Singapore: The crowds drinking beer in the bustling bars of Mumbai and Shanghai underscore the motive behind a flurry of recent merger and acquisition activity in Asia, with forecasts of strong growth for beer and spirits in years to come.
In China and India, as well as smaller markets in South-East Asia such as Singapore, Thailand and Vietnam, beer drinking is becoming a popular past time due to rising disposable income and relatively young populations, who are embracing the party scene.
“I’m a firm believer in the Asia growth story and when there’s growth there’s going to be increased consumption,” said Singapore’s Timbre bars director Edward Chia. “My analysis of trends is that people tend to start drinking beer as the first form of alcohol, then move to wines and spirits. That (applies) to both age and maturity of industry.”
Market research firm Euromonitor International says Asia is the most dynamic region globally in volume for beer, with average annual growth of 8% between 2003 and 2008.
Bustling bars: The Wink bar at Taj President Hotel in Mumbai. Beverage firms are focusing more on China and India as growth is expected to be rapid due to rising disposable incomes in the two countries. Ashesh Shah / Mint
China is the world’s biggest beer market and India’s $12 billion (around Rs58,000crore) alcohol market has been enjoying 12-15% annual growth.
So it’s no surprise that beverage firms, facing slowing sales in mature markets in Europe, Japan and the US, have heightened mergers and acquisitions activity in the past few months.
Analysts suggest there will be more to come, given the outlook for rising alcohol consumption across Asia.
In China, per capita consumption of alcoholic drinks is expected to rise to 53.4 litres by 2013 from 37.8 litres in 2008, according to Euromonitor. It sees consumption in Singapore and Thailand rising to 23.1 and 61.4 litres, respectively, by 2013 from 21.1 litres and 48.4 litres last year.
“Expect more activity in the years to come as the major brewers establish or reinforce existing operations in the region, in particular outside the mature markets of South Korea and Japan,” said Euromonitor’s Marlous Kuiper.
Beverage firms are focusing closely on China and India as growth is expected to be rapid due to rising disposable incomes in the world’s third and 12th largest economies, respectively, dented by the downturn but still holding up with forecasts for annual GDP growth of 8% and 6.3%, respectively.
“The beer market (in China) is set for double digit (revenue) growth in coming years. Its growth will be much stronger than other liquor or wine,” said general manager and director of Chinese brewer Kingway Brewery Holdings Ltd Jiang Guo-Qiang.
In line with this sentiment, shares in China’s Tsingtao Brewery Co. Ltd have soared 65% this year, outpacing a 29% gain in Hong Kong’s main index. China’s beer market was valued at almost $30 billion in 2007, compared with about $17 billion in 2001.
Japan’s mature beer market is valued at around $42.5 billion, but its size has been steadily declining from around $51 billion in 2004.
Big names such as Diageo Plc., the world’s biggest spirits group, and Japan’s Kirin Holdings Co. Ltd are adopting multi-pronged strategies that include mergers and acquisitions and also partnerships with local firms for footholds in markets in India and China which are dominated by domestic firms.
Diageo said in June that it had teamed up with Chinese white spirit producer Shui Jing Fang to make a premium vodka in China. It is also in talks to pick up a stake in India’s United Spirits Ltd.
Meanwhile, Heineken NV, the world’s third largest brewer, in May reached a deal with India’s largest brewer, United Breweries Ltd, to bottle and distribute its brands in India.
In fact, eight out of the top 10 brewers in China have some level of foreign ownership, according to Euromonitor.
Analysts say there is a strong correlation between alcohol consumption and industrial output growth, boding well for brewers as the economy recovers. China’s Snowbeer is now the world’s second biggest beer brand by volume, replacing Anheuser-Busch InBev NV brands, Bud Light and Budweiser. It is brewed by SABMiller Plc. and its Chinese partner China Resources Enterprises Ltd.
“China and India will take the lion’s share of volume due to huge population growth but opportunities exist in other markets like Vietnam and Thailand,” added Kuiper.
Volume growth in Asia-Pacific beer markets is expected to outstrip growth in world markets in coming years, with forecasts for annual growth of 7.5% in 2009-10 compared with 4.1% growth globally, according to Euromonitor.
Japan’s Kirin Holdings, maker of Lager Beer, eyes the Association of Southeast Asian Nations (Asean) region for future growth and is in talks with the Philippines’ San Miguel Brewery Inc.’s parent company to buy its overseas beer business. Kirin bought a 48% stake in SMB earlier this year and snapped up Lion Nathan Ltd, Australia’s second biggest brewer, for $2.5 billion.
“We have made good progress in Oceania, so the next is Asean and mainland China,” said Makoto Ando, head of Kirin’s investor relations. “Asean has a big growth potential,” he said.
Japanese brewer Suntory Holdings Ltd, maker of the popular Premium Malt beer, says it is mulling a merger with Kirin, a deal that would create one of the world’s largest beverage firms.
In Australia, North America’s Molson Brewing Co. last year took a 5% interest in Foster’s Group Ltd, Australia’s largest brewer.
As Asia’s market gains momentum, local brand names may have an edge over imported brands because they can sell at lower price points and have more efficient distribution networks.
In India, rationalization of import duties has brought down prices of imported alcoholic drinks brands, while a move in 2005 to allow beer and wine to be sold at supermarkets has encouraged demand for liquor and global brands.
India is now the second biggest market for Ciroc, Diageo’s vodka. Its Black Label whiskey is an “iconic brand” in India, said Diageo’s Asia-Pacific president John Pollaers.
United Spirits managing director Vijay Rekhi says Indian consumers have only recently embraced “labels” and per capita consumption has risen. It stood at 2.3 litres in 2008 versus 0.3 litres in 2003, according to the World Health Organization. “Brand consciousness among consumers has finally permeated into the spirits category as well,” Rekhi said.
Simone Giuliani in Melbourne, Taiga Uranake in Tokyo, Donny Kwok in Hong Kong, Janaki Krishnan in Mumbai and Nopporn Wong-Anan in Singapore contributed to this story.