Japan drinks to cheap beer alternative

A commercial for Sapporo brand's diet happoshu stars the hip 23-year-old son of Prime Minister Koizumi

TOKYO, Japan (CNN) -- At the end of a hard day people across the world like to crack open a cold one. Although in Japan these days there's a subtle difference.

People are drinking something that looks like beer and tastes almost like beer, but it's not. It's a low-malt drink called happoshu.

Hiroyuki Hosokawa says he prefers real beer, but happoshu is better for his family's budget. In these lean economic times, Japan's Joe six-pack still needs his supply, but he wants it cheaper.

Happoshu, which means "fizzy liquor" in Japanese, is the beer companies' answer. Mainly for the home market, it's rarely served in restaurants.

The new low-alcohol beverage costs half the price of beer thanks to a tax loophole.

CNN NewsPass VIDEO CNN's Rebecca MacKinnon reports on the increasing popularity of a Japanese beverage called happoshu, a cheap low-malt alternative to beer. Play video

By using less malt and more of other ingredients like corn syrup, rice or sugar, happoshu dodges Japan's legal definition of "beer", with a malt content set at 66.7.

Discount store manager Yuji Iwamoto expects his happoshu sales to surpass beer this summer for the first time ever. Nationwide it's expected to grab 40 percent of this year's beer market, up from 22 percent 2 years ago.

The cheaper price is complimented by aggressive advertising of new varieties. A commercial for Sapporo brand's diet happoshu stars the hip 23-year-old son of Prime Minister Koizumi.

But the reason for happoshu's existence -- its tax loophole -- isn't expected to last. The government is now discussing a tax increase which will eventually close the tax gap with real beer.

Still, analysts say a cut-throat price war and razor-thin profit margins will keep happoshu's price below real beer.

"The demand is there now, so beer companies will have to stay in the market, even though it will be tough to make a profit," says Yoko Fujii from JP Morgan.

The flow may be downward, but Japan's beer companies have no choice other than to go with it.