Industry Comment

MarketWatch: Drinks

Heineken: going for an Indian Asia Pacific Breweries (APB), which is partially owned by Heineken, is seeking to enter the Indian market through a joint venture with CK Jaipuria. As an emerging economy with favorable demographics, there is scope for considerable growth in Indian beer sales. However, given India's comparatively meager beer consumption, it is unlikely to ever be more than a useful niche for Heineken. Asia Pacific Breweries (APB), the Singapore-based brewer of Tiger beer that is part owned by Heineken, is in talks with bottler CK Jaipuria over a joint venture. Currently, the leaders within the Indian beer market are United Breweries (in which Scottish & Newcastle has a stake) and SABMiller, which between them control the market almost in its entirety. If this venture works out, it could see the leaders' position challenged. It is thought that, although APB had been considering other partners, CK Jaipuria is the favorite on the basis of its financial strength and stature in India. The Jaipuria family business is one of the biggest bottlers of Pepsi cola in India. It also has interests in real-estate, restaurants, ice-cream, and coffee retailing. Initially, Heineken's move into the Indian market may seem a somewhat strange one. The country's beer market was worth an estimated $764.9 million in 2004. Compare this to China for example, another Asia Pacific market with a huge populace: in 2004 the Chinese beer market was worth some $8.5 billion. Likewise, consumption per capita of beer in China in 2004 stood at some 20.3 liters, compared to just 0.7 liters for India. Therefore Heineken is unlikely to regard India as much more than a potentially lucrative niche, even in an Asian context. However, despite its tiny volumes, Datamonitor forecasts that the sector is at least set for strong value growth in the years ahead, with a year on year increase of some 6.4% between 2004 and 2009. A tie-up between APB and CK Jaipuria could potentially be a good move for both companies. While Indians are not big beer drinkers, its youthful population suggests there may well be scope for beer to grow its share of the beverage market in the future. Beer may have to become more widely acceptable before it gains a significant foothold, but if Heineken can access even a small slice of such a massive emerging market, it may yet be onto a winner. Tsingtao: buoyed by beer buying It's a good time to be a Chinese brewer: Tsingtao, the country's largest, has experienced 20% growth in earnings in the first half of the year. This comes in stark contrast to the stagnation of the global beer market, but Tsingtao needs to remember that the days of plenty will not last forever. Competition will intensify as foreign players look to emerging markets for future revenue growth. Tsingtao's recorded growth in H1 earnings was higher than the 10-15% rise expected by analysts. The company's total H1 net income reached CNY173.64 million ($21.4 million), compared to CNY144.8 million a year ago. The company rightly cited surging growth in the Chinese beer market as the driver of its impressive figures. Indeed, Datamonitor research shows that this market has enjoyed year on year value growth of 7.8% between 1999 and 2004. As Tsingtao, China's leading brewer, is 27% owned by US-based Anheuser-Busch, the company's recent success further underlines the growth potential such emerging markets offer to global players, particularly those suffering from a slowdown in their home markets. Several overseas brewers pushed heavily into China in the

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