By Mari Saito

Young Japanese have become averse to spending their hard-earned cash on alcohol, helping push beer sales down by about 5 percent this year and forcing brewers to develop cheap brews and imitation beers to hold on to customers, as well as to look abroad for growth.

"I rarely ever drink. I don't like the taste of beer. I do a lot of sports and I think beer is fattening. I hate the way it settles in my stomach," said university student Keisuke Kato.

This is a worrying trend for brewers in Japan, which is the sixth-largest beer consuming country in the world. And it's not just beer consumption that is suffering.

Tax records show that alcohol intake in Japan had gradually declined to 9.4 million kilolitres in 2006 since peaking at 10.2 million kilolitres in 1999, a drop analysts pin to a variety factors such as the graying population and changing social norms.

The drop in consumption reflects a shift in consumer tastes to canned cocktails and less fattening drinks based on shochu, a distilled alcohol commonly made from barley, potatoes or rice.

Volume shipments of shochu drinks have surged 42 percent in the 10 years to 2006, even as beer shipments have fallen by more than 10 percent from a peak in 1994.

"Beer has been walloped by cheaper and perceivably healthier alcohol drinks," said Tokushi Yamasaki, an analyst at Daiwa Institute of Research. "Overall Japanese do not drink as much as they used to."

The lack of interest in alcohol among young Japanese is a sharp shift from the past when drinking bouts with colleagues were de rigueur and tipsy white-collar workers stumbling home late at night were a frequent sight in Tokyo's bar districts.

"Drinking in Japan was about bonding with your colleagues. But Japan's declining economy shifted corporate structure and it doesn't require workers to drink together any more," said Ron Carr, a professor at Temple University.

"When I first came here in the early '90s there were still so many drunken salarymen at the end of the year, drinking beer and spilling out on the streets. I've seen a huge decline in all that," he added.

That was before Japan's bubble economy burst in 1989, throwing the country into years of economic stagnation.

The period left its mark on young Japanese who, analysts say, tend to spend carefully after witnessing the 1980 bubble economy crumble, leaving their babyboomer parents' struggling as employers' instituted stringent cost-cutting.

This wariness of overspending is being exacerbated by a gloomy economic climate in Japan with growing concern that the world's second largest economy may be in recession.

Japan's Consumer Price Index is rising, and the country's core annual inflation hit a decade high in June, pressured by soaring energy costs and an uncertain economic outlook.

TIGHT TIMES

Economic worries mean that many Japanese are thinking twice before forking out for expensive beers especially when soft drink and low alcohol beers, which are taxed less than regular beers, are so much cheaper.

Faced with drooping sales, some brewers are stepping up production of alternative beers, making lager out of soybeans, or adding wheat or barley spirits to carbonated water to make a less authentic brew and thus avoiding high beer taxes.

"Taste is not really a consideration for young people when they choose beer. First of all, they seek scientific evidence like "zero calorie" or "low alcohol," said Toru Yamazaki, a marketing manager for Kirin brewery, which holds a 36.7 percent share of the beer market in Japan.

A bar manager in Shibuya, a popular hang-out spot in Tokyo, says his business is feeling the pinch.

"The way young people are spending money is changing. They seek cheaper drinks and food, even though they spend a lot of money on clothes," said Takahiro Hamasaki.

"Many of them don't know how to drink. I can always see the ones at the table who are not drinking any alcohol," he said.

Domestic beer sales from Japan's five main brewers dropped by a combined 4.2 percent in the first half of this year and Kirin Holdings' sales fell by 5.9 percent.

The top four breweries -- Asahi, Kirin, privately-held Suntory and Sapporo -- are jostling to attract new customers amid a slowing birth rate and an increasing elderly population that is reducing the drinking population even further.

Japan has the world's fastest growing number of people aged 65 and over so the onus will be increasingly on young Japanese to provide the growth for beverage makers. Yet surveys show that young Japanese consume less alcohol than those in their 40s.

"Young people are not drinking beer. I think there is an overall feeling that beer making alone will not get them through this difficult time," said Katsunori Tanaka, a Goldman Sachs analyst.

NEW STRATEGY

Some breweries are looking offshore for sales. Kirin has said it will spend about 300 billion yen ($2.7 billion) in acquisitions and alliances, especially increasing investment overseas to stay ahead of its competitors.

But it's not all bad news. While regular beer sales may be faring badly, the cheaper alternative beers are in demand.

Asahi Breweries recorded a 3.4 percent drop in beer sales for the first half year, but sales in its alternative beer category increased by almost 17 percent in the same period.

Asahi now plans to introduce more alternative beers such as a ginger-infused beer that taps into the sweet-toothed younger drinkers' market. Other breweries are introducing their own versions of alternative beers aimed at the 20-something market.

"I think for the short term, beer will shift to the alternative beers where there is high demand," said Goldman Sachs analyst Tanaka.

(Additional reporting by Taiga Uranaka; Editing by Megan Goldin

($1=107.91 Yen)