11/8/2018 Heineken’s future depends on Southeast Asia | Financial Times

Nikkei Asian Review Emerging markets
Heineken’s future depends on Southeast Asia
Dutch brewer goes for broke in last promising market

© Reuters

Katsuhiko Hara and Atsushi Tomiyama, Nikkei staff writers MARCH 20, 2017

Heineken, the world’s second-largest brewer, is on the offensive in Southeast Asia.

The Dutch company plans to expand production capacity more than tenfold at its Vietnamese
plant and has begun operating new plants in other locations like Myanmar. In 2015 it moved up
to third place in terms of market share in the region.

The global beer market has become increasingly polarised and the Anheuser-Busch InBev giant
created in a merger last year has stamped its authority in several key growth areas.

Heineken is the most popular tipple at the Vuvuzela Bar on a busy Hanoi street. “It’s better
quality than local beers, and drinking an expensive beer satisfies me,” says one 40-year-old
drinker.

Heineken’s popularity reflects changes in Vietnam’s beer market. Recent research by Kirin
Holdings shows 3.83m kilolitres of beer were consumed in the country in 2015, up 7.7 per cent
year-on-year. The country ranked ninth in volume and first in annual growth among the 171
countries surveyed. The growth is not being driven by local beers, which cost about 5,000 dong
(22 cents) per serving, but Heineken, which costs 10 times as much, at 55,000 dong.

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Heineken has seized on the increasing popularity of high-end products among Vietnamese
consumers, driven by the country’s growth. In spring 2016, it organised a nationwide event in
partnership with the Uefa Champions League to attract young people, its priority customer
group. For 2017, it has introduced volume discounts for corporate customers. Late last year, it
announced a plan to expand production capacity at its plant in the southern province of Ba Ria-
Vung Tau from 50,000 kilolitres annually to 610,000 kilolitres. With a market share of over 20
per cent, it seems to have managed to climb up to second place in Vietnam’s brewer rankings.

“Asia is our growth engine, and Heineken’s future

depends on it,” said Frans Eusman, president of
This article is from the Nikkei Heineken’s Asia-Pacific operations.
Asian Review, a global
Although Heineken has been in Southeast Asia for
publication with a uniquely
decades, the real push started in 2012 when it
Asian perspective on politics, the pursued, then acquired Asia Pacific Breweries, the
economy, business and producer of Tiger beer. After a complex battle for a
international affairs. Our own controlling stake with Thailand’s biggest brewer,
correspondents and outside Thai Beverage, it got its hands on Tiger beer, one
commentators from around the of the most prominent brands in Southeast Asia.

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world share their perspectives on In 2014, Heineken turned down a merger offer
Asia, while our Asia300 section from SABMiller of the UK, marking an end to its

provides in-depth coverage of chances of going toe-to-toe with InBev in terms of

global market share. The reasoning, many suggest,
300 of the biggest and fastest-
was that both wanted to remain independent and
growing listed companies from 11
also focus on shares in each market rather than
economies outside Japan. total global size.

In a geographical breakdown of global brewer

profits for the year ended December 2016, the Asia-Pacific region shows year-on-year growth of
32 per cent, whereas traditional European markets remained largely unchanged. On the strength
of its brand, built on sponsorship of European soccer and the like, Heineken has created a
virtuous cycle of increasing sales without cutting prices. The region still accounts for only 14 per
cent of its total worldwide beer sales, hence its plans to expand investment.

Much of Heineken’s drive to broaden Southeast Asian operations comes from the increasing
dominance of a small number of leading companies. In 2016 market-leader Anheuser-Busch
InBev took over second-place SABMiller. The industry leader now holds 30 per cent of the global
market and sells more than twice as much as Heineken.

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AB InBev has already made its mark on other rapidly growing emerging markets. SABMiller,
with its partly South African origins, holds over 40 per cent of the Middle Eastern and African
markets, while InBev stood above the competition in South America.

Despite still being the world’s largest, the beer market in China has seen growth turn negative,
and strong local brands like China Resources Snow Breweries and Tsingtao Brewery make it
difficult to muscle in.

All this means the most promising market remaining for Heineken is Southeast Asia.

The region has traditionally been dominated by local brewers, like Sabeco in Vietnam, San
Miguel Brewery in the Philippines and Boon Rawd Brewery, which produces Singha Beer in
Thailand.

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To compete, Heineken set up a joint venture last November with Asia Brewery, a unit of
Philippine conglomerate LT Group, called AB Heineken Philippines.

Asia Brewery’s local plants are currently being upgraded to comply with Heineken standards, an
official said, declining to provide a timetable for the local production. In the meantime, the
company, which has wide sales and distribution networks in the archipelago, becomes the
official distributor of Heineken products in the Philippines.

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The local beer market is dominated by San Miguel Brewery, with over 90 per cent market share.
But Asia Brewery owns brands that compete with San Miguel, and Heineken will probably cater
to the growing premium market. Asia Brewery also carries Japan’s Asahi brand to counter San
Miguel Brewery, which sells the products of a part owner, Kirin Holdings.

British market research company Euromonitor reports that Heineken became the top global
beer brand in six leading Southeast Asian markets in 2015, and ranks third across the region.

Riding on the wave of popularity, Heineken is also making its way into less-developed regional
markets. In Myanmar it opened a joint-venture plant in Yangon in June 2015. In addition to its
core Heineken brand, it markets local beer Regal Seven. By focusing on rural areas it has
increased its market share in the country to nearly 10 per cent in less than two years since entry.
The company plans to start operating a new plant in East Timor this year.

Heineken is not alone in trying to cash in on the region. Kirin Holdings announced in February
that it will buy leading Myanmar brewer Mandalay Brewery. Asahi Group Holdings and others
have expressed interest in Sabeco, which will soon be privatised, while AB InBev is working to
promote Budweiser and its other brands.

Having made seemingly all the right moves to establish a strong presence in the market,
Heineken’s future now depends on how it deals with the growing competition.

Nikkei staff writer Cliff Venzon in Manila contributed to this article.

A version of this article was first published by the Nikkei Asian Review on March 16. Website |
Subscribe. ©2016 Nikkei Inc. All rights reserved.

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