japan. Overseas wine accounted for almost half of its total sales last year and the trade agreement is an opportunity for that side of the business, Daino said.

Japan's Oldest Winemaker Readies for European Grape Onslaught

“With trade agreement with EU, we want to turn competition in Japan’s wine market from price to quality," Daino said.

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