Asian Alcohol Sales Seen Bubbling Along Nicely

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 Southeast Asia like Singapore, Thailand and Vietnam, beer drinking is becoming a popular pastime because of 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 Edward Chia, managing director of Singapore’s Timbre bars.

“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, he said, applies “to both age and maturity of industry.”

The market research firm Euromonitor International says Asia is the most dynamic region globally in volume for beer, with average annual growth of 8 percent between 2003 and 2008. China is the world’s biggest beer market, and India’s $12 billion alcohol market has been enjoying up to 15 percent annual growth.

So it’s no surprise that beverage firms, facing slowing sales in mature markets in Europe, Japan and the United States, have heightened M&A activity in the past few month. 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 liters by 2013 from 37.8 liters in 2008, according to Euromonitor. It sees consumption in Singapore and Thailand rising to 23.1 and 61.4 liters respectively by 2013 from 21.1 and 48.4 liters 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 Marlous Kuiper, an analyst at Euromonitor.

Beverage firms are focusing closely on China and India, with growth there expected to be rapid because of rising disposable incomes and GDP.

The beer market in China “is set for double digit growth in coming years. Its growth will be much stronger than either liquor or wine,” said Jiang Guo-Qiang, general manager and director of Chinese brewer Kingway Brewery.

In line with this sentiment, shares in China’s Tsingtao Brewery have soared 65 percent this year, outpacing a 29 percent 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 about $42.5 billion, but its size has been steadily declining from about $51 billion in 2004.

Big names like Diageo, the world’s biggest spirits group, and Japan’s Kirin Holdings are adopting multipronged 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 the 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 Indian giant United Spirits.

Meanwhile, Heineken, the world’s third-largest brewer, reached a deal in May with India’s largest brewer, United Breweries, 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 Snow beer is now the world’s second biggest-selling beer brand by volume, replacing the United States’s Anheuser-Busch brands, Bud Light and Budweiser. It is brewed by SABMiller and its Chinese partner, China Resources Enterprises.

“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,” Kuiper said.

The Philippines, Singapore, Thailand and Vietnam all saw buoyant beer sales in 2008.

Singapore, said analysts, has single-handedly managed to defy the gloomy environment that afflicts mature markets like Britain and the United States, with drinkers drawn to outlets like microbreweries.

Despite Singapore’s worst ever recession, foreign beer companies are still setting up shop there.

“People will drink anyway if you offer the right beer,” said Romtham Setthasit, the director of Thailand Tawandang Microbrewery’s Singapore operation, which opened this month.

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 percent in 2009-2010, compared with 4.1 percent growth globally, according to Euromonitor.

Reuters

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