Carlsberg's return renews war in premium segment

The figures speak volumes as to why the Danish brewer wants to make a return to the Thai market, from which it retreated years ago in depressing fashion.
Through its partnership with Boon Rawd Brewery, the maker of Singha beer, the company feels this is the right time to re-establish a presence in Thailand, where beer consumption remains high and is on a growth trend.
Excise duty collected on beer products in the 2010 fiscal year totalled Bt58.83 billion, up 20.08 per cent from Bt48.99 billion in the previous year, according to Excise Department data. Excise revenue from beer in 2010 was even higher than that from spirits, which came in at Bt42.4 billion.
That year, Thai Beverage – the maker of Chang beer – and Thai Asia Pacific Breweries, the producer of Heineken and Tiger, increased their capacity to catch up with domestic demand. This pushed up total capacity by 4.17 per cent year on year, from 1,789 million litres to 1,863 million litres.
Thailand would help complement Carlsberg’s aim to build a strong presence in Asia. At present, according to its 2011 annual report, its business in the continent is concentrated in mature markets such as Malaysia, Hong Kong and Singapore, as well as investments in growing beer markets such as China, India and Vietnam.
“These markets offer considerable prospects for growth, underpinned by growing economies that have proved to be resilient to the global recession; expanding populations; rising disposable income levels; and relatively low per capita beer consumption. The competitive intensity varies, with markets being contested by strong local brewers as well as the major international beer companies,” the annual report said.
“When you’re looking for high growth, Thailand and China are two very crucial markets,” Gerard Rijk, an analyst at ING Groep in Amsterdam, told Bloomberg.
Thailand and China, the biggest beer market by volume, will be the leading areas for growth, he added.
Carlsberg operates in China through a venture with Chongqing Brewery, in which it owns about 30 per cent.
Overall retail beer sales in Thailand may reach US$3.52 billion (Bt108.4 billion), compared with $36 billion in China, according to market research company Mintel International Group.
In Thailand, Carlsberg will see its brand competing directly against Heineken and Federbrau, which are marketed by Thai Asia Pacific Breweries and ThaiBev respectively.
Margins in the premium beer segment have proved to be higher than in the low-priced segment. ThaiBev, with a portfolio of low-priced beer, has witnessed a shrinking margin from beer business. In 2011, though it sold 613 million litres of beer to generate 25 per cent of its total Bt132-billion sale revenue, its beers contributed nothing to the company’s net profit.

Painful lesson learned
Carlsberg has been trying for years to make a comeback to Thailand. In 2009, there was a rumour that the brewer would tie up with the Yoovidhya family. The plan then was to produce beer in Laos and ship the products to Thailand. But no progress was ever made, and it is understood that a painful lesson from the 1990s should have taught the Danish brewer about picking the right partner.
Indeed, it was Carlsberg that introduced ThaiBev’s Charoen Sirivadhanabhakdi, then dubbed the “liquor tycoon”, to the beer business.
In 1991, Carlsberg started a partnership with Charoen’s group. Through Carlsberg Brewery (Thailand), the joint venture rocked the empire that had been dominated by Singha. Sales, however, did not meet targets, for which there were two possible reasons: first, the Sirivadhanabhakdis were too busy obtaining know-how in the beer-making industry to focus on distribution; second, Singha beer’s popularity was too strong.
Whatever the reason, it was in 1995 that Charoen’s empire launched Chang beer, produced by the same brewer that made Carlsberg.
In contrast to the flopping sales of Carlsberg, Chang’s performance and strength rose and forced Boon Rawd Brewery to launch new low-priced beer to maintain its market share.
Boon Rawd Brewery and ThaiBev are also wrangling over charges that ThaiBev forced distributors to sell its beer in return for a quota for popular spirits from the company.
It remains uncertain whether ThaiBev and Thai Asia Pacific Breweries will forge any cooperation, after the conclusion of the war against Heineken International. Billionaire Charoen stood to gain Heineken’s support as he steered Fraser & Neave to sell Asia Pacific Breweries, a major shareholder of the Thai brewer, to the Dutch brewing giant.
Yet with help from Boon Rawd Brewery, which now claims 60 per cent of the Bt100-billion-plus beer market, Carlsberg may stand a chance. And both are bullish that their partnership will allow them to “strengthen the premium portfolio in Thailand”.