Beer Markets in the Asia Pacific: Investment Opportunities and Challenges

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By Nishant Dixit

Rapid economic development, rising wages, and changing spending habits are creating new patterns of consumption in Asian markets. Alcoholic beverages markets, especially beer, have experienced growth across the Asia Pacific, with rising competition among domestic producers, entry of foreign players, and the emergence of craft brewing.

The Asia Pacific beer market is expected to be valued at US$ 220 billion by 2020, with annual growth at 5 percent between 2014 and 2020. However, there are also major challenges in some markets, with tough regulations and sales restrictions topping the list.

China

The Chinese beer market has been the world’s largest in terms of production and consumption since 2002, and it is predicted to overtake the US market – currently the world’s largest in terms of value – by 2017. However, beer production in China was down 1 percent in 2014 over the previous year, with output falling 17 percent in December alone.

According to the China Economic Review, China has been a traditionally low margin, fragmented market with challenges such as high input costs, and low price of beer compared to developed markets. However, beer excise duty remains at a relatively low 8 percent. The more recent slowdown has been attributed to an anti-corruption campaign.

Despite the difficult operating environment and the recent slump in domestic production, imported beer sales grew in the last few years. They swelled by more than half between 2012 and 2013 with the country importing 182 million liters of beer worth US$232 million in 2013. Although local players such as China Resource Enterprise, Tsingtao and Beijing Breweries dominate the market, the market for imported beer is entering a period of explosive expansion similar to that experienced by the wine market between 2005 and 2009, according to a USDA report from February 2015.

Related Link Icon-ABRELATED: Industry Focus: Importing Wine into China
Vietnam

Vietnam is also emerging as a high growth beer market in the Asia Pacific. According to the Vietnam Beverages Association, Vietnamese people spent over US$ 3 billion drinking 3.14 billion bottles of domestic beer alone in 2014. This makes Vietnam the largest beer consuming country in ASEAN and the third largest in Asia, after China and Japan.

Foreign producers have taken notice. International majors such as Asahi, Heineken, and ThaiBev are competing to buy a 53 percent stake in Vietnam’s largest brewer Saigon Beer, Alcohol, and Beverage Corporation (Sabeco). Japan’s Sapporo entered the Vietnamese market in 2011 and is looking to increase production. Anheuser-Busch InBev’s new brewery will start production in May 2015.

Vietnam’s domestic producers are expected to face more competition from imports when Vietnam reduces its import tax on beer from 35 percent to 0 percent under the Trans Pacific Partnership (TPP).

Related Link Icon-ABRELATED: Competition on the Rise in Vietnam’s Beer Industry
India

India is primarily a spirits market. In 2013, about fifty percent of total whiskey consumption occurred in India. Although beer pales in comparison to hard liquor consumption within India, its consumption is on the rise. According to Euromonitor international, imports of premium beer are predicted to grow at 11 percent per year between 2013 and 2018.

Just as with the Vietnamese market, India’s market is dominated by domestic producers who are increasingly challenged by international producers. In 2013, United Breweries was the top manufacturer followed by SAB Miller and Carlsberg. Foreign brewers have been acquiring major domestic brewers. In April 2015, Molson Coors acquired Indian Brewer Mount Shivalik Brewersies Limited, giving it control of distribution in major Indian states such as Haryana and Punjab.

Upstart microbreweries have also been appearing in the major urban centers in India. However, tough licensing laws and high taxation in Indian states have impeded growth. Alcohol production is regulated by the states in India and this means that laws and regulations are different in each Indian state. Microbreweries have appeared in urban locales within states that have recently amended their excise duties, such as Maharashtra and Karnataka.

Related Link Icon-ABRELATED: Investing in India’s Emerging Wine Industry
Indonesia

Indonesia is a small beer market compared to China and Vietnam. However, it has been growing at a steady rate of about 6 percent every year. In addition to the existing ban on sales of beverages with more than five percent alcohol content in convenience stores, the government implemented a new ban that includes beverages with less than five percent alcohol content. It could affect about a half of beer sales in the country. Potential alcohol restrictions promoted by Islamic parties also look to ban production and sales of all beverages with more than one percent alcohol. Restrictions have led brewers such as Multi Bintang Indonesia, in which Heineken has a 76% stake, to move into soft drinks and non-alcoholic beer.

Conclusion

Beer markets are seeing high growth across the Asia-Pacific. As tastes change, premium and craft beers are seeing more demand in markets like China and India, leading to opportunities for importers. Vietnam’s high growth market also presents a potential for importers as it gets ready to lower taxes on beer imports. However, challenges exist in the form of convoluted excise tax systems in India and sales restrictions and potential for outright bans in Indonesia.


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Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email asia@dezshira.com or visit www.dezshira.com.

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